This article first appeared in The Edge Malaysia Weekly on January 15, 2018 - January 21, 2018
PREPARERS of financial statements, entrepreneurs and accountants will be happy to hear that the International Accounting Standard Board (IASB) has no plans to make massive changes to accounting standards over the next couple of years.
IASB is an accounting body that sets globally recognised accounting standards, known as the International Financial Reporting Standards or IFRS. There are currently 126 full adopters of IFRS Standards, including Malaysia.
This comes after the IASB introduced four major changes in accounting standards: IFRS 9 Financial Instruments, which took effect on Jan 1, 2018, IFRS 15 Revenue from Contracts with Customers (Jan 1, 2018), IFRS 16 Leases (Jan 1, 2019) and IFRS 17 Insurance Contracts (Jan 1, 2021).
“We know that it is time for a bit of a break. These are all big standards and not everybody is affected in the same way. We know that there have been a lot of changes and we need to give the companies some time to digest them and work at the new standards,” IASB chairman Hans Hoogervorst tells The Edge in a recent interview. “So, in the next couple of years, we will not make such huge changes to the accounting standards as we have done in the last 10 years.”
London-based Hoogervorst was in Kuala Lumpur to celebrate the Malaysian Accounting Standards Board’s (MASB) 20th anniversary.
While IASB is not looking to issue any major new accounting standard over the next few years, there is one currently in the pipeline — on the extractive industry, which involves operations to remove minerals, metals and aggregates from the earth.
“We really need to write a standard for the extractive industry, which is very important in many parts of the world. We have that in our pipeline. As soon as we finish other projects and when resources become available, we will consider writing a standard for that industry,” says Hoogervorst.
Asked if the IASB will be looking at a standard for cryptocurrencies given their rising prominence, he says it is not, and draws similarities with the Dutch tulip bulb mania in the 1930s.
“When you look at its (cryptocurrency) significance in the global economy, it’s very small. It’s not something that we are looking at. By the time we develop a standard, it might have all come crashing down. It’s not on our priority list. Also, when you look at how to account for it, it seems to be pretty straightforward, which is by fair value through profit or loss. I know the FASB (Financial Accounting Standard Board) is looking at it in the US. Let’s see what that comes to.”
For now, Hoogervorst says the IASB is looking to improve the way financial statements are currently presented to better reflect the performance of a company.
“One of the issues with the IFRS is that we do not define very much [the items] between revenue and profit or loss whereas, preparers and investors want to look at all those — operating income or some specific line item,” Hoogervorst says.
He adds that the board is looking to give more structure to the income statement, for example, defining “earnings before interest and tax” in a principle-based way in order to give more uniformity to the presentation of such numbers.
Besides that, the IASB is also trying to make its standards fit for electronic presentation and for the consumption of financial data through the use of XBRL, a technology for tagging data to identify and describe information in a company’s financial statements.
Twenty years of MASB in Malaysia
In Malaysia, MASB is the technical arm in charge of the accounting standard setting process. The Financial Reporting Foundation (FRF), chaired by Tan Sri Azlan Zainol, is the overseer of MASB.
“IASB has a robust standard-setting due process in developing IFRS Standards. People think that standard setting is easy. When we say that we ‘adopt’ a standard, people think we just take it as it is. It’s not as easy as that as there are processes that we go through to make sure everything is recorded, everything is transparent and that there’s accountability,” says MASB chairman Mohamed Raslan.
Malaysia has been in full convergence with the IFRS Standards since 2012, which means our reporting system is in full compliance with the IFRS and that financial reporting standards are issued at the same effective date as the IASB’s.
“When we say we have converged, we have reached a stage where we are ‘live’. We have to be forward-looking and look at issues before an IFRS standard comes in. Before convergence, an IFRS standard may come in but we only adopted it later on.
“We have the responsibility as the Malaysian constituent of IASB to give our input at the early stages before an IFRS Standard is issued. The good part about IASB is that they listen to constituents,” says Raslan.
Hoogervorst applauds the MASB for its quality of technical work and research that has played a role in influencing global accounting standards. He points to three areas where Malaysia has exerted influence on global standards: property development, agriculture and how Islamic finance transactions can be faithfully reflected in IFRS.
“Malaysia has looked very seriously at all the issues and have come to the conclusion that the IFRS Standards can be applied to Islamic finance because IFRS is principle-based. Recently, Saudi Arabia also came to that same conclusion. So, Malaysia has played a very important role (in the area of Islamic finance). We have an Islamic finance consultative group chaired by Raslan’s predecessor, Datuk Mohammad Faiz Azmi,” says Hoogervorst.
Going forward, Raslan expects more challenges for MASB with the four major new standards in effect.
“New standards have unprecedented consequences and sometimes, you just can’t foresee them. It’s coming to 20 years since [MASB’s] establishment; we have to work closely with IASB and be in tune with them,” says Raslan.
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