may - june 2014 pp 3809/03/2013 (031857

THE MALAYSIAN

JOURNAL OF THE MALAYSIAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

AccountantMay - June 2014 www.micpa.com.my PP 3809/03/2013 (031857)

Outcome Based Budgeting in MalaysiaDynamic Risk Management - Accounting in an Age of Complexity

M a y - J u n e 2 0 1 4 w w w . m i c p a . c o m . m y

FEATURE P.3

The Malaysian AccountantEDITORIAL BOARD

Datuk Robert Yong Kuen Loke (Chairman)Tan Theng Hooi (Alternate Chairman)

Abdul Halim Md LassimKhaw Hock Hoe, Alex

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Ng Kim TuckTan Chin Hock

Yong Yoon Shing, GaryChia Kum Cheng (Co-opted)

Ahmad Faris Yahaya (Co-opted)

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FEATURE P.7

PERSPECTIVE 2

FEATURE

• Outsource Finance and Accounting to Cut Cost 3

• Outcome Based Budgeting in Malaysia 7

• Dynamic Risk Management - Accounting in an Age of 10

Complexity

INSTITUTE NEWS

• NACRA Launch Event 13

• Membership Update 14

• Continuing Professional Development Programme 14

• Cessation of Membership and Exclusion from 15

Student Register

TECHWATCH

• IASB Update 16

• IFAC Update 19

GLOBAL INSIGHT

• News from Down Under 23

• World News 24

LIFESTYLE

• Beverage Trends 27

CONTENTS


2 The Malaysian Accountant

Should companies outsource or not outsource their finance and accounting processes? That is the

question asked and discussed at length in the leading feature of this issue. Often, finance and

accounting is one of the first processes that companies outsource and this practice continues

unrestrainedly among many organisations today.

As the market evolves, so does the need for companies to explore fresh ideas and seek new answers that

will help streamline the finance and accounting processes. Today, outsourcing has expanded to new areas

of finance and accounting, new industries, and new sizes of companies than in the past.Finance and

accounting offshore outsourcing is also becoming a growing trend which involves the relocation of business

processes to Asia where costs of doing business is relatively cheaper.

Among most CFOs who would want to outsource the finance and accounting processes, efficiency is

regarded as the most important of all and is given high priorities. Companies are constantly evaluating the

strength of their outsources and how certain measures applied in the processes and technology can be

enhanced to maintain a certain level of efficiency.

The most commonly outsourced services within accounting are payroll accounting, accounts payable, and

accounts receivable. Companies are now looking to move from relatively basic transactional processes,

such as accounts payable to more strategic functions, like budgets, forecasts and internal audits. Thus,

more and more companies are now outsourcing internal auditing, which is a high-level function.

There are many advantages and drawbacks to outsourcing but how one overcomes them is important. For

a more detailed explanation, read the article inside.

The budgeting system in Malaysia has seen numerous changes since the country gained its independence.

It began with the traditional budgeting system, which was then replaced by the Programme and

Performance Budgeting System. At present, the system that is in use is the Modified Budgeting System

(MBS), which was implemented in 1990.

However, the government realised that there is a need to improve the current budgeting system because

the MBS contains several weaknesses. And with Malaysia aiming to become a high-income, developed

nation by 2020, various effective measures have to be implemented. One of the ways is through the

implementation of Outcome Based Budgeting (OBB) under the New Economic Model.

This new budgeting system will soon replace the existing budgeting system, MBS and will be test-bedded

in selected ministries in 2014. Supposedly, the OBB has been successfully implemented in countries like

Canada, New Zealand and Singapore. Read the article inside to find out more about the OBB and how it will

benefit the country.

These days, as social lifestyle sees changes, the days of unhealthy drinks have become numbered. The

current generation trend of drinking healthy juices, designer coffees and flavoured premium teas seems

more appealing and is rampantly gaining popularity amongst the masses.

PERSPECTIVE

w w w . m i c p a . c o m . m y M a y - J u n e 2 0 1 4

The Malaysian Accountant 3FEATURE

Finance and accounting (F&A) is one of the first processes

that companies outsourced and the practice continues to

boom. As the market matures, companies contracting for

outcomes are exploring fresh ideas and seeking new answers to

streamline F&A processes. They are expanding outsourcing to

new areas of finance and accounting, new industries, and new

sizes of companies than in the past.

Driving efficiency is a high priority for Chief Financial Officers

who want to outsource F&A processes. There is a wider trend in

outsourcing as a whole. Cost reductions are the table stakes and

companies want to know what else their outsourcers can do to

make their processes and technology run more efficiently. The

most commonly outsourced services within accounting are payroll

accounting, accounts payable, and accounts receivable.

Companies are looking to move from relatively basic transactional

processes, such as accounts payable to more strategic functions,

like budgets, forecasts and internal audits. More and more

companies are outsourcing internal auditing, which is a high-level

function.

Simplifying and standardising F&A processes is a key

characteristic of well-run companies and by instilling good F&A

processes, these companies can achieve a variety of good

outcomes—such as more information, more service and more

cash. Also by simplifying their F&A processes, companies have

Finance and accounting offshore outsourcing is a growing trendinvolving a relocation of business processes to Asia where costs of doingbusiness are relatively cheaper. The drivers of outsourcing emanate from

organisational initiatives, improvement focus, financial and costobjectives or growth objectives.

By Eddie Lee

To Outsource or Not to Outsource


4 The Malaysian AccountantFEATURE

found they can reduce the cycle it takes to close books and they

can develop better benchmark and baseline financial processes to

help them meet regulatory requirements.

Expanding the scope of outsourcing can multiply such

benefits. One simple example is accounts payable and

receivables. If a company outsources only one function, it limits its

benefits. If it outsources both, a company improves value beyond

the transactional component because the outsourcer can see

when cash comes in and goes out. That can help the company

take best advantage of the cash on-hand and optimise internal

processes.

As companies look to leverage the power of their data, they

are turning to outsourcers with greater expertise and technology

resources than they have in-house. An outsourcer is going to have

access to state-of-the-art technology and experts who use those

software packages every day. More and more companies are

looking for end-to-end F&A capabilities from outsourcers.

Consider how outsourcing can help a company get a better handle

on its pay-to-procure process. Powerful analytics can help a

company better understand their spending through the entire

supply chain in order to control budgets and standardise

procedures company-wide.

This approach allows companies to identify cost savings

through supplier consolidation and duplicate payment analysis.

Automating the process can improve policy compliance and

reduce order errors by ensuring employees around the world can

order what they need when they need it while enforcing business

rules and limits that prevent employees from making costly

mistakes. While CFOs of large companies are focused on

outsourcing to improve far-flung global operations, smaller

companies, which have typically eschewed outsourcing of F&A,

are beginning to embrace it as well. Outsourcers have expanded

their offerings to the small- and mid-size company segments and

developed solutions targeted toward specific vertical industries.

A recent report from a professional body found that

companies using F&A outsourcing believe that they will reduce

costs but lose control. However, as they realise those cost

advantages, they see that quality is rising because benchmarks

are being applied to their performances. In the end, the report

concludes, companies can see control is improving too. Many

companies realise they manage an outsourced provider more

stringently than their in-house resources are managed. Outsourcing

outcomes are more likely to use clear metrics, such as savings and

service-level achievement. Thus, allowing a company to have

continuous improvement in their accounting and finance operation

while the company itself can focus on its core competencies.

If a corporation is thinking outsourcing might be a way to help

its business cut costs, focus on what it does best and benefit from

dedicated experts taking care of its non-core functions, it could be

right. If the company thinks that IT and data entry are the only

outsourcing options, think again. Outsourcing opportunities have

expanded greatly over the past few decades. In the past two

decades, companies’ perception of what functions as ‘core’ has

changed significantly. As fewer functions are perceived as core, the

more opportunities for outsourcing grow. For example, 10 years

ago, HR was core but now HR outsourcing is common. More

services are going the way of human resources.

Growing companies face a challenge. To stay focused on

building its business, it needs solid financial management with a

dependable accounting function—a resource it may not have in-

house. That’s where outsourcers come in. Outsourcers provide

start-ups and other businesses with outsourced accounting and

finance solutions on a fixed-fee basis and no matter what its size

outsourcers can tailor its services to fit the company needs at every

stage of the company’s life cycle.

Getting valuable advice on financial management is

important for the smooth running of a company business.

Whatever the size and scale of its business, accurate financial

reporting is highly essential. Accounting tasks can be tedious and

may take a lot of its time especially for now when many businesses

are adopting complex business models, legal structures and

expanding their operations across borders. A company needs to

be sure that its accounting and financial reports are accurate,

complete and compliant with practices and local legislation.

It's important to work with an accounting practice that has

many years of experience in the field. Moreover, it's more important

when it hires an accounting practice which has specific experience

in the area the accounting services. It can also benefit immensely

when it works with a professional accounting firm that has served

leading local and local corporations.

The combination of knowledge, experience and

professional expertise which is offered by outsourced accounting

services providers is unmatched and meets the needs of every size

of business. No matter the size of its business, it stands better

chances of benefiting from the experience and collective wisdom,

which the trusted accounting consultants offer. The advisory

services which they offer can help direct its business towards the

right direction, which will help it achieve its short term and long term

goals. The experts are able to deliver high quality and value added

advisory services.

Also, when it needs taxation services, accounting

consultants will be better placed to serve it better. They are able to

assist with planning, preparation and tax minimisation.

The service providers are known for their accuracy and

reliability. They also ensure that a company gets its accounting

report within the shortest time possible. Rest assured that they will

stick to the mandatory accounting rules and practices. Moreover,

if there are legislative changes, which can affect its business, the



consultants will provide it with valuable advice regarding the same.

A company can work with these accounting consultants, help its

business realise its long-term goals and offer a tailored approach,

which can be used to deliver high quality services.

By working with corporate accounting services, a company

can have peace of mind when doing its financial reporting. While

the outsourcers concentrate in making sure that a company beats

datelines, it will have enough time to concentrate in running its

business and take it to the next level. From maintaining accurate

financial records, taxation services and anything between, it can

count on outsourced accounting services providers to get the

work done.

There are many advantages as well as many drawbacks of

outsourcing to a foreign supplier. It could be as far as having an in-

house accountant or sending financial records to a different

accounting provider. From an accounting standpoint, one must

question whether the advantages of outsourcing outweigh the

drawbacks.

The advantages of outsourcing to a foreign supplier can be

summarised as financial savings, time savings, expert services and

contractual obligation. With regards to financial savings, a

company needs not to hire a full-time employee thus cutting the

amount of money they would be spending on payroll with its

attendant expenses such as Employee Provident Fund benefits,

insurance, taxes, hospitalisation and medical, over-time payments

etc.

Thus, by eliminating the need for another full-time employee

it will allow a company to downsize in terms of work space,

furniture, computer, etc. Along with the financial savings, the

company would also be saving a lot of time. Outsourcing would cut

back on valuable time that would be spent on bookkeeping, which

which is often taken away from activities and business directly

related to the company's mission and needs. This allows a

company to focus their resources and the true needs of the

company.

Outsourcing also allows for expertise service. When hiring

outside of the company, it is often that a third-party service

provider is being hired. The third-party service provider

specialises specifically in the work they do. From the

companies perspective the need to hire someone and train

them to get the job done right is no longer a worry. This allows

for better record keeping allowing a company to get ahead

of competition.

Finally, the advantage of outsourcing is a contractual

obligation between a company and the source. Often times

dealing with in-house staff becomes a bit of hassle regarding

negotiations, management and human resources. When

outsourcing, a contract or agreement is set up to meet the

needs of both the company and provider, allowing both

parties to understand their responsibilities to one another.

While there are many advantages of outsourcing, there are

also a few drawbacks such as distance and time, language

barriers, loss of control and security risks. Distance and time being

a drawback is not to be confused with the advantage previously

mentioned i.e., time savings. Distance becomes an issue because

a company does not physically have someone in the office to

answer any questions that may crop up, leaving it with having to

communicate electronically which can become a problem if it is a

time sensitive matter.

Another issue regarding time is time zones. If a company is

outsourcing to a foreign country it must be aware and account for

the differences in time that the supplier may be providing, again

becoming an issue for a time sensitive matter.

Language barriers become an issue when trying to explain

and clearly communicate the needs of the company. Sometimes

the local language is not directly translatable between different

languages, which could create a problem of miscommunication.

The loss of control comes to play in terms of training and processes

from day-to-day. This becomes an issue if a company wants things

to be done a specific way according to its needs.

The final and most important drawback of outsourcing is the

security risk. When outsourcing, a company is giving up the right to

inside knowledge and allowing others to now know the operations

and financial information of the company.

After looking at the advantages and drawbacks associated

with outsourcing to a foreign supplier, it seems that the answer lies

within the company. A company must look at what their mission

and needs are and weigh them against the advantages and

drawbacks. If a company understands the advantages and takes

into consideration the drawbacks, they could create an action plan

to handle such drawbacks. This would allow the company to fully

take advantage of outsourcing.

However, if a company does not consider the drawbacks

they could find themselves struggling to keep up with the needs of

the company.

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INTRODUCTION

For the past fifty years since our country achieved its

independence, a variety of budgeting systems have been utilised

in Malaysia. It began with the Traditional Budgeting System, which

was then replaced by the Programme and Performance Budgeting

System. At present, the system that is in use is the Modified

Budgeting System (MBS).

The current MBS was implemented by the government in

1990. However, the government realised that there is a need to

improve the current budgeting system because the MBS

contained several weaknesses. Among them are (1) it focuses

more on compliance rather than performance, (2) it lacks

systematic monitoring system and poor information system, (3)

results in overlapping programme and thus increase in redundancy

and (4) dichotomous budgeting.

It is the government’s aim to see Malaysia become a high-

income, developed nation by the year 2020. To achieve this

objective, various effective measures and management planning

have to be implemented in the development of the country. Apart

from that, public expenditure also needs to be improved to

generate a sustainable economic growth. One of the ways to

realise the agenda is through the implementation of Outcome

Based Budgeting (OBB) in Malaysia under the New Economic

Model.

The idea of implementing the Outcome Based Budgeting

(OBB) was initially proposed by the Prime Minister, Datuk Seri Najib

Tun Razak in the 2010 Budget. Datuk Seri Najib mentioned it again

in the 2014 Budget presentation. “With the aim to improve budget

management, OBB was introduced to ensure that allocation is

based on outcomes; improve the efficiency of implementation;

reduce redundancy as well as systematically evaluate

performance of all government programmes and projects” - Datuk

Seri Najib Tun Razak, 2010 Budget Speech

This new budgeting system will be implemented during the

10th Malaysian Plan period (2011-2015) to replace the existing

budgeting system, MBS. According to the Second Finance

Minister Datuk Seri Ahmad Husni Hanadzlah, the OBB will be test-

bedded in selected ministries in 2014 (Bernama, 2013). The

selected three ministries are the Ministry of Health, the Ministry of

International Trade and Industry as well as the Ministry of Finance.

OBB has successfully been implemented in countries like Canada,

New Zealand and Singapore.

By Dr Morni Hayati bt Jaafar Sidik and Amalina Ismail



WHAT IS OBB?

Outcome or Performance based budgets use statements of

missions, goals and objectives to explain why money/monies are

spent. It is a way to allocate resources to achieve specific

objectives based on programme goals and measured results

(Ministry of Finance).

OBB is different from the traditional approaches because it

focuses on outcome rather than input. - i.e.: input is a certain

amount of money spent and the outcome is the result of the

expenditure.

This would enable policy makers to determine the activities

that are cost-effective in reaching their final outcome. Thus,

government expenditure will be focused on value for money as well

as programmes and projects with high multiplier effect.

According to the Ministry of Finance, OBB is an integrated

process incorporating 4 main development components. The

components are:

• Planning for Outcome – developing the strategic result

framework for the Ministry

• Budgeting for Outcome – preparing the resource requirements

to drive the ministry results

• Monitoring & Evaluation – managing information for

monitoring, evaluation and decision support system

• Results Reporting – performance reporting and policy

formulation

Therefore, by integrating these components, OBB seeks to

enhance the management system of public sector to be more

effective and efficient.

OBB will also be expected to improve in several other areas.

Firstly, there will be no more dichotomous budgets. This is because

a single view of the budget incorporating both the Development

Budgets and Operating Budgets under a Programme will be

implemented in OBB. Secondly, it will establish vertical and

horizontal linkages between National Priorities and Ministry

Activities, which will improve the accountability framework that will

drive performance across a more structured strategic framework.

The framework is as shown by the following figures 1 and 2 below.

Figure 1

Source: http://myresults.treasury.gov.my

FEATURE

Strategic Plan Annual Plan

Supporting Technology

Supporting Process

Supporting Organisation and Governance

Performance Monitoring Forecast

Strategic NationalPriorities

Consistent Key M

etrics

Set Targets

GrassrootPriorities

10 Malaysia Plan

StrategicPrograms

Operational B

udget

Developm

ent Budget

Execute

Personnel

Section

Department

Ministry

Sub Sector

Sector

Key Results Area

Reporting / M

onitor

Analyze

Personnel

Section

Department

Ministry

Sub Sector

Sector

Key Results Area

Com

munications

Personnel

Section

Department

Ministry

Sub Sector

Sector

Key Results Area



Thirdly, it can eliminate wastages by addressing cross-cutting

issues through identification of overlapping programs or activities

and shared outcomes among the government agencies. In other

words, OBB will enhance cultural change by fostering cross-

operation and coordination between the government agencies to

achieve the intended results.

Despite the generally positive improvements, the OBB

approach may have a number of challenges in its implementation.

Among the challenges are: (1) Understanding and identifying the

outcome is not an easy task, (2) There will be major changes in the

way the government officers would need to manage and run the

programme. For example, redefining the roles and functions of

budget review officers and (3) It is difficult to measure and analyse

the outcome.

CONCLUSION

In summary, the main reason why government should introduce

OBB is to ensure that the budget allocation and management will

be further improved. This is because OBB would be able to

integrate the whole planning, budgeting monitoring and evaluation

process. Thus, it helps give a clearer picture on the need for

intervention and the corrective actions that need to be taken by the

Malaysian government. This will also lead to more efficient and

effective financial management among the public sector As a

result, the government of Malaysia would be able to assist the

public service in achieving higher standards of good governance

while improving its accountability and transparency.

However, there are also several challenges that need to be

addressed. As noted by Errol Oh (The Star 2013) “The big

challenge lies in the fact that the expected benefits of migrating to

OBB won’t flow overnight. As with many facets of government, it

takes commitment and a long-term view to keep driving a

programme like this despite whatever changes in leadership and

policies.”

Dr Morni Hayati bt Jaafar Sidik is from the Universiti Kuala Lumpur

Business School and Amalina Ismail is a lecturer at UTAR

Integrated national plansto achieve long term

objectives

National level

Programmes neededto achieve

Integrated national plans

Activities*required to complete

programmes

Resources requiredto complete activities and

the cost of resources

Programme level Ministry / Agency level

Resource 1 budget

Activity 1 budget

Ministry 1 budget

Programme 1 budget

National budget

Programme 2 budget

Programme 3 budget

Programme N budget

Ministry 2 budget

Ministry 3 budget

Ministry N budget

Activity 2 budget

Activity 3 budget

Activity N budget

Activity 1 budget

Activity 2 budget

Activity 3 budget

Activity N budget

Resource 2 budget

Resource 3 budget

Resource N budget

Resource 1 budget

Resource 2 budget

Resource 3 budget

Resource N budget

Figure 2: Linking National Budget to Resource Budgets



Interpreting financial statements can be difficult at the best oftimes. It can be an even greater challenge when an entity has a

complex business model or undertakes complex and diverse

transactions. IFRS provides disclosures and comparability in

recognition and measurement with the aim of helping investors

better understand entities’ financial statements. Entities may also

choose to provide supplementary information for especially

complex transactions or exposures. Nevertheless, in some areas

of reporting, even the best of intentions can leave investors

struggling.

One of these is risk management—particularly, dynamic risk

management. Many entities are exposed to market price

movements that affect their profitability. For example, a bank’s net

interest income is often the most significant contributor to

profitability. However, net interest income is exposed to changes in

interest rates. How well a bank manages this risk affects its

profitability. Managing these risks on a continuous and dynamic

basis is one of the key elements of financial risk management.

Dynamic management of interest rate risk is therefore a critical

component of a bank’s ongoing risk management activities.

Understanding that financial reporting needs to provide

more clarity about these types of activities, the IASB has just

published the Discussion Paper Accounting for Dynamic Risk

Management: a Portfolio Revaluation Approach to Macro Hedging

(the ‘DP’). The DP explores the accounting aspects of dynamic risk

management and discusses preliminary views on a new

accounting approach that may improve financial reporting in this

area. The particular focus of the DP is the management of interest

rate risk by banks; however, it also applies to other dynamic risk

management activities in other industries (for example, commodity

price risk).

Developing a new approach does not mean that current

accounting practices are necessarily failing investors. IFRS already

includes a general hedge accounting model, which provides for the

fair value and cash flow hedge accounting with which most

investors will be familiar. The model has recently been improved

through the new financial instruments Standard IFRS 9 Financial

Instruments (IFRS 9). However, even the general hedge accounting

approach has limitations in which risk management practices are

more complex and the risks being hedged are more dynamic.

Why a new approach?

Many of you may recall the reason we have a general hedge

accounting model, which is largely a result of the mixed

measurement approach applied in financial reporting. For example,

IFRS requires that all derivatives should be measured at fair value.

Given the nature of these instruments (for example, little or no initial

cost with significant leverage and exposure), the IASB (and many

stakeholders) consider fair value as the most appropriate

By Steve Cooper, a member of the IASB, discusses an accounting approach for dynamic risk management

Dynamic risk management -accounting in an age of complexity

FEATURE


The Malaysian Accountant 11

measurement basis; particularly considering that cost-based

measurement may poorly reflect the leverage inherent in most

derivatives and the significant changes in value that can occur.

However, IFRS does not require fair value measurement for

many of the assets and liabilities that create risk exposures that

may be hedged by those derivatives. For example, banks’ loans

and deposits are generally measured at amortised cost. The

accounting focuses on the net interest income generated over the

life of the instruments rather than changes in value. Most

commentators also believe that this approach better reflects the

banking business model and provides the best depiction of

performance for these instruments. However, the fair value

measurement of derivatives and the cost-based measurement of

bank loans and deposits do not sit well together when the objective

of holding those derivatives is to manage the interest rate risks

(fluctuations in net interest income) of that business activity. This is

when hedge accounting becomes necessary to provide investors

with clear, transparent information about the related activity.

The general hedge accounting model of IFRS 9 can be

applied to dynamic risk management and, in many cases, is

adequate to enable the economics of the activity to be faithfully

reflected in financial statements. However, applying the general

hedge accounting model to risks managed dynamically can

present challenges and complexity for preparers, and can result in

financial statements that are difficult for investors to understand.

There are also certain dynamic risk management activities that are

difficult to reflect properly in financial statements and that may

consequently result in volatility that is not reflective of the underlying

situation. It is for these reasons that the IASB wishes to consider an

alternative accounting approach.

The Portfolio Revaluation Approach

In the DP we refer to the potential new method of accounting for

dynamic risk management as the Portfolio Revaluation Approach

(PRA). The aim of the PRA is to provide an alternative to the present

general hedge accounting model that will be easier for preparers to

apply and that will better represent and be more consistent with risk

management activities, resulting in better information for investors.

Mechanics of the PRA

The PRA involves identifying a portfolio of exposures that is subject

to dynamic risk management, and remeasuring these for the risk

being managed. For a bank this could be a portfolio of loans and

deposits. This is not a full fair value approach, as only one

component of changes in value would be recognised in the

revaluation adjustment. For example, for dynamic interest rate risk

management only changes in value of the loan or deposit due to the

hedged benchmark interest rate risk component would be

included in the revaluation. Other components of the change in fair

value including credit risk, expected credit losses and other

components of the credit spread such as liquidity are not included

in the adjustment.1 This revaluation adjustment is then reported in

profit or loss together with the full fair value changes of the

derivatives that the bank is using to manage that risk.

There are two key advantages of this approach over the

general hedge accounting model.

The PRA can be more easily appliedto open portfolios

The general hedge accounting model essentially relies on a one-to-

one designation of the hedged item (the loan or deposit) with the

hedging instrument (the derivative). Therefore, while the general

model works well for closed portfolios it has significant limitations

when applied to open and dynamically managed portfolios.

Problems in the general hedge accounting model arise when

derivative positions are adjusted in response to changing risk

exposures (for example, new bank loans being added to portfolio,

early loan repayment of existing loans or changes in the levels of

deposit). All such changes affect the extent of the ‘natural hedge’.

Under the general hedge accounting model these changes may

cause an entity to ‘dedesignate’ the original hedge relationship and

re-establish it in a different form. Not only is this operationally

burdensome for the bank, but the resulting accounting

adjustments can result in volatility in profit or loss, making the

hedge appear to be ineffective when in reality it is not.

The PRA would enable entities tobetter reflect their dynamic riskmanagement practices in theirfinancial statements

Some dynamic risk management activities that are designed to

manage or stabilise the net interest income of banks are difficult to

accommodate in the IFRS 9 general hedge accounting model. A

good example relates to the effects of so-called core demand

1 Note however that credit losses are separately captured through the amortised cost impairment allowance.

FEATURE



deposits. Some bank deposits (for example, bank current

accounts) can create a stable source of funding at a low or even

zero interest rate. If these effective fixed interest rate liabilities fund

variable interest rate assets, the bank may wish to hedge (stabilise)

the resulting volatile net interest income through an appropriate

derivative position. Normally, fixed interest rate funding can be

designated in a fair value hedge in the general hedge accounting

model, but this is not possible with core demand deposits,

because most of the deposits are repayable on demand, which

means that there is no fair value change that can be recognised.

Banks can adopt different approaches under the IFRS 9

general hedge accounting model to mitigate the profit or loss

effects of this problem, such as applying a cash flow hedge to the

variable interest rate asset or by finding a completely unrelated

financial instrument to offset against the derivative as a ‘proxy fair

value hedge’. However, neither of these ‘work-arounds’ are

satisfactory. The former creates volatility in other comprehensive

income (OCI) that is not reflective of the risk management

approach. The latter is operationally complex and becomes

extremely difficult for investors to understand since the hedge

accounting is only indirectly related to the risk being managed.

The PRA would provide an alternative and more transparent

solution. Using this approach, banks would be able to apply a so-

called behaviouralised approach to the core demand deposits

such that a revaluation gain or loss could be offset against the

derivatives being used to manage that risk, thus better reflecting

dynamic risk management in the financial statements.

The PRA is designed to result in a recognition and

measurement approach that better reflects the economics of risk

management, to provide for a presentation that shows how

dynamic risk management has impacted net interest income for

the current period and to separate this impact from the

ineffectiveness of risk management and the financial effect of risks

that are unhedged.

We need your feedback

This article provides a simplified explanation of the IASB’s

preliminary model. There are many aspects of the potential

approach that I have not mentioned here, including the scope of

items that could be included in the PRA, whether OCI might be

used and how internal derivatives are accommodated. These

issues are covered in the DP and will be explored in more detail in

the coming months. What is certain is that we will receive a variety

of feedback and that not everyone will agree that a model for

dynamic risk management is even necessary. The IASB has

already considered some alternatives such as a different

measurement basis for derivatives or applying a full fair value model

to all financial instruments. Both these approaches have significant

disadvantages and are not favoured by the IASB. Nevertheless, we

are keen to hear views on all potential approaches, even those we

have not considered thus far.

We would particularly welcome views from investors on the

preliminary views in the DP, including whether the approach would

provide you with better information. Details about how

to respond are available on the IASB website.

Alternatively, you can email me directly about the

specific items in the DP or to simply provide your views

on what is helpful or unhelpful about current accounting

and disclosures related to dynamic risk management

activities for banks and other entities. I look forward to

hearing from you.

Steve Cooper is a member of the IASB. The views

expressed in this article are those of the author and do

not necessarily reflect the views of the IASB or the IFRS

Foundation. The IASB/IFRS Foundation encourages its

members and staff to express their individual views.

This article has been developed by the author as an

individual. It is has not been subjected to any due

process of the IASB/IFRS Foundation. Official positions

of the IASB/IFRS Foundation are determined only after

extensive due process.

-60

-40

-20

0

20

40

60

Reva

luat

ion

pro!

t or l

oss

Derivatives at fair value

Including revaluationof portfolio

Residual volatility

revaluation of !nancial assetsfor interest rate risk

revaluation of !nancial liabilities for interest rate risk

derivatives at fair value

FEATURE



The National Annual Corporate Report Awards (NACRA) is

an event that is jointly organised by the Malaysian Institute

of Accountants (MIA), Bursa Malaysia Berhad and the

Institute with the aim of recognising excellence in corporate

reporting. The main objective of the event is to promote greater

accountability and more effective communication of financial and

corporate information by organisations, to their stakeholders.

NACRA 2014 was launched at Bursa Malaysia’s Conference

Hall on May 14, 2014. Chairman of the Organising Committee, Ms

Loh Lay Choon addressed the audience with an opening speech

on the key elements of NACRA and its prime objectives. During her

speech, she touched on integrated reporting and mentioned that

participation in a competition like NACRA which promotes high

standards of corporate reporting would make the transition much

easier for organisations when integrated reporting eventually

becomes mandated in the future.

The Chairman of the Adjudication Committee, Mr Stephen

Oong also gave a speech to provide more insights into the awards

and encouraged participation from organisations. This was

followed by the launch ceremony of NACRA 2014 which was

officiated by Ms Selvarany Rasiah, Chief Regulatory Officer of

Bursa Malaysia Berhad, Ms Loh and Mr Oong.

The event then continued with a briefing by a team of

adjudicators who provided tips and insights on the various criteria

an adjudicator looks at when reviewing an annual report. This was

followed by a sharing session by past winners on their experience

and journey in producing award-winning annual reports. Last

year’s Platinum and Gold Overall Excellence Award Winners

Telekom Berhad and Malayan Banking Berhad respectively gave

very useful and helpful pointers to the audience. The event ended

with a fruitful Q&A session, with questions being answered by Ms

Loh and Mr Oong.

NACRA participation is open to listed and non-listed

organisations till June 30, 2014. Eligible annual reports are those

with years ended 2013. Enquiries on NACRA can be sent to

[email protected].

INSTITUTE NEWS

NACRA Launch Event 2014


14 The Malaysian AccountantINSTITUTE NEWS

No Name1. Choo Sheau Fang (Ms)2. Nur Nadia binti Mohd Azahar (Cik)

No Name1. Shantamala Navaratnam (re-admitted on April 22, 2014)2. Nyam Tee Hoan (re-admitted on May 5, 2014)

MEMBERSHIP UPDATEADMISSION TO MEMBERSHIP AS CERTIFIED PUBLIC ACCOUNTANT (CPA) ON MAY 17, 2014

No Name1. Leong Cheok Hoo (effective April 1, 2014 under Chua & Chu, Kota Bahru)2. Lim Guik Moi (Ms) (effective October 24, 2013 under KPMG, Kota Kinabalu)3. Ooi Kok Seng (effective April 1, 2001 under KPMG, Penang)

COMMENCEMENT OF PRACTICE

No Name1. Basharuddin bin Saad 2. Ching Neng Shyan 3. Chong Yoke Foong (Ms)4. Foo Yin Fah 5. Fong Swee Hock

6. Dato’ Khoo Peng Lai 7. Lai Kin Lam, David 8. Lee Hock Khoon 9. Ng Sho See, Victor 10. Phua Chiu Soon (Ms)

RESIGNATION OF MEMBERSHIP

RE-ADMISSION TO MEMBERSHIP AS CPA

It is an integral part of the Institute to conduct CPD Programmes to enhance the skills and knowledge of members.Our training covers a wide range of areas, including auditing, financial reporting, tax and more. The following CPDProgrammes have been planned:

Continuing Professional Development Programmes(June 2014)

Date Programme Title Speaker(s) Type Category

June 16 Preparing for GST in Malaysia Chow Chee Yen Workshop TAX

June 23 & 24 Updates of the IFRS-Compliant MFRSs 2014 Tan Liong Tong Seminar MFRS

June 24 & 25 Advanced Practical Guide to Auditing Yung Chuen Seng Workshop AUDIT

For more information, please contact the Education and Training Department: Mr. Victor LiewTel No: 03-2698 9622 (extn: 205) or email: [email protected]

CPD On-Line RecordEffective January 1, 2007, it is mandatory for all members to complete at least 120 hours of

relevant Continuing Professional Development (CPD) activity in each rolling three-year

period, of which 60 hours should be verifiable. Members are required to submit an annual

declaration as to comply with the CPD requirements prescribed in the CPD Statement.

An on-line CPD Record functionality has been added to the MICPA website, which

facilitates members to update their CPD records online in the format provided. Please visit

www.micpa.com.my, login as a Member, click on Membership Update on the left-hand menu

and go to Section F to update your CPD records.



CESSATION OF MEMBERSHIPThe following members have been excluded from theregister of members for non-payment of annualsubscription/practising certificate fee:

NAME MEMBERSHIP NO.

1 Allen Nicomedes Lopez 36652 Azlan Bin Zakariah 42833 Cheam Yoke Hei 27864 Cheh Chee Mun 14945 Cheong Chee Hong 44136 Chong Lai Fong 26207 Chong Siew Ling 29178 Chung King Keong 43819 Kee Chei Hen 245910 Lau Choo Seng 232811 Lee Wai Mun 371312 Lee Yoke Wah 223513 Lim Chin How 408614 Lim Chong Yik 397415 Lim Siew Tin 106116 Loh Gim Hock 219517 Loo Pak Hong 91018 Loo Yoke Yee 410019 Ng Chi Meei 334620 Ng Swee Fong 241321 Ng Wai Luen 321722 Ong Khay Eng 67223 Ramachandran J 79124 Sam Bah Cheau 395825 Siti Faizah Binti Jamaluddin 459626 Tey Seng Hock 381527 Than Poh Howa 219228 Thong Cooi Seong 416329 Wong Kim Meng 262730 Wong Kum Seng 156531 Yong Kwei Chuan 441232 Yuen Shu Mun, Daniel 202

CESSATION OF CFiA MEMBERSHIPThe following CFiA members have been excluded fromthe register of members for non-payment of annualsubscription:

NAME MEMBERSHIP NO.

1 Juyati Binti Mohd Amin F0132 Sofiah Binti Md Auzair F006

EXCLUSION FROM STUDENTS REGISTERThe following students have been excluded from theregister of students for non-payment of annual fees:

NAME REGISTRATION NO.

1 Abbul Abbas Arrabe B Mohamad 1/73552 Abdul Ghani Bin Ismail 2/934S3 Azhan Bin Azmi 1/73614 Chak Pei Pei 2/849S5 Chan Ying Ming 2/850S6 Faizah Binti Hassan 2/9297 Faten Amira Binti Rahmat 2/954AS8 Fifi Nor Ashikin Binti Azmi 2/955AS9 Lee Hooi Kun 2/53610 Luqman Al-Hakim B Hamdan 2/973AS11 Maisarah Binti Haji Mustapa 2/928S12 Nabila Binti Mohd Shuib 2/958AS13 Nadrah Binti Samsuri 1/7587A14 Noor Haslina Binti Ab Rani 2/959AS15 Nor Bashirah Binti Mohd Fauzi 2/992AS16 Nur Diyana Binti Ahmad 1/7402A17 Nur Sakinah Binti Hassan 2/964AS18 Nurfatihah Binti Idris 2/940S19 Nurjannatul Wahidah Binti Azmi 2/963AS20 Nurul Hidayatullah Binti Kamsiran 2/969AS21 Nurul Ivana Binti Shafie 2/970AS22 Siti Izuani Binti Poni 2/971AS23 Siti Ruzilah Bt Jaafar 2/847S24 Syed Khusairi Bin Tuan Azam 2/944S25 Tang Soo Lee 2/75926 Vivek Aravind Menon 1/7629A27 Wee Yoke Wah 2/817S

INSTITUTE NEWS

MICPAPractising Certificate

The Malaysian Institute of Certified Public Accountants

No.15 Jalan Medan Tuanku, 50300 Kuala Lumpur.

Tel: 03-2698 9622 Fax: 03-2698 9403 E-mail: [email protected]

The Membership Affairs Committee of the Institute in considering applications for practising certificates, has frequently come across cases

where a member has commenced public practice before he is issued with a practising certificate by the Institute.

The Committee would like to remind members that in accordance with bye-law 56 of the Institute’s bye-laws, a member shall be

entitled to engage in public practice in Malaysia only if he holds a practising certificate issued by the Institute.

If members need clarification on the above, kindly contact the Institute’s Membership Services Department.

IFRS Foundation publishes 2013 Annual Report

The IFRS Foundation has published its Annual Report for the year

ended 31 December 2013.

Subtitled “Charting progress towards global accounting

standards”, the Annual Report provides an overview of the IFRS

Foundation’s activities, highlighting the progress made towards

establishing International Financial Reporting Standards (IFRS) as

the single set of high quality, globally accepted accounting

standards.

The report summarises the use of IFRS around the world,

drawing on recently published jurisdictional profiles that show how

IFRS is now required for use by more than 100 jurisdictions,

representing 81 per cent of the 130 jurisdictions profiled. The

report includes audited financial statements and a comprehensive

breakdown of the financial support received by the IFRS

Foundation during 2013.

IFRS Taxonomy Updated for IFRS 14 Regulatory Deferral

Accounts

The IFRS Foundation recently published Interim Release 1 to the

IFRS Taxonomy 2014 for the IFRS 14 Regulatory Deferral Account,

which was issued by the IASB on 30 January 2014. The IFRS

Taxonomy 2014 is the XBRL representation of the IFRSs, including

International Accounting Standards (IASs), Interpretations, and

the IFRS for SME's, as issued by the IASB.

XBRL taxonomies are available for most of the major national

financial reporting standards around the world, and the IFRS

Taxonomy is intended for use by entities reporting in IFRS. By

providing the IFRS Taxonomy, the IFRS Foundation seeks to

address the demand for an electronic standard to transmit IFRS

financial information.

IFRS Taxonomy Interim Releases support consistent

adoption and implementation of IFRS, by providing taxonomy

items for electronic reporting using the latest Standards published

by the IASB.

IFRS Foundation Appoints Members of the SME

Implementation Group

The IFRS Foundation recently announced the appointment and

reappointment of members of the Small and Medium-sized

Entities Implementation Group (SMEIG), effective 1 July 2014.

The SMEIG is an advisory body to the IASB. Its mission is to

support the international adoption of the IFRS for Small and

Medium-sized Entities (IFRS for SMEs) and to monitor its

implementation. One of the key responsibilities of the SMEIG is to

provide recommendations to the IASB throughout the

comprehensive review of the IFRS for SMEs.

The SMEIG was appointed in September 2010 by the

Trustees of the IFRS Foundation following a public call for

nominations. On 30 June 2014 the second term of the existing 22

SMEIG members will come to an end. The Trustees have approved

an expansion of the membership of the SMEIG at that date from 22

to a maximum of 30.

The Trustees previously agreed that 11 existing SMEIG

members would be reappointed for a third term to provide

continuity. 15 new members have also been appointed. The

appointments were made based both on the qualifications of the

individual applicants and the need to achieve a professional and

geographical balance in the membership of the SMEIG. The IFRS

Foundation has kept four vacancies in case suitable candidates

are identified at a later date.

The 11 reappointed members will serve a final term of two

years ending 30 June 2016. The 15 new members will serve a term

of three years ending 30 June 2017.

Membership of the SMEIG is personal; this means that

members participate and vote in accordance with their own

independent views, not as representatives voting according to the

views of the firm, organisation or constituency with which they are

associated. The full Terms of Reference and Operating Procedures

for the SMEIG were updated in February 2014.

IASB Publishes Amendments to IAS 16 Property, Plant and

Equipment and IAS 38 Intangible Assets

The IASB recently published amendments to IAS 16 Property,

Plant and Equipment and IAS 38 Intangible Assets.

IAS 16 and IAS 38 both establish the principle for the basis of

depreciation and amortisation as being the expected pattern of

consumption of the future economic benefits of an asset.

The IASB has clarified that the use of revenue-based

methods to calculate the depreciation of an asset is not

appropriate because revenue generated by an activity that

includes the use of an asset generally reflects factors other than the

consumption of the economic benefits embodied in the asset.

The IASB also clarified that revenue is generally presumed to

be an inappropriate basis for measuring the consumption of the

economic benefits embodied in an intangible asset. This

presumption, however, can be rebutted in certain limited

circumstances.

IASB Update (www.iasb.org)


16 The Malaysian AccountantTECHWATCH



The issue originated from a submission to the IFRS

Interpretations Committee (the ‘Interpretations Committee’). As a

result, the Interpretations Committee recommended that the IASB

should amend IAS 16 and IAS 38.

IFRS Interpretations Committee 2014 appointments

The Trustees of the IFRS Foundation announced recently

appointments and reappointments to the IFRS Interpretations

Committee (the ‘Interpretations Committee’).

The IFRS Interpretations Committee is the interpretative

body of the IFRS Foundation. Its mandate is to review widespread

accounting issues that have arisen within the context of current

International Financial Reporting Standards (IFRS). The work of the

Interpretations Committee is aimed at reaching consensus on the

appropriate accounting treatment and providing authoritative

guidance on those issues.

The Interpretations Committee comprises 14 voting

members drawn from a variety of countries and professional

backgrounds. The newly appointed members are:

• Carl Douglas, Corporate Controller, CCR Group (Brazil);

• Mikael Hagström, Head of Corporate Financial Reporting,

Volvo Group (Sweden);

• Bruce Mackenzie, Managing Partner, W Consulting

International (South Africa); and

• Bonnie Van Etten, Head of Fiat and Chrysler Group Global

Technical Accounting and Accounting Research, Chrysler

Group LLC (United States).

The new members have each been appointed to serve three-year

terms, renewable once. All appointments will commence on July 1,

2014.

The Trustees are also pleased to announce the

reappointment of Charlotte Pissaridou as a member of the

Interpretations Committee for a further three-year term.

Commenting on the appointments, Robert Glauber, Chair of

the Trustees’ Nominating Committee said, “I would like to welcome

Carl, Mikael, Bruce and Bonnie to the IFRS Interpretations

Committee. Each brings with them extensive experience in their

respective fields that will be of great benefit to the Interpretations

Committee in its work. Furthermore, I am delighted that Charlotte

has agreed to serve a second term. I would also like to thank our

departing members Luca Cencioni, Jean Paré, Joanna Perry and

Scott Taub for their service on the Interpretations Committee.”

IASB Agrees Charter of Mutual Co-operation with

Accounting Standard-Setting Community

The IASB recently published an updated Charter establishing key

principles of co-operation between the IASB and national

standard-setters and other accounting standard-setting bodies,

represented by the International Forum of Accounting Standard

Setters (IFASS).

The principles established by the Charter are designed to

enhance the efficiency and effectiveness of international

accounting standard setting. The Charter;

• Re-emphasises the importance of the global accounting

standard-setting community to the work of the IASB and builds

on the premise that it is essential that all parties should work

together in a spirit of openness and close co-operation in order

to meet shared goals.

• Describes a shared understanding of the commitments and

expectations of the IASB and national standard-setters and

other accounting standard-setting bodies, presented as a

statement of co-operation.

• Focuses on practical aspects whereby staff and members of

the IASB and other accounting standard-setters can work co-

operatively, describing the actions and procedural matters that

deserve the most care.

The agreement of this Charter is consistent with the creation in

2013 of the IASB’s Accounting Standards Advisory Group, which

serves as a formal platform for technical dialogue between the

IASB and representatives of the accounting standard-setting

community.

Hans Hoogervorst, Chairman of the IASB commented, “This

Charter highlights the importance of our partnership with national

standard-setters and other accounting standard-setting bodies as

an essential part of a multilateral model for global standard setting.

Input from the wider standard-setting community is central to our

standard-setting and implementation activities, and is increasingly

helpful to the IASB as we expand our research-based agenda,

drawing on the expertise of our global stakeholders. I look forward

to much successful collaboration in the future.”

IASB Publishes Amendments to IFRS 11 Joint

Arrangements

The IASB recently published amendments to IFRS 11 Joint

Arrangements. IFRS 11 addresses the accounting for interests in

joint ventures and joint operations. The amendments published

add new guidance on how to account for the acquisition of an

interest in a joint operation that constitutes a business. The

amendments specify the appropriate accounting treatment for

such acquisitions.

The issue originated from a submission to the IFRS

Interpretations Committee. As a result the Interpretations

Committee recommended that the IASB should amend IFRS 11.

TECHWATCH



IASB Launches the IFRS Research Centre

The IASB recently announced the launch of its web-based IFRS

Research Centre. The IFRS Research Centre aims to facilitate

communication between the IASB and the broader research

community. Its main objectives are to increase awareness of the

issues that the IASB will be considering in the coming two to three

years, to encourage research professionals to undertake targeted

research projects and to contribute to the IASB moving to more

evidence-based standard-setting.

To achieve these objectives, the IFRS Research Centre will

highlight ways for academics to participate in the standard-setting

process and enable those engaged in research to stay informed

about the IASB’s research activities.

Commenting on the announcement, Hans Hoogervorst,

Chairman of the IASB said, “We recognise the importance of high

quality research to help the IASB develop financial reporting

Standards and assess the outcomes of those Standards. The

research community has a particularly important role to play by

undertaking analysis and research that is independent.”

IASB Publishes Discussion Paper on Accounting for Macro

Hedging

The IASB recently published for public comment a Discussion

Paper exploring an approach to better reflect entities’ dynamic risk

management activities in their financial statements, otherwise

known as macro hedging.

Many financial institutions and other entities manage risks,

such as interest rate risk, dynamically on a portfolio basis rather

than on an individual contract basis. Dynamic risk management is

a continuous process because the risks that such entities face

evolve over time, as does their approach to managing those risks.

However, the existing accounting requirements of IAS 39 Financial

Instruments are generally considered to be difficult to apply when

accounting for such transactions.

As part of its comprehensive response to the global financial

crisis, the IASB is replacing IAS 39 with an entirely new financial

instruments accounting Standard, known as IFRS 9 Financial

Instruments. That project is in the final stages of completion.

However, the IASB decided to treat as a separate project the

macro-hedging component of these reforms in order to elicit views

from a broader range of constituents. The Discussion Paper

published represents the first stage in this project, by seeking

public comment on a possible approach to accounting for an

entity’s dynamic risk management activities, the portfolio

revaluation approach (PRA). Under the PRA:

• Exposures that are risk-managed dynamically would be re-

valued for changes in the managed risk through profit or loss.

• Fair value changes arising from risk management instruments

that are used to manage this risk (derivatives) would also be

recognised in profit or loss.

• The success of an entity’s dynamic risk management is

captured by the net effect of the above measurements in profit

or loss.

• Fair valuation of the risk exposures that are dynamically

managed is not required.

• The PRA also addresses the needs of users by providing a

more comprehensive set of disclosures concerning an entity’s

dynamic risk management activities.

Commenting on the publication of the Discussion Paper, Hans

Hoogervorst, Chairman of the IASB said, "Current requirements

make it difficult to faithfully represent dynamic risk management in

entities’ financial statements and can increase operational

complexity. This Discussion Paper sets out preliminary views on an

accounting approach that better reflects the economics of

dynamic risk management as compared to the current accounting

requirements. Users of financial statements will also benefit from

presentation that shows how dynamic risk management has

affected an entity’s profit or loss."

The Discussion Paper: Accounting for Dynamic Risk

Management: a Portfolio Revaluation Approach to Macro Hedging

is available for comment until October 17, 2014. In addition to

seeking input in the form of comment letters, the IASB will

undertake an outreach programme designed to obtain feedback

on the areas covered in the Discussion Paper.

IASB Publishes Proposals as Part of Disclosure Initiative

The IASB recently published for public comment an Exposure Draft

outlining proposed amendments to IAS 1 Presentation of Financial

Statements. The proposal results from one of several short-term

projects under the IASB’s Disclosure Initiative.

Many respondents to the IASB’s Agenda Consultation 2011

asked the IASB to review the disclosure requirements in existing

IFRS, to explore ways to improve disclosures. Consequently, in

2013 the IASB started the Disclosure Initiative, a package of

several projects aimed at improving the disclosure of financial

information.

The Exposure Draft proposes narrow-focus clarifying

amendments to IAS 1 to address some of the concerns expressed

about existing presentation and disclosure requirements and to

ensure entities are able to use judgement when preparing their

financial statements.

The proposed amendments:

• Clarify the materiality requirements in IAS 1, including an

TECHWATCH



emphasis on the potentially detrimental effect of overwhelming

useful information with immaterial information.

• Clarify that specific line items in the statement(s) of profit or loss

and other comprehensive income and the statement of

financial position can be disaggregated.

• Add requirements for how an entity should present subtotals in

the statement(s) of profit or loss and other comprehensive

income and the statement of financial position.

• Clarify that entities have flexibility as to the order in which they

present the notes, but also emphasise that understandability

and comparability should be considered by an entity when

deciding that order.

• Remove potentially unhelpful guidance in IAS 1 for identifying a

significant accounting policy.

Hans Hoogervorst, Chairman of the IASB commented, “The

Disclosure Initiative is focused on ensuring that financial reports are

instruments of communication and not simply compliance

documents. These proposals form a small part of our efforts to

encourage preparers, auditors and regulators away from a ticking-

the-box mentality towards disclosures. These proposals are

designed to help change behaviour, by emphasising the

importance of understandability, comparability and clarity in

presenting financial reports. We look forward to hearing the views

of stakeholders on this important project.”

Joint IFRS Foundation and SAICA IFRS Conference—

South Africa

The Joint IFRS Foundation and SAICA IFRS Conference will be

held at the Sandton Convention Centre in Johannesburg, South

Africa on August 13 and 14, 2014. The conference brings together

leaders in financial reporting from the private and public sector,

regulatory bodies, the IASB, as well as accounting professionals

and others with an interest in IFRS.

The conference offers a unique opportunity to be updated by

members of the IASB on its active projects as well as to listen to the

needs of the South African business fraternity. Presenters include

Ian Mackintosh (IASB Vice-Chairman), IASB members—Stephen

Cooper, Patrick Finnegan, Darrel Scott, Wei-Guo Zhang—and

other IFRS experts.

TECHWATCH

IAASB Notes Progress Toward a Single, Robust Language

for Audit

As the global economy becomes increasingly interconnected, the

International Auditing and Assurance Standards Board (IAASB) is

pleased to note that the number of jurisdictions using, or

committed to using, the clarified International Standards on

Auditing (ISAs) has passed 100—marking an important

achievement in global convergence.

The ISAs were thoroughly redrafted and revised during the

IAASB’s Clarity Project, which finished in early 2009. Since then,

the IAASB has monitored the uptake of the clarified ISAs. With the

recent addition of several African countries – a development noted

by IAASB Chairman Prof. Schilder during his recent speech in

Cameroon in May – there is significant use of the clarified ISAs

across six continents.

“We have seen a steady increase in the use of the Clarified

ISAs over the years, with the ISAs also now translated into many

languages. This demonstrates the importance the global

community attaches to a set of global auditing standards that can

be used for high-quality audits in both the private and public

sectors,” noted Prof. Schilder.

Ethics Board Proposes Enhancements to Certain Non-

Assurance Services Provisions in Ethics Code

The International Ethics Standards Board for Accountants (IESBA,

the Ethics Board) recently released for public comment the

Exposure Draft (ED), Proposed Changes to Certain Provisions of

the Code Addressing Non-Assurance Services for Audit Clients.

The proposed changes aim to enhance the independence

provisions in the Code of Ethics for Professional Accountants (the

Code) by:

• Providing additional guidance and clarification regarding what

constitutes management responsibility, including enhanced

guidance regarding how the auditor can better satisfy itself that

client management will make all judgments and decisions that

are the responsibility of management, when the auditor

provides non-assurance services to an audit client;

• Providing better guidance and clarification on the concept of

“routine or mechanical” services relating to the preparation of

accounting records and financial statements for non-public

interest entity audit clients; and

• Removing the provision that permits an audit firm to provide

certain bookkeeping and taxation services to public interest

entity audit clients in emergency situations. “Independence is

the bedrock of all audits. It is not only about independence in

mind.

IFAC Update (www.ifac.org)



It is also about independence in appearance, ensuring continued

public trust in the work of the audit profession,” said interim IESBA

Chair Wui San Kwok. “The proposed changes further support this.

Better guidance and clarification promote global consistency of

application of the Code’s provisions. And we eliminated a rule-

exception—intended to be used only in rare situations—that could

have been perceived to provide opportunities for misuse,

misinterpretation, or abuse.”

The Ethics Board is also proposing enhancements to the

corresponding non-assurance services provisions in Section

291—Other Assurance Engagements with respect to assurance

clients.

“In developing the proposals, the board took into account

the results of a benchmarking survey of G-20 countries and a

number of other jurisdictions with respect to certain types of non-

assurance services,” noted IESBA Technical Director Ken Siong.

“The proposals are also responsive to recommendations from a

working group established by the board that looked into the unique

and challenging issues professional accountants in small- and

medium-sized entities and practices face when complying with the

Code, and to feedback from the regulatory community.”

How to CommentThe Ethics Board invites all those with an

interest in international ethics standards for the accountancy

profession to respond to the Exposure Draft. To access the

Exposure Draft and submit a comment, please visit the Ethics

Board’s website at www.ethicsboard.org. Comments are

requested by August 18, 2014. The Ethics Board encourages

national and regional professional accountancy organisations to

share the ED with and encourage participation from their members

and employees.

IAASB Proposes Enhancements to Auditing Standards

Focused on Financial Statement Disclosures

The International Auditing and Assurance Standards Board

(IAASB) recently released for public comment proposed changes

to the International Standards on Auditing (ISAs) to clarify

expectations of auditors when auditing financial statement

disclosures.

The proposals include new guidance on considerations

relevant to disclosures—from when the auditor plans the audit and

assesses the risks of material misstatement, to when the auditor

evaluates misstatements and forms an opinion on the financial

statements.

“Addressing financial reporting disclosures has always been

an integral part of an audit of financial statements in accordance

with the ISAs. Over the past decade, however, financial reporting

disclosure requirements and practices have evolved, and

disclosures now provide more decision-useful information that is

often more narrative and subjective in nature,” notes IAASB

Chairman Prof. Arnold Schilder.

“This gives rise to challenges from an auditing point of view,

and the proposals enhance certain areas in the ISAs to support the

proper application of the standards’ requirements,” he added.

The IAASB’s work has been informed by the feedback to its

January 2011 Discussion Paper, The Evolving Nature of Financial

Reporting: Disclosure and Its Audit Implications. The board has

also benefited from liaison and outreach with stakeholders,

including accounting standard setters, which are also actively

exploring initiatives relating to disclosures. The IAASB

acknowledges that many of the issues around disclosures cannot

be solved by the IAASB alone, and that collaboration and

cooperation between many interested stakeholders is necessary

to further enhance the public’s confidence in financial statement

disclosures.

“Public confidence in financial reporting can be damaged

when there are poor quality disclosures, including excessive or

immaterial disclosures that may obscure understanding of

important matters. This can result, for example, when disclosures

are prepared and audited relatively late in the financial reporting

process,” notes IAASB Technical Director James Gunn.

“One of the key areas addressed in the board’s proposals,

therefore, is additional guidance to help establish an appropriate

focus by the auditor on disclosures and encourage earlier auditor

attention on them during the audit process, including disclosures

where the information is not derived from the accounting system,”

he said.

How to Comment The IAASB invites all stakeholders to

comment on the IAASB Exposure Draft of proposed changes to

the ISAs to address disclosures in an audit. To access the Exposure

Draft or submit a comment, visit the IAASB’s website at

www.iaasb.org. Comments are requested by September 11,

2014.

IFAC Encouraged by Some Recent Developments in

Government Accounting; But G-20 Needs to Maintain

Focus

There are positive signs the sovereign debt crisis is easing. The

Greek and Portuguese governments have re-entered the bond

markets and Portugal is poised to become the second Eurozone

country, after Ireland, to exit its bailout arrangements.

Therefore, it is timely to reflect on what has been done since

the bailout programs were introduced and since lenders to the

Greek government wrote off significant losses on their debt

holdings. Austerity measures have been implemented and

TECHWATCH


The Malaysian Accountant 21TECHWATCH

government cash reserves built up, but much still needs to be done

to raise the general standard of government reporting,

transparency, and accountability.

We must not forget too quickly the lessons of poor

government reporting—that in some cases was misleading.

At the heart of the issue remains a concern: private sector

companies raising funds from investors on the capital markets are

required to provide audited, accrual-based, financial statements,

yet too many governments—even ones with bonds on the capital

markets—don’t follow the same practices. In fact, many do not

even use accrual accounting.

It has now been over a year since the G-20 Finance Ministers

and Central Banks Governors' Meeting in Moscow declared a

“goal of strengthening the public sector balance sheet” and of

“looking at transparency and comparability of public sector

reporting, and monitoring the impact of financial sector

vulnerabilities on public debt.”

An integral part of promoting such transparency and

comparability is accrual-based financial reporting in accordance

with high quality, globally accepted standards, such as the

International Public Sector Accounting Standards (IPSASs).

As one response to the G-20, the International Monetary

Fund (IMF) and World Bank—along with the Organisation for

Economic Co-operation and Development (OECD)—have

progressed a review of the governance of the International Public

Sector Accounting Standards Board (IPSASB). Additionally, the

European Commission, through Eurostat, initiated work to

consider how public sector financial reporting can be improved

within the European Union. It noted that IPSASs “represent an

indisputable reference for potential development of European

standards.”

“IFAC is encouraged by several initiatives that are currently

underway; in particular, strengthening the current governance

arrangements of the IPSASB will further enhance the credibility of

IPSASs and their influence on public sector financial reporting,”

said Fayezul Choudhury, Chief Executive Officer of IFAC.

He added, “However, there is much more that needs to be

done, and we believe that the G-20 has a key role to play in ensuring

that momentum is maintained and governments recognise the

benefits of enhancing financial management and reporting—to

ultimately improve transparency and accountability.”

IFAC strongly recommends that, throughout 2014 and into

the coming years, the G-20—in particular, finance ministers and

central bank governors—continue to focus on this critical matter.

To promote greater adoption of IPSASs, IFAC believes that these

standards should be added to the Financial Stability Board’s list of

standards that are designated as deserving of priority

implementation.

Furthermore, as part of its key strategic focus IFAC will

continue to promote the need for enhanced public sector reporting

and financial management through its recently launched

Accountability Now! Initiative, which aims to promote awareness

of the issue, facilitate guidance on implementation of IPSASs, and

encourage the development of needed technical capacity.

IAASB Re-Proposes Standard Addressing Information in

Annual Reports; Further Clarifies Auditor Effort and

Reporting Responsibilities

The International Auditing and Assurance Standards Board

(IAASB) recently released for re-exposure an enhanced

International Standard on Auditing (ISA) 720 (Revised), The

Auditor’s Responsibilities Relating to Other Information. The

proposed standard clarifies and strengthens the scope and focus

of auditor efforts on information included in entities’ annual reports,

other than the audited financial statements, and introduces new

auditor reporting responsibilities.

“There have been significant developments in recent years in

corporate reporting, in particular in relation to the information

included in entities’ annual reports. The importance ascribed by

users to this other information, and the weight they place on it, have

notably increased since ISA 720 was originally issued,”

commented Prof. Arnold Schilder, IAASB Chairman. “Auditors

have certain responsibilities relating to this other information as

part of an audit of an entity’s financial statements, and the IAASB is

intending to appropriately strengthen them—and users need to

know what those responsibilities are.”

Under the proposed ISA, the auditor would now be required

to perform limited procedures to evaluate the consistency of the

other information with the audited financial statements. In addition,

while reading the other information, the auditor would be

responsible to consider whether there is a material inconsistency

between the other information and the auditor’s knowledge

obtained during the course of the audit, and to remain alert for other

indications that the other information appears to be materially

misstated. The terms ‘other information’ and ‘annual report’ are

defined and explained in the standard in order to make the scope

of the standard as clear as possible, while also enabling its

appropriate application in light of differing corporate reporting

regimes and practices in a wide variety of jurisdictions and

circumstances.

“Feedback on the IAASB’s first proposals in 2012 indicated

broad support for the IAASB’s intention of strengthening the

auditor’s responsibilities relating to other information, including

new reporting responsibilities. However, commentators across

different stakeholder groups believed that the proposals needed to



be clearer in a number of areas to prevent potentially divergent

practices, both among auditors and between jurisdictions—an

outcome that would run contrary to the benefits sought by the

IAASB,” noted James Gunn, IAASB Technical Director.

How to Comment The IAASB invites all stakeholders to

comment on the IAASB Exposure Draft of Proposed ISA 720. To

access the Exposure Draft or submit a comment, visit the IAASB’s

website at www.iaasb.org/publications-resources. Comments

are requested by July 18, 2014.

DFID Approves £4.935M Funding for IFAC PAO

Development Activities

The UK Department for International Development (DFID) and the

IFAC recently announced an agreement to develop professional

accountancy organisations (PAOs) in emerging economies. The

new initiative was announced at a roundtable event in London,

hosted by Justine Greening, UK Secretary of State for International

Development, and attended by Warren Allen, IFAC President.

Under the agreement, DFID will provide £4.935m funding to

IFAC over seven years. The funding will be used to strengthen

PAOs in at least 10 DFID focal countries in four regions: Asia, the

Caribbean, the Middle East and North Africa, and Sub-Saharan

Africa. IFAC will facilitate, coordinate, and supervise capacity

building programmes and technical support, including peer-to-

peer support by more established PAOs, including those in the UK.

These programmes will build the developing country PAOs’

managerial, financial, and technical capacity so that they can drive

improvements in professional and ethical standards.

“IFAC has a long history of working to build capacity and

strengthen PAOs as part of our public interest mission, and we are

delighted about this significant next step in that journey,” said

Fayez Choudhury, CEO of IFAC. “Well-functioning PAOs ensure a

sustainable supply of professional accountants that support high-

quality accounting practices and financial information in both the

public and private sectors. They support enhanced confidence in

business and transparency in use of public funds, giving rise to

increased foreign investment and donor funding and improved

government accountability and transparency—and therefore are

essential to economic growth and stability.”

Ms. Greening said, “The UK’s financial sector is second to

none and its skills and experience can boost development across

the world. By helping developing countries to manage their own

resources better and attract investment we can create the jobs and

growth needed to lift people out of poverty.”

IFAC and DFID are signatories of MOSAIC: Memorandum of

Understanding to Strengthen Accountancy and Improve

Collaboration, which sets out the basis for improving cooperation

and collaboration between IFAC, international donors, and the

international development community to increase the capacity of

PAOs and improve the quality of financial management systems in

emerging economies.

European Audit Legislation Creates Potential for

Regulatory Divergence

The European Parliament vote on statutory audit legislation marks

the latest stage of the European audit reform process and

concludes nearly four years of discussion and debate.

As the IFAC has stated many times, we believe a primary

objective of audit regulatory reform should be to further enhance

audit quality, and ultimately the quality of financial reporting. In a

highly interconnected global economy, we see regulatory

convergence across jurisdictions as a critical part of meeting this

objective.

As a result, we welcome aspects of the European reforms

that adopt a globally consistent approach. However, other aspects

of the legislation—perhaps ones introduced in order to ensure its

successful passage—promote regulatory divergence and

fragmentation.

“We strongly support Europe’s step toward adopting

International Standards on Auditing. These high-quality

international auditing standards are globally accepted, and are

currently being used or adopted in over 90 jurisdictions around the

world, including many countries in Europe,” said Fayez

Choudhury, chief executive officer of IFAC.

“However, we are concerned that other parts of the

legislation provide individual member states with options that will

create a patchwork of regulation across the union. Not only will

Europe be out of step with other major jurisdictions, such as the US

and Canada, but member states will potentially be out of step with

each other. Just a few years ago, the oft-cited mantra was ‘global

problems require global solutions.’ The stakes are high and the rest

of the world will certainly be focused on what happens in Europe.

Failure to decide a consistent approach to audit regulation within

Europe does not auger well for the chances of agreement among

the global community.”

In January, IFAC highlighted the impact of the failure of

achieving global regulatory convergence: stifled business

confidence, economic stability, and ambitions for a sustainable

recovery. In areas including auditor independence—in particular,

mandatory audit firm rotation and the provision of non-audit

services—the European legislation is unclear and ambiguous, and

permits differences between its member states. In addition, it

differs from legislation in the many other jurisdictions—and yet will

impose regulatory requirements upon these jurisdictions.

TECHWATCH


The Malaysian Accountant 23GLOBAL INSIGHT

Australia is the most recent country in the region to have

introduced the Goods and Services Tax, which occurred

in 2000. We turned to Singapore for lessons learned from

when that country introduced GST in the 1990s. It is now

Malaysia’s turn to work through implementing GST and working

out how to face any possible issues associated with introducing

such a tax. Given the growing trade and other links between our

two countries, there is much interest in Malaysia’s preparation for

the planned April 2015 introduction of GST. Recognising that,

while tax regimes are rarely identical, our experience with GST

implementation may nevertheless provide some helpful insights.

The introduction of the GST will include a steep learning

curve for accountants, advisors to companies, as well as the

auditors who will need to familiarise themselves with the

requirements in order to be able to effectively audit this. The

implementation of GST is not just a tax matter; it affects every

aspect of a business. Accounting systems may also need to be

updated to accommodate the changes.

And there will of course be some areas of uncertainty. Some

of these, which arose in our experience ranged from the basic to

the potentially more complex ones. An example of the latter

included working through the issues of how to deal with GST in the

cash flow statement? Also, the question of accounting for

acquisitions of property, plant and equipment came, and whether

or not to include the GST component in end of financial year.

Auditors in Australia were encouraged to include a reference

to the GST in their engagement letters with their clients. They and

other professional advisors will also need to make sure they have a

comprehensive understanding of the new regime in order to be

able to audit their clients’ systems and be able to provide

meaningful input and insight.

Australian businesses that have Malaysian subsidiaries or

operations will find it necessary to review the impact that the GST

in Malaysia will have. If the Malaysian experience is similar to the

Australian one, expect to see the GST affect most business

functions, systems and processes.

The widespread impact of the GST will mean that preparing

your business or your clients for the implementation will be critical.

If you identify the scope of change that will be required it will go a

long way to help the implementation and also adherence to

compliance requirements. While there were hiccups along the way,

by and large the Australian experience has been successful and

Australia’s experience in GST implementation could be instructive.

NEWSfrom Down UnderBy Andrew Stringer, Director-Asia, Institute of Chartered Accountants Australia

A Measured Approach for the GST



United States

GASB Issues Exposure Draft on Fair Value Measurement

and Application

The Governmental Accounting Standards Board (GASB) recently

issued for public comment a proposed Statement addressing

accounting and financial reporting issues related to fair value

measurements.

The Exposure Draft, Fair Value Measurement and

Application, describes how fair value should be defined and

measured, what assets and liabilities should be measured at fair

value, and what information about fair value should be disclosed in

the notes to the financial statements.

“The proposed changes to the GASB’s fair value standards

are intended to increase clarity, consistency, and comparability in

governments’ fair value measurements and their related

disclosures,” said GASB Chairman David A. Vaudt. “The Board

believes that fair value measurements enhance the relevance of

reported financial information, particularly when accompanied by

robust disclosures.”

The GASB is proposing that fair value be defined as the price

that would be received to sell an asset or paid to transfer a liability

in an orderly transaction between market participants at the

measurement date. The Exposure Draft also proposes that

investments would generally be measured at fair value.

Investments would be defined as a security or other asset that a

government holds primarily for the purpose of income or profit and

the present service capacity of which is based solely on its ability to

generate cash or to be sold to generate cash.

Certain investments would continue to be excluded from

measurement at fair value, such as investments in money market

instruments with remaining maturities at time of purchase of one

year or less.

Under current accounting standards, state and local

governments are required to disclose how they arrived at their

measures of fair value if they are not based on quoted market

prices. In the Exposure Draft, the GASB is proposing to expand

those disclosures to include the inputs a government uses to

measure fair value and the judgments made to arrive at those

inputs.

The Exposure Draft is available on the GASB website,

www.gasb.org. Stakeholders are encouraged to review the

proposals and provide comments by August 15, 2014.

Source: www.gasb.org

PCAOB Issues Supplement Request for Comment on

Proposal for Reorganisation of Auditing Standards

The Public Company Accounting Oversight Board (PCAOB) has

issued a supplemental request for comment on its proposal for the

reorganisation of PCAOB auditing standards. The Board also

released on its website an online demonstration version that

presents the existing auditing standards as they would look if

reorganised according to the proposed framework.

"The proposed reorganisation is intended to make PCAOB

auditing standards more accessible and easier to navigate," said

PCAOB Chairman James R. Doty. "This supplemental request and

demonstration version provide further opportunity for the public to

consider and comment on the proposed reorganisation."

The supplemental request details the proposed line-by-line

amendments to PCAOB auditing standards and rules that are

needed to implement the proposed reorganisation. In addition, the

supplemental request includes certain minor changes to the

original proposal issued in March 2013.

The online demonstration version includes mapping tools to

help users understand the difference between the existing

organisational structure of the standards and the proposed new

organisational structure. It also features an e-mail link that allows

individuals to comment on any aspect of the reorganisation while

reviewing the demonstration version.

The framework the Board proposed in March would

reorganise the existing interim and PCAOB-issued auditing

W RLD News

GLOBAL INSIGHT


The Malaysian Accountant 25GLOBAL INSIGHT

standards into a topical structure with a single integrated

numbering system. Among the proposed changes, all PCAOB

auditing standards would be grouped into the following categories:

general auditing standards, audit procedures, auditor reporting,

matters relating to filings under federal securities laws, and other

matters associated with audits.

"The implementing amendments do not reflect any

substantive changes to PCAOB standards nor do they impose

new requirements on auditors," said Martin F. Baumann, Chief

Auditor and Director of Professional Standards. "Helping auditors

better navigate PCAOB standards could, in turn, facilitate better

compliance with the standards."

The Board has reopened the comment period for 60 days to

seek further comment on the matters discussed in the March 2013

proposing release, as well as the implementing amendments in the

supplemental request for comment.

Comments may be submitted by postal mail or e-mail, and

should be sent to the Office of the Secretary, PCAOB, 1666

K Street NW, Washington, DC 20006, or to

[email protected].

All comments should refer to Rulemaking Docket Matter No.

040 in the subject or reference line and should be received by the

PCAOB no later than 5 p.m. EDT on July 8, 2014. All comments will

be made public.

Source: www.accountingfoundation.org

New Zealand

NZASB Issue PBE Explanatory Guide on Materiality

The New Zealand Accounting Standards Board (NZASB) has

issued Explanatory Guide A7 (EG A7) Materiality for Public Benefit

Entities. The Explanatory Guide is written for Tier 1 and Tier 2 Public

Benefit Entities (PBEs). However, the content may also be useful for

Tier 3 and Tier 4 PBEs.

The objective of this Explanatory Guide is to help PBEs in the

public sector and the not-for-profit sector apply the concept of

materiality to the presentation and disclosure of both financial and

non-financial information in general purpose financial reports. The

Explanatory Guide is focused on those reports providing

information that users need for accountability and decision-

making purposes.

Source: www.accountingeducation.com

Australia

Tax Reform a Casualty on Governments Long Term Growth

Agenda

The Institute of Chartered Accountants Australia (ICAA) has

welcomed the government’s investments in infrastructure and

research in the Federal Budget but warns that piecemeal tax

changes could slow growth.

Institute Chief Executive Officer Lee White said that he

acknowledges the government’s commitment to infrastructure

investments through incentive-based funding models with the

states and territories.

“We can’t cut our way to prosperity, this is where targeted

investment and support is needed. With modest growth forecasts,

we welcome the government’s nation-building spending

commitments.”

Responding to the Treasurer’s confirmation of a ‘temporary

Budget repair levy’ Mr White said that long-term fiscal problems

could not be solved by short-term solutions.

“The debt levy could negatively impact consumer spending,

hurt unincorporated small businesses and puts Australia’s top

marginal tax rate amongst the highest in the world.

“The amount raised by the debt levy is projected to be only

$3.1bn over four years and even this may prove to be optimistic.

“While the government appears to have its house in order on

the spending front, this Budget shows we need to look at both

sides of the ledger to balance the books in the long run.”

The Institute is disappointed that there isn’t a clearer

roadmap for the tax reform process.

“We have been calling for broader tax reform which would

need to look at the GST rate and base. We also need to build a

community consensus on the need for meaningful tax reform and

that dialogue needs to be prioritised now.

“The only significant tax reform on the horizon is the

committed 1.5% cut in the company tax rate but while the

government is giving with one hand, it is taking with the other by

imposing a 1.5% tax increase on our largest companies to fund the

Paid Parental Leave scheme,” Mr White said.


Business Case for Integrated Reporting Strengthens

While there has been progress in some areas of corporate

reporting, organisations now have the difficult task of balancing

demands for more meaningful information while also making

reports meaningful for a broader range of stakeholders.



ICAA’s Chief Executive Officer Lee White said that Integrated

Reporting enables investors and key stakeholders to understand

how an organisation is really performing.

"Integrated Reporting allows stakeholders to understand

the strategy and performance of a company and how they are really

performing,” he said. “Integrated Reporting looks beyond the

traditional scope of financial reporting and numbers and actually

looks at getting the complete picture."

The guide Integrated Reporting – a guide for Audit

Committees in Australia and New Zealand, examines the

important role of audit committees in the oversight of reporting.

“As the role of audit committees expands beyond examining

financial information, Integrated Reporting is at the forefront. This

guide will go a long way to inform the director community about

their role in Integrated Reporting.

“If information that goes beyond financial reporting is not

relayed, stakeholders won’t get a sense of the value and output

created by a company as part of their business strategy,” Mr White

said.

The International Integrated Reporting Council (IIRC) last

year released its International Framework to establish globally

accepted guiding principles and content elements that govern the

overall content of an integrated report.

IIRC Board Member Jessica Fries commented: “Holistic

information provided by businesses is crucial in enhancing the

transparency and trust between businesses and investors. The

Framework is helping business communicate the material factors

that will enable investors to make better informed assessments of

the ability of a company to create and sustain value.”

John Stanhope, co-chair of the Business Reporting Leaders

Forum said: “Integrated Reporting gives us an opportunity to

reduce volume and complexity of reporting and provide more

useful information to stakeholders.”


United Kingdom

FRC Outline its Work to Give Justifiable Confidence in the

Quality of Audit

The Financial Reporting Council (FRC) has set out its work to give

justifiable confidence in the quality of audit. This expands on the

outline of projects and activity announced in the FRC’s current

three-year strategic programme.

Audit is a key pillar of public confidence in the UK’s corporate

governance and reporting. Since the financial crisis, the FRC has

introduced a number of measures designed to enhance audit

quality and increase the value of auditor reporting to investors to

underpin UK corporate activity. These measures include

retendering, enhanced and extended auditor reporting, and

directly informing audit committees of the results of the FRC’s audit

quality inspections.

In the near to medium term, the FRC will focus on the

expansion of its audit inspection work in line with

recommendations from the Competition Commission, the

implementation of the new EU Directive on statutory audit and

enhancing the quality of bank audits, including through its thematic

review of audits in this sector. It will also develop best practice

guidance for audit committees on assessing audit quality; assess

whether the ethical standards for audit remain fit for purpose; and

review audit firm governance including whether the declining

proportion of audit in the total business of the major audit firms

poses unacceptable risk to audit quality and capacity.

Over the longer term, the FRC will assess whether any

change to the scope of audit is necessary to meet investor

expectations. The programme has been developed, in part, in

response to a survey commissioned by the FRC, which

benchmarked the views of key audit stakeholders undertaken in

2013.

Stephen Haddrill, FRC Chief Executive said, “Audit is

fundamental to good governance and reporting. The quality of

audit in the UK is generally good but not always so and not always

perceived as such. The many measures that have been and will

shortly be introduced are designed to enhance audit quality and

strengthen investor confidence.”

Benchmarking Stakeholder Confidence in Audit

The stakeholder survey carried out last year and now published

provides a new benchmark of confidence in audit and will be

repeated in future to test the effectiveness of the FRC’s programme

in meeting legitimate expectations. The survey shows:

Confidence in the value of audit is correlated with the extent

of day-to-day experience of audit – auditors and companies are

generally confident in the value of audit. However, the largest

proportion of stakeholders, and in particular many investors, call

for more change including more transparency in auditor reporting

and a more open and competitive appointment process to help

improve their confidence in the independence of auditors and the

transparency of their audit conclusions. Some of the concerns

about independence and objectivity arise from the current

concentration of the market in the hands of a few firms.


GLOBAL INSIGHT


The Malaysian Accountant 27LIFESTYLE

For a long time, coffee was the favoured beverage amongsturbanites and though many people still jumpstart their day with thatcrucial cup of coffee, in the last couple of years, tea and healthy

juices are equally gaining popularity.By Kavalyn Kreer

Beverage Trends



Many may not know this but after water, tea is the second

most consumed beverage in the world. The tea industry

is transforming and in the last couple of years, a couple

of tea boutique cafes have sprouted around the city. According to

tea specialists and aficionados, premium tea has become the next

big beverage. Likewise, juice bars have become increasingly

popular and practically every shopping mall in the urban areas can

boast of not just one but a couple of juice bars to meet the high

demand.

People in the cities, particularly members of the younger

generation, have become very savvy about their beverage choices

and they know what they want. Even the health-conscious prefer

drinks that are low in alcohol, gluten-free and food-friendly. Smart

business individuals have seen the trends and have introduced

flavoured teas and healthy juices to their menus.

Even coffee drinking trends have changed across the world,

with more fashionable flavours being introduced in coffee cafes.

While some hard-core coffee-lovers still prefer their local coffee,

the more exposed younger generation is looking for something

more interesting in their everyday beverage. With the appreciation

of specialty coffee picking up here as well, lots of speciality coffee

cafes are sprouting up around the city.

One of the recent craze that has hit our shores is the bubble

tea that has led to a flurry of stores opening in the Klang Valley.

Bubble tea kiosks have mushroomed all over the city and over the

past two years or so, a variety of bubble tea brands have caught

the imaginations of consumers and this has spawned a modern tea

culture amongst Malaysians.

The bubble tea crazes first started in Taiwan and later

expanded to Japan, China and Macau. Soon after that, the craze

hit the Southeast Asian nations especially Singapore and Malaysia.

Innovative entrepreneurs brought the bubble tea business into

Malaysia and have made great success of it by catering to all

segments of the market including the health-conscious. They even

go, as far as to state that the bubble tea craze is not a fad or trend

that will diminish in popularity in years to come. The craze itself,

they say, will probably die, but this lifestyle concept will continue to

remain because bubble tea is destined to become an everyday

beverage.

While the bubble tea is not here to replace coffee, it has its

market segment. The drinks are supposedly 100% healthy and in

this day and age, healthy drinks are the fad. It certainly seems like

a tea culture is being inculcated into the Malaysian society.

Another popular market segment in beverages are the juice

bars that have been set-up all over the country especially in the

major cities. Just like coffee and tea outlets, the juice bars are not a

fad but a sustainable business which experts predict will still be

around in 10 to 20 years. Due to health awareness, juice bars are

gaining more popularity amongst Malaysians, regardless of

financial standing. And due to the economics of scale, the popular

juice bars can afford to lower their prices, some even below the

RM10 mark.

Even coffee outlets are beginning to realise the potential of

juice bars and one well-known coffee giant has gone beyond

coffee and tea to open several juice bars around the United States.

Suffice to say, it won’t be long before this new franchise makes its

way to the Asian shores and eventually to Malaysia.

It certainly looks like the days of unhealthy drinks are

numbered. Whilst there is still a market for soft drinks, healthy

concoctions seem to take precedence along with the still popular

coffee and tea. These are trends that are here to stay. And in the

long run, they are a healthier one with lots of benefits.

This article was written by Kavalyn Kreer, who writes lifestyle

articles for publication on the web and print.

LIFESTYLE

may - june 2014 pp 3809/03/2013 (031857

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