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ACCOUNTANT GENERAL
Datuk Saat Esa
06 EDITOR’s Note
07 President says
n Stewardship
08 Enhanced Auditors’ Report –
Driving Better Governance
22 Migrating to Accrual
Accounting
n Gamechangers
26 Four technologies every
accountant must know
about in 2018 08 22
28 How the blockchain will
change the finance industry
29 Audit automation
16 34
n engagement
32 Peer-2-Peer Lending
34 Financing for
Technopreneurs
n Accountability
36 Formulating an Effective
Remedial Action Plan
40 IR - Gaining Momentum
44 Financial Reporting
Disclosures: Communicating
what matters
Leveraging on Strategic
Collaboration
I
am a big believer in the value of strategic alliances Meanwhile, ICAEW is sharing on blockchain as the back-
and collaborative leadership, which underpin the bone for accounting in the 21st century, which will bring
communal spirit of today’s global businesses and with it an unprecedented level of tamper-proofing, trans-
markets. As the saying goes: united we stand, divided parency and permanence.
we fall. A hallmark of my management style since tak- MIA is also delighted to collaborate strategically with
ing over as CEO of MIA is to conduct intensive strategic the government as a key stakeholder to enhance the
engagement and to keep open communication channels quality of the government finance function and profes-
with all our stakeholders. Only by talking to one another sional accountants in public service. As a highlight of this
can MIA gather the right data to inform our strategies issue, we were fortunate to speak to our new Accountant
and decision-making. Only by working together can we General Datuk Saat Esa, who briefed us on the public sec-
strengthen one another, utilise our mutual resources and tor’s journey towards accrual-based accounting and the
capital, and make up for individual shortcomings. gamechanging systems being rolled out to make govern-
This is the same approach that we are taking in crafting ment finance more efficient and transparent.
Accountants Today, our bimonthly publication for communi- Finally, this issue also includes more technical content,
cations and development of our members and all accountants in response to members’ expectations for more guidance
in the profession. The cover story for this issue talks about on increasingly complex standards. MIA has beefed up
Enhanced Auditors’ Report (EAR) and the progress that has our surveillance and enforcement actions, and revamped
been made since EAR was implemented. As the standard practice review to deliver higher quality audits and protect
setter for auditing standards, MIA worked together with the public interest. As such, borderline audit practitioners are
Audit Oversight Board (AOB) of the Securities Commission advised to read about how to craft and execute an effective
and ACCA to drive awareness and enhance implementation remedial action plan, to ensure compliance with the latest
and audit quality, which demonstrates our strategic col- auditing standards and ISQC1. Also in this issue is com-
laboration approach in action. The joint survey conducted parative guidance on the accounting treatment for invest-
by AOB-MIA-ACCA found that EAR is welcomed by key ment property under Malaysian Public Sector Accounting
stakeholders such as investors and Audit Committees, and Standard (MPSAS) 16, Malaysian Financial Reporting
also shows that EAR is demonstrating the value of audit in Standard (MFRS) 140 and Section 16 of Malaysian Private
good corporate governance and building trust. Entities Reporting Standard (MPERS).
Another example of our strategic collaboration is that We hope that this issue will be helpful to members and
we are co-opting expertise and content from other thought all accountants in the profession in navigating the numer-
leaders and professionals. Contributor Anthony Staltari, ous disruptions that we foresee. Forewarned is forearmed.
Partner Consulting Director – Asia, Xero tells us about the And by constantly learning, transformating, collaborating
gamechanging technologies - such as cloud accounting, strategically, and contributing generously, all of us can
audit and practice management software, business apps, actively work to create a more respected profession that
direct bank feeds, and OCR (optical character recognition) makes a genuine impact on society, the economy and the
tools – that can do your heavy lifting and tedious work to world. n
make your practice far more efficient and effective. Even
better, AI can help mitigate your talent woes, which is
a real challenge for small and medium-sized practices! Happy Reading!
The November/December 2017 issue of Accountants Today under the President Says (page 7) had addressed the Sultan of Perak
Errata as “His Majesty”. Our apologies as the correct title to address the Sultan of Perak is “His Royal Highness”.
2017 was a remarkable year for MIA. Among the highlights: we Malaysia (SC), MIA and ACCA on
the first-year implementation of
celebrated our 50th Anniversary with many Golden Jubilee events
the EAR revealed that key users
including a Gala Dinner graced by royalty, we issued our first Integrated of audit and financial reports
Report, and we organised our most successful MIA International found value in the new reporting
Accountants Conference ever with record-breaking attendance. standards, with two thirds of the
sur veyed respondents acknowl-
edging that it is an improvement
As we go forward into 2018, we intend to maintain this compared to the old auditors’ report.
momentum, with the ultimate goal of instilling integrity, The results from this study are based on the review
accountability and trust to build a nation that commands of EARs and annual reports of a sample of 190 companies
global respect. We want to help build a nation that ranks listed on Bursa Malaysia with financial periods ending
highly in all global measures, not just economically but 31 December 2016, as well as views from over 170 Audit
in holistic terms such as those measured by the 17 UN Committee members and investors. The AOB, MIA and
Sustainability Development Goals. This is also in alignment ACCA were in agreement that the EAR has spurred con-
with IFAC’s vision and support for “mainstreaming, imple- structive behavioural changes within the financial report-
menting and monitoring” the SDGs, as ing ecosystem and improved engagement
MIA is an IFAC member body. between investors and companies in
While all the SDG goals are noble Malaysia.
and important, perhaps the most relevant
we need to climb As we seek to improve audit qual-
to the profession are: Quality Education
up the value ity and market trust and confidence,
(Goal 4), Gender Equality (5), Decent chain. We must we must also focus on artificial intel-
Work and Economic Growth (8), Industry, unlearn and ligence, especially machine learning that
Innovation and Infrastructure (9), Reduced relearn, and will supplement – not supplant! - audi-
Inequality (10), Peace and Justice Strong become more tors in their work. As thought leader
Institutions (16) and Partnerships to ethical, in order Donny C. Shimamoto, managing director
achieve the Goal (17). Indeed, initiatives to enhance at Intraprise TechKnowlogies wrote in the
such as MyPAC driven by MIA deliver integrity, IFAC Global Knowledge Gateway, “There
on Goals 4, 10 and 17. And through the accountability is definitely a future need for a human
profession setting and executing stan- and trust, and auditor even as machine learning starts
dards on responsible disclosure – such subsequently to augment audit procedures. The auditor
as through sustainability reporting and public perception. role, for both internal and external audi-
integrated reporting, we influence action tors, will switch from performance of the
on all 17 goals, such as fighting modern procedures to design of the procedures,
slavery in supply chains, ensuring resilience against climate interpretation of the results, and monitoring the effective-
change, and supporting a circular economy. ness of the interpretation.”
One of the prime mechanisms that MIA is driving to So we are not being phased out, but we need to climb up
boost trust and quality is the new Enhanced Auditors’ the value chain. We must unlearn and relearn, and become
Report (EAR). The enhanced auditor reporting standards more ethical, in order to enhance integrity, accountability
were issued by the International Auditing and Assurance and trust, and subsequently public perception. This is the
Standards Board (IAASB) and adopted in Malaysia in 2015, way forward for the profession, in our quest to build the
with an effective date of 15 December 2016. nation. Together we can do it. n
I am delighted to report that a joint study by the Audit
Oversight Board (AOB) of the Securities Commission
n by Nazatul Izma
Driving
Better
Governance
One year on, the new requirements for the
Enhanced Auditors’ Report (EAR) have tangibly
improved engagement, communications and
corporate governance, according to a joint
study by the AOB, MIA and ACCA. Now, where do
we go from here?
Enhanced auditor reporting requirements have 1 The previous auditor’s report was in binary form and
been in effect for a little more than a year, effective with boilerplate standard wordings, whereas the new
for all annual reports with financial periods ending on EAR has Key Audit Matters (KAMs) that are entity-
or after 15 December 2016, meaning that hundreds specific, written in the context of the organisation
of enhanced auditors’ reports (EARs) reached the being audited and the industry in which it operates.
market throughout 2017. KAMs are matters that were of most significance in
the audit of the financial statements. Auditors are also
Old versus New required to communicate how the audit addressed
those matters.
Key differences can be observed between 2 The audit opinion is placed at the beginning of the
previous audit reports and the new EARs, explained auditors’ report to give greater prominence as to
Alex Ooi, Executive Officer, Audit Oversight Board, whether the financial statements are true and fair in
at a media briefing and launch of the joint AOB-MIA- accordance with the applicable financial reporting
ACCA study entitled Enhanced Auditors’ Report: framework.
A review of first-year implementation experience in 3 Auditors are required to include an explicit
Malaysia: affirmative statement about the auditors’
Development of EAR
FUNCTIONS OF THE AC: Enhancement to AC role to focus on Review of 190 EARs and annual
significant matters highlighted, including financial reporting reports with December year-end
issues and significant judgements made by management
AC REPORT: Disclosure on how the AC discharged its functions Surveys conducted with Audit
and met its responsibilities Committee members and
Immediate announcement of modified opinion or material investors (170 responses received)
uncertainty related to going concern (MUGC) in the auditors’
Focus group discussions with
report
Audit Committee members
Quarterly reports disclosure on modified opinion or MUGC in and investors
the annual financial statements for the preceding financial year
2.50
50 2.5
2.31 2.31 2.19
2.06
2.00
2.42
40 2.0
30 1.5
1.60 1.63
52
1.00 50
20 1.0
10 24 0.5
16 16
10 12
1 1 8
0 0
IPC Hotels Plantation Finance Construction Properties Technology Consumer Industrial Trading/
Products Services
No. of PLCs Average No. of KAMs per PLC
Average no.
‘ Most year-one EARs comprise only one or two KAMs. I expect the number of of KAMs in
KAMs to increase as we get into year two. Businesses face several challenges Malaysia
and the number of KAMs must reflect the increased complexity.’
- Survey respondent, Audit Committees 2.09
Impairment of
28
70.8% Significant management
judgement
receivables
Impairment of goodwil
and intangible assets 27 3.8% Significant risk
of material misstatement
Valuation of
inventories 21
Impairment of
24.4% Others
investments 14
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are not required to explicitly address KAMs to further enhance the Audit Committee a positive impact on how audit is
in their Audit Committee report, but they report. compensated.
have to talk about how they discharge 7. Finally, 78% of Audit Committees So what can we conclude? At the
their responsibilities, so some disclosure and 67% of investors say they have end of the day, the purpose of EAR is
on KAMs would be expected. The study greater insights into how auditors “not just to enhance audit reporting
asked investors whether they were satisfied conduct audits; 77% of Audit but to effect the behavioural change
with how Audit Committee disclosure had Committees and 57% of investors have and improvement in the other aspects. I
addressed the issues highlighted in the more confidence in the quality of audits think in our first year of implementation,
KAMs - one third said it was satisfactory, one in Malaysia. The increased confidence is while there clearly remains room for
third were dissatisfied and one-third had not good news for auditors. The enhancement improvement, we are off to a great start,”
given it any thought, so there is clearly space in how audit is perceived may have enthused Chiew.
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Stewardship
n By Nazatul Izma
Transforming
Public Sector
Finance
New Accountant General of
Malaysia Datuk Saat Esa
shares his views on
the strategy and
direction of the
AG’s Department
going
forward.
Enhancing Cybersecurity
Collaboration with
MIA
n BY NAZATUL IZMA
Migrating to
was set up to create the Malaysian Public
Sector Accounting Standards (MPSAS),
drawn primarily from the International
Accrual
Public Sector Accounting Standards
(IPSAS) with the International Federation of
Accountants (IFAC)’s agreement.
Accounting
Laws and regulations – The
current Financial Procedures Act 1957 only
requires a cash basis financial statement
to be presented to Parliament. Therefore,
amendments to the Financial Procedures
Act 1957 and other relevant acts have
Charting the Federal government of to be made to enable a set of accrual-
Malaysia’s progress in its journey to based financial statements to be tabled in
Parliament.
Accrual Accounting.
System change – A new accounting
system had to be developed because
the existing system was only designed
The Federal government of Malaysia Execution for cash accounting. This new system,
is currently applying the modified 1GFMAS (1 Government Financial and
cash basis of accounting. The actual journey then started Management Accounting System) will be
While cash accounting is easy to in 2013 with the creation of a special a centralised system with a single database
implement and understand, the quality taskforce in the Accountant General’s to be integrated with some of the other
of information in a set of financial Department (AGD) of Malaysia to
statements prepared on the cash spearhead this change. The multiple
basis is very limited. For example, activities required to facilitate the
the Statement of Financial Position transition can be categorised into the
of the Federal government only following workstreams:
shows the amount of cash and the
investments held in respect of the
Consolidated Fund, and thus does not
present the full picture of the Federal
government’s financial position.
As such, the government
announced its intention to move to
the accrual basis of accounting in the limited
2010 New Economic Model (NEM) While cash accounting
report. Subsequently, in 2011 a one- is easy to implement and
month long intensive PEMANDU lab understand, the quality
was conducted to analyse the change, of information in a set
resulting in a detailed implementation of financial statements
roadmap with a high-level timeline. prepared on the cash
basis is very
limited.
government systems. The new system also not accounted for under the current cash of the new accrual accounting system,
needs to have the capabilities to perform accounting system such as fixed assets, 1GFMAS. 1GFMAS is a SAP-based
cash reporting, taking into consideration liabilities, receivables and payables, and accounting system that needed major
that the budgeting process will still be in impairment values needed to be compiled customisation to meet the specific needs
cash basis even though the accounting for the opening balance. This was a huge of the government.
will be accrual. exercise covering all the 25 ministries A major customisation required
impacted; such information was complied for 1GFMAS is dual ledger capabilities
Processes – Accrual accounting using templates. External consultants were – one for accrual accounting and
requires a transaction to be recorded also engaged to assist in the compilation one for cash accounting. In order to
when the event happens, as opposed to of information and to provide technical develop dual ledger capabilities, a fully-
cash accounting where the transaction assistance. customised module has to be added
is recorded when the cash is paid. on the existing standard accrual SAP
Accrual accounting also introduces new The Challenges system. This fully customised module
accounting processes like fair value and will receive all accrual transactions
impairment. Therefore, new standard As expected, there were many from the existing standard accrual SAP
operating procedures and guidelines challenges along the journey. These general ledger and make postings to a
were developed to provide guidance included: separate ledger using cash basis rules.
and knowhow on the application of such The development of these cash basis
processes. Building 1GFMAS rules can be complicated due to the
One of the most challenging aspects massive number of transaction types
People – The AGD needed to of the entire project is the development available in the government.
restructure its processes and culture in Another challenging aspect
line with the new need arising from the of the system development is the
accounting change. Accounts divisions integration with other existing
in the line ministries were set up and government systems. Major systems
the Responsibility Cost Centres were that need to be integrated into the new
strengthened with accounting personnel. accrual accounting system include
Change management and numerous procurement and
training programmes were organised to payment (eServices,
build capacity. Change Ambassadors were ePerolehan, HRMIS
nominated and empowered to assist with and PMS) and fixed
the transition management. asset management
systems (SPA and
Opening balance information –
Relevant financial information which was
databases.
The accounting standard allows
historical cost or replacement cost to be
used to record the value of the opening
balance fixed assets. Although historical
cost is the preferred method, the difficulty
of locating original purchase documents
for older assets makes it very challenging
to adopt. As a result, only new acquisitions
use historical cost, while most of the older
assets use replacement cost as the basis
for the opening balance value.
The method used to determine
the replacement cost depends on
the type of assets. The service of the
government valuers, Jabatan Penilaian dan
Perkhidmatan Harta (JPPH), was used to
determine the replacement cost of land and
buildings. This was a massive exercise and
MYSPATA). The integration has to be required a reasonable period to complete.
done carefully and properly, otherwise One of the Valuation of other infrastructure assets,
the whole system could fail. biggest such as roads and sewerage facilities were
performed by the respective agencies due
challenges
Obtaining the opening balance to the specialised knowledge required.
in obtaining
One of the biggest challenges
in obtaining the opening balance is the opening Application of standards
determining the complete list of assets that balance is Applying accounting standards in the
are owned or controlled by the Federal determining government is more complicated than in
government. Currently, the Federal the complete the private sector due to the size and
government maintains immovable assets list of assets diversity of the government services. A
(land and building) information in the that are owned similar item can have a different treatment
MYSPATA system and movable assets or controlled depending on how the agency is using the
(office equipment) in the SPA system. by the Federal item. For example, books and journals
C
The information from these two systems will normally be an expense item for most
Government.
was leveraged to help build the list of agencies but if the agency is the public M
The information was then reconciled an asset item. This requires the users CM
billions. However, setting a materiality to the lack of information and the existence of all assets under its control,
threshold can be very judgemental huge cost or effort to rebuild such and may require a period of time to
for the public sector because the information. Fortunately, the IPSAS obtain and compile appropriate records
government is dealing with public board has recognised that when an to account for such assets. A transition
funds. The threshold is usually lower as entity first adopts IPSAS, it may not have period of three years is given to fully
compared to the private sector because comprehensive information about the adopt the requirements of the standard.
there is public accountability involved.
As a result, more items would have to
be capitalised making the transition to Conclusion
accrual accounting more difficult. While Malaysia is close to the finish line, there is still more to be
The accounting standard requires done. The challenges faced in Malaysia are no different from those faced
the entity to allocate the amount by other countries which have implemented accrual accounting. While
initially recognised in respect of an new standard operating procedures have been developed and appropriate
item of property, plant and equipment training conducted, it will still take time for the entire government
to its significant parts and depreciate machinery to absorb them and adjust to these changes. The journey may
each part separately. This is called be painful, but it is necessary to enhance the public sector’s financial
componentisation. However, information discipline and governance for the betterment of the country.
to componentise the existing assets
of the government to their significant
MICPA_01.pdf 1
parts would 07/02/2018 12:26 PM
be very challenging due This article was first published in the government’s newsletter Fokus Akruan.
Gamechangers
n By Anthony Staltari
Four
technologies
every accountant must
know about in 2018
are sacrificing money and productivity. out GST if required. If your clients are
Most SMEs globally are using 15 to 20 giving you paper receipts that you have
software apps to run their business. to sort, file and store, OCR can eliminate
My question to you is, do they talk that almost entirely.
to each other? If they have an API,
they likely do. The acronym stands for Now that you’re aware of the
Application Program Interface, and it technologies available, consider their
allows timesheeting apps, expense practical effect. They’ll move you
apps and bank account apps to talk to closer to four goals that should apply
your accounting platform. The biggest to every practice in 2018:
cloud accounting platforms partner with
hundreds of apps.
Make your office completely
Direct bank feeds paperless.
Has your practice automated your
client’s’ bank reconciliation? Can your Have nearly all your systems
client log into a mobile device and see seamlessly integrate.
his current cash position? If not, you
need to discover direct bank feeds. Provide you and your clients
HSBC and DBS are already allowing their a real-time view of their cash
small business clients to receive direct, position on a mobile device.
daily feeds of their bank transactions
in their accounting platform. Both Complete a map of your
you and clients get a real-time view internal processes for further
of their finances that is more secure refinement with the apps
and of higher integrity than third-party available.
workarounds.
stuff of reconciliations and the tedious
work of verifying information. If you and OCR Here’s to hitting all four targets in
your clients aren’t on a cloud-based Remember when we used to hire the year 2018! n
accounting platform, you can’t take teams of people to get documents,
advantage of it. send/receive, scan/store and then enter
the information into a computer? Optical
Business apps character recognition (OCR) is changing
Do your clients understand that all of that. With a simple photo of a bill
their point-of-sale (POS), customer or receipt, OCR can not only identify the
relationship management (CRM), name of an outlet and how much was
management, logistics and email apps spent, but can also tell if the receipt was
need to integrate with one another issued in Hong Kong, meaning it would
in the cloud? If business apps aren’t enter it into the accounting system in
connected to each other, your clients Hong Kong dollars. It can also separate
n By Tiana Laurence
At first glance, accounting the backbone for accounting in the This technology is already
professionals may feel like latest 21st century - and with it comes an powering new types of currency such
technology buzzwords don’t apply to unprecedented level of transparency as Bitcoin. Government agencies
them. After all, while the last decade and permanence. around the world are looking at
has seen major technological leaps - using the blockchain as a new secure
smartphones, cloud applications, etc. - What is the way to maintain permanent records
none of them required understanding blockchain? like voting, and the United States
what happened under the hood. government is investing in blockchain
Instead, it simply required waiting Imagine a stone tablet with startups as a means of securing the
for consumer releases to take those financial records etched in, each with Internet of Things.
advances into the mainstream. For a unique identifying number. The next
example, as a CPA, using the cloud record is another tablet linked to it Impact on
version of tax-return software is a sequentially, and the next one and accounting
seamless transition from the local the next one, creating a permanent
versions, except that it is backed-up chain of etched-in-stone records, all At its core, those in the financial
and accessible via online means. publicly visible for people to audit industry -- everyone from accountants
In 2017, the biggest technology and verify. The blockchain is a digital to finance executives -- are concerned
buzzword is blockchain. Does that version of that. Each transaction lives about records: their accuracy, their
mean people in the finance industry in a block, which is then linked to the accessibility, and the ability to get
-- anyone from CFOs to independent blocks before and after it to maintain multiple parties to verify and confirm
CPAs to auditors -- take note of it? permanent records -- removing a block that they’re consistent. So much time
Non-tech people may find the idea from the chain will show that data is in this industry is used (some would
behind blockchain technology missing or corrupt. This data lives say wasted) during this consolidation
to be confusing, and that could on a publicly accessible network of process as records are checked and
bring up initial caution. In fact, the auditing systems, which continuously double-checked before the data can
Wikipedia definition can be nearly verify the records, making any attempt be put forward into further usage.
inscrutable for those not in the IT to hack or change records caught Blockchains create a single source
realm: A blockchain is a continuously near-instantaneously. On a deeper of information that multiple parties
growing list of records, called blocks, technology level, these records use can reference and collaborate
which are linked and secured using one-way cryptography so that records against that is also trusted, secure,
cryptography. But the blockchain can be verified for accuracy without and permanent. When the industry
matters because it can become revealing the details of the ledger. implements blockchain software, it
Audit automation
overnight for any company. The sensible and most likely
action is that major corporations will roll out a blockchain
implementation in small local ledgers such as accounts
payable/receivable. That will then likely elevate to larger What is the rise of big data and
volumes, such as direct customer transactions until the
whole company shifts into these records. We are now AI doing to audit? Quite a bit, as
seeing blockchain-enabled software tested in small niche Caroline Biebuyck finds out
areas that allow it to prove value. It will be some months
before these tests move to live data. Once major players in
an industry shift to internal blockchain records, there is a
path to creating a unified industry standard. At that point,
an actual industry disruption can take place.
The insurance industry gives us a good case of how
two or more competitive entities can collaborate, when “If you don’t turn up at the tender beauty parade
appropriate, by sharing information that has already had with something to say about technology, you’re less
its provenance established. For example, when two people likely to win the contract.”
under different insurance companies are in a car accident,
the entire process becomes streamlined. Coverage types,
payment dates, and incident records will have a pre- Audit is facing what could be its biggest shake-up
established source and be accessible to all parties that need ever. Automation is changing the nature of audit work,
the information, allowing for an easier path to resolution. replacing much of the low-level ticking and bashing with
And as more people understand how blockchain technology higher value-added work, concentrating on analysis and
works to improve the integrity of processes, the level of judgements.
public trust will elevate an industry’s overall reputation. And it is something all audit firms need to know
about. While the largest firms are leading the way
What’s on deck? with introducing new technology, these techniques are
starting to filter down and will eventually have a place in
The most important thing for finance professionals to all audit practices.
understand is that blockchain technology will not replace
their jobs. Like the advent of the personal computer, it will ANALYSING DATA
make their jobs easier, and free their time spent on tracking
down and verifying data, and instead, professionals will be The biggest game changer to date is data analytics.
able to focus on what to do with that data. With all of this on This can be used to review the ordinary transactions
the horizon, the best way for individuals to future-proof their of a business, downloading transactions from client
career trajectories is to prepare now. Understanding new companies and interrogating them. Nick Frost, KPMG
technology may seem daunting, but the possibilities it opens head of audit technology, gives the example of a global
makes it a worthy investment in time and energy. n client that had more than 3.5 billion transactions across
nearly 100 countries last year. “You need to know what’s
Tiana Laurence, co-founder of Factom and author of material and important and where the risks are to ensure
Blockchain For Dummies you don’t get carried away. We could interrogate this to
the nth degree. But we don’t: our tools interrogate in a
©ICAEW. Reproduced with the kind permission of ICAEW. way that’s appropriate for the audit.”
No reproduction or re-distribution is allowed. First published This interrogation starts to get interesting when
in ‘economia’ September 2017. machine learning – in which the technology continuously
Audit automation
teaches itself – is applied. For instance, to review large numbers of contracts. “We will invest but I think like many
PwC is using machine learning to audit The Big Four firms have machines mid-tier firms we will wait and see
journals. “We’ve not told it what to look that use natural language processing how the technology progresses before
out for, such as journals posted on a to “read” the contracts, looking out for jumping in.”
Saturday night or unusual amounts or triggers that might make a difference As is usual with firms of its size,
unusual account combinations,” says when the new rules come into play. most of UHY’s audits are based on
Gilly Lord, head of audit strategy and substantive testing rather than
transformation at the firm. “The more BEYOND THE BIG FOUR testing and then relying on controls.
journals and the bigger population you This means that the key risks tend
feed it, the better it gets at identifying Much of the growth in data to be around judgement calls and
what is a real anomaly.” analytics and artificial intelligence in non-routine transactions. “I’m not
One of Lord’s colleagues piloted the Big Four firms over the past few sure to what extent data analytics
the machine learning in parallel with years can be put down to one factor: programmes lend themselves to that –
the regular human investigation of the competition. The change in audit firm you still need a human to consider the
data analysed on a recent audit. The rotation rules and resultant explosion grey areas,” says Jones.
results, she says, were fascinating. in tenders for listed company audits has While there are cloud-based
“The machine is identifying fewer sent the largest firms into a technology technology options being marketed
anomalies for investigation – but it arms race. “If you don’t turn up at the to cover substantive tests, the critical
turned out that these were the real tender beauty parade with something factor is cost. One solution Jones
anomalies, the ones we needed to to say about technology, you’re less looked at carried an approximate fee
spend time on.” likely to win the contract,” says Henry of several thousand pounds for each
Some analytic tools are being Irving, head of ICAEW’s Audit and audit. “If the audit fee is £1m then
applied to judgements that are Assurance Faculty. that’s not a problem, but if it’s £10,000
based on predictions, such as asset As the technology trickles then it’s not worthwhile.”
impairment. These tools can review down, every audit firm, regardless Small firms are the slowest at
a client’s forecasts for recovery of of its size, needs to decide on its taking the developing technologies on
an asset and then apply predictive innovation strategy: whether it should board. However, small audit practices
algorithms against those forecasts to be a first mover, fast follower, mass could find data analytics useful in
come up with a probable value of the implementer, or laggard. None of risk assessment and analysis, says
cash the asset will generate. What used these choices are bad, Irving points Nigel Hughes, managing director of
to be a manual process is transformed out – it’s all a question of what suits Totteridge Associates and chair of the
into a multiple-scenario model that a firm’s client base. “Firms need to ICAEW Practice Committee.
can be used to challenge the client’s balance the risks and benefits,” he “Audit focuses on risk assessment,
judgement. says. “Being a first mover comes with planning and so on, and that hinges
These tools are incredibly powerful, high costs and high risks; that’s of on asking the right questions. Those
says Frost. “Now I can sit in front of an limited benefit to firms further down questions could be generated from
audit committee and say I am 90% sure the size ranking.” more intelligent accounting systems
that this asset is worth what you think Medium-sized firm UHY Hacker or other tools, and this will have an
it is. That’s something I could not have Young is taking its time in evaluating impact on the way all practices do their
done without the predictive algorithm.” its strategy. The firm has looked at audits. In addition, digital techniques
There’s also a lot of work going on three different software providers, will affect more judgemental issues,
around natural language generation all of which take a slightly different either because of how the questions
and natural language processing. approach to using data analytics in the are structured or because they will
This has become more pressing with audit. “The difficulty is in establishing highlight judgements that need to be
the introduction of new accounting how we can actually get better audit made.”
standards, such as those for revenue quality through the use of data Hughes is optimistic that while the
recognition, which require audit teams analytics,” says partner Martin Jones. owners of some small practices are
deciding audit automation is a step too over the years,” he says. – in other words, how the machines’
far and are selling up, some will take “Everything is changing, from minds work. The research is expected
the plunge and invest in the new tools the way technology is used and is to run until 2021.
available. “A good number of those I impacting business to new societal
have talked to see the opportunities expectations on business conduct BLOCKCHAIN: THE BIG
and commercial benefits in audit and the paramount importance of DISRUPTOR?
technology. Especially since they can trustworthiness. It’s imperative for
rent cloud-based software, so do not our profession to find alternative ways A number of multinational
need to make a large investment.” to deliver our service.” companies are looking at putting
their supply chains on blockchain
TRANSFORMATING WHAT GOES ON INSIDE – and more are thinking of joining
THE AUDIT THE BLACK BOX? them. Records that go on blockchain
can be permanent, immutable and
What impact is this technology As software develops, more of the public, explains Richard Anning,
having on the overall audit product? audit process will likely be performed head of ICAEW’s IT Faculty. “A lot of
Firms cite improved audit quality: on automated platforms. Clients may audit work could become redundant
machines can simply do things quicker also use these platforms themselves. on blockchain, such as reconciling
and more accurately than humans. ICAEW’s Henry Irving says this balances of parties that are on it. The
Other improvements are making the has implications on the use of such larger firms are working on this, as
audit more effective (“previously when platforms in the statutory audit. It are established tech companies like
we had to do something manually it also raises the question of whether IBM together with a variety of tech
might have taken us down a rabbit the platforms should be regulated as start-ups.”
hole,” as Frost says) and giving better well. “Do the platforms reach certain Although many people anticipate
insight into the historical accuracy of a criteria and do they comply with the blockchain having a dramatic impact
company’s forecasts and the volatility international standards on auditing? on audit, Anning points out that the
of assumptions in those forecasts. If there is less auditor involvement in technology is at an early stage. “We
Irving, however, points out that the mechanics of what’s being done, are looking at how accountants and
the new technology is still a tool. the auditor might need to show he has auditors can use the technology rather
“Questions around audit quality and correctly discharged his duty to make than assuming it will spell the end of
scepticism are the same as they sure the tool he’s using is appropriate the profession; we will need to work
always were. A practice might have and up to standard.” with this and adapt.” n
different tools and be operating in a This could include considering
different environment but it still needs whether there is any bias pre- ©ICAEW. Reproduced with the kind
to be aware of what’s going on and programmed into the system. Consider permission of ICAEW. No reproduction
make a judgement on where it takes Microsoft’s unfortunate experience or re-distribution is allowed. First
its practice and skills set to do what’s with Tay, its AI chatterbot launched in published in ‘economia’ September
expected of it.” 2016. Microsoft had to shut Tay down 2017.
David Herbinet, global head of within just 16 hours; learning from its
audit and assurance at Mazars, has users, the bot’s persona had turned
long been concerned that the current from wholesome teen to offensive
audit service does not deliver what bigot.
the market expects or needs. “We Meanwhile, a project sponsored by
believe that the collaboration of audit the US Defense Advanced Research
professionals with stakeholders in Projects Agency is looking to get
audit and technology experts can bring intelligent machines to explain to
results that are capable of disrupting a humans how deep learning systems
market that has not evolved much come up with the answers that they do
n By Majella Gomes
Peer-2-Peer
the application of financial technology
or FinTech. Here in Malaysia, P2P is
regulated by the Securities Commission
(SC). “Investors can choose where to
Lending
put their money, and issuers can declare
their risk levels,” explained Er Chiang
Chuan, Head of Business Development,
B2B Finpal. “The main difference is
that approvals are very quick because
Is crowdfunding suitable for your business? everything is done online, transparently
and without the need for collateral.”
It could be a stellar option in the evolving
Speaking at the Government Grants
digital economy, which is also transforming the & Financing Seminar for SMEs 2017, Er
financial landscape. explained that B2B Finpal offers invoice
financing, paying invoices of companies
which have already chalked up sales
but may be experiencing cash flow
Peer-to-peer lending (P2P) enables businesses to seek financial difficulties because they haven’t been
aid from investors through an online platform. The P2P platform paid yet. B2B Finpal is a subsidiary of
operates as an intermediary that matches the needs of a business B2B Commerce and provides invoice
which needs financial aid (the issuer) with that of an investor looking services to large corporations like
for ways of increasing investment returns (the investor), through AEON, for example.
n By Majella Gomes
Financing for
Technopreneurs
Technopreneurs seeking loans experience to start-ups over a period to take an interest in funding start-
should seek out Cradle Fund Sdn Bhd, a of 12 months, to help them get their ups, meaning that the pool of funds
government agency under the Ministry businesses into shape and their products has expanded. “At present, we have
of Finance (MoF) which has put in place to market. The start-up teams enrolled more than 30 co-investment partners
several financing initiatives to spur the in CGP have so far generated RM49.4 whom we work with to channel funds
growth of the technology industry in million in revenue while the scaled-up to deserving enterprises,” said Adam,
Malaysia. These are the CIP Catalyst businesses have generated RM1.24 noting that interest in non-traditional
and CIP500, which are pre-seed and billion. business sectors was gaining traction.
seed conditional grants; the Coach & Cradle Fund has also successfully Some stellar successes include Grab
Grow Programme (CGP) which offers rolled out its Cradle Investment Taxi and Carlist.my. Grab Taxi received
one-on-one entrepreneurship coaching Programme (CIP), under which it a grant from Yayasan Rakyat Malaysia,
on key business fundamentals; tax offered funds under CIP Catalyst and and subsequently raised funds
breaks for angel investment called Angel U-CIP Catalyst, and CIP500. Both these successfully from five different groups
Tax Incentives; and DEQ800, which is funds have now closed as monies have of investors. Carlist, on the other hand,
direct equity investment. been fully disbursed but while they were was established with venture capitalist
The three main areas to keep an operational, CIP Catalyst and U-CIP funds, was subsequently acquired
eye on for tech growth are Artificial Catalyst each offered up to RM150,000 by the Catcha Group and was listed
Intelligence (AI), video and mobile to teams of individuals which needed on the Australian Stock Exchange in
content and blockchain, said Adam funding for prototype development. September 2012. n
Ramskay, Cradle Fund’s Marketing CIP500 was for start-ups to the amount
Manager at the recent MIA Government of RM500,000, for funding of market
Grants and Financing for SMEs seminar access for their products and services.
2017. An increasing number of
Cradle starts funding technoprises traditional corporate funders
from pre-seed stage, to production were now beginning
of prototype or proof of concept, to
production and commercialisation,
new markets, and subsequent scaling
and expansion. “DEQ800, which offers
capital injection of up to RM800,000
for local early-stage tech start-ups, was
recently launched,” said Adam.
Beyond financing, Cradle
Fund’s assistance offers
CGP, a customised
coaching programme
that provides two dedicated
coaches with entrepreneurial,
investor or senior management
Formulating an
Effective
Remedial
Action Plan
MIA’s Remedial Action Plan applicable
for audit firms with Type 3 rating aims
to tackle continuing weaknesses in audit
firms’ performance, in order to heighten
audit quality and improve public trust.
know how to perform an audit, but the most appropriate remedial actions
the question is how to ensure the that best fit the firm’s plan to address
consistent execution of high-quality the deficiencies identified by the
audits. Therein lies the challenge for Practice Review Department (PRD).
practitioners to undertake an in-depth The PRD has identified the
analysis of their firms based on the six following critical factors to be
elements of ISQC1 in order to identify considered in the formulation of an
root causes that detract from audit effective RAP:
quality, be it in areas such as the firm’s
structure, leadership, culture, policies Timing
and procedures, audit methodology Practitioners must recognise that
and human resources. Performing a the remedial process is not a one-off
RCA is thus imperative to ensure that exercise to satisfy the requirements of
firms are able to formulate remedial the Practice Review Programme but
plans that are targeted to address the an ongoing, continuous project in the
relevant underlying deficiencies in the interest of elevating the audit quality of
practice. the firm. It is crucial to commence the
remedial process early, maybe even after
Remedial Action the discussion of the deficiencies with
Plan (RAP) the PRD at the Practice Review closing
meeting.
Remedial measures vary based on
the size, complexity and circumstances Analysis and identification
of each practice. Accordingly, the of issues
practitioners of the firm are well- Firms should devote considerable
placed to analyse, identify and design attention, time and effort to analyse
the deficiencies identified during the
Practice Review, and identify the root
causes underlying the failure of the
quality control system. The practitioners
Monitoring should engage with the PRD Reviewers
to discuss the deficiencies specific to
their firm, and to seek the Reviewers’
Human Leadership guidance throughout the remedial
Respon-
Resources process.
sibilities
problems underlying the
deficiencies identified ROOT Formulation of
during the practice CAUSE remedial actions
review, instead of merely
ANALYSIS The rule of thumb for the
resolving the symptoms. formulation of a successful RAP
Engagement Relevant
What firms need to do Ethical
is that ‘change is a necessary
Performance
really is to understand Requirements evil’ – policies and procedures that
at a ver y fundamental do not contribute to audit quality
level, what is hindering Acceptance and should be amended or even replaced
the realisation of an effective Continuance of Client as necessary.
system of quality control. There Relationships and Specific In drawing up the RAP, firms must
Engagements
is little doubt that practitioners ensure that the remedial measures are
n By Nazatul Izma
IR - Gaining
Momentum
What’s the latest on the integrated
reporting front? And how can preparers
produce a better IR that is more useful
to investors and stakeholders?
disclosure of non-financial
information. Global State of IR
- The updated UK FRC guidance Over
1,500
on Strategic Report strengthens
the alignment between the Strategic
Report and Integrated Reporting in
organisations
several important ways, in particular by
adopted IR
recommending that non-financial information
should be integrated throughout the Strategic
Report, as of 15 August 2017. Over
- The European Commission (EC) adopted
non-binding guidelines on the disclosure of 50%
Integrated reporting (IR) is non-financial information by companies which of CEOs, CFOs and
continuing to gain visibility and support aims to help companies to disclose relevant COOs are moving
globally, slowly but surely. and useful information on environmental and towards IR
Globally, more and more influencers social matters in a consistent and comparable and over 35% say they
are continuing to throw their weight way, as of 26 June 2017. will
behind IR. At the recent Integrated - The IFAC had released a paper stating
2,000
Reporting Breakfast Talk 2017 at the that “IR is the way to achieve a more coherent
Securities Commission, Dr. Nurmazilah corporate reporting system, fulfilling the need
Dato’ Mahzan, CEO, MIA, recounted for a single report that provides a fuller
participating in
some of the key global updates picture of organisations’ ability to create value
IR Networks
strengthening IR: over time”, as of 11 Jan 2017.
- Investors reinforcing support - IR was included in the Philippines worldwide
for non-financial disclosures. As Corporate Governance Code which came into
of 16 October 2017, Australian asset
owners and some of Europe’s largest
force on 1 January 2017 and is expected to
encourage increasing number of companies 320
institutional investors had put their to use the International IR Framework. predicted to adopt
names to a statement supporting better - The Integrated Reporting Committee IR in Japan in 2017
Deloitte is ready for Industry 4.0, galvanised by the possibilities, are you?
Let Deloitte help you navigate your business to benefit from the technology revolution. With our
world-class track record and capabilities, we can deliver innovative solutions that harness the power
of new technologies to help your company stay competitive, relevant and ahead of the curve.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of
member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred
to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/my/about to learn more about our global network of
member firms.
IR - Gaining Momentum
IR Adoption in Asia
Sri Lanka 27
India 11
Singapore 10
Hong Kong 5
China 2
Philippines 1
collect information from external and present the IR project to the Board. Disclosure of KPIs and
stakeholders to determine materiality, Panellists agreed that support at Board performance measures across
and companies might want to defer level is very important to ensure the the capitals - these should be both
this to the second or third year of their long-term take-up and success of IR. quantitative, qualitative and comparable,
IR journey. As an experienced adjudicator of and explain how these capitals are used
How to Get Started - Panellists integrated reports, Prof. Goolam was and linked to strategy and value creation.
recommended doing a gap analysis to also asked about the key factors that
identify your unique barriers to IR and adjudicators look for in excellent IR. He Disclosure of risks - a good IR is
the areas where your organisation is shared that these include: balanced and tells the negative side of
lacking. Do a checklist to assess the the story, discloses risks and how these
gap between your present corporate Articulation of the value are managed.
reporting practices and the IR creation story - a good IR
framework on preparing an integrated demonstrates understanding of In concluding the breakfast
report by the International Integrated business and the context in which talk, Simon Tay, Executive Director,
Reporting Council (IIRC), as a starting the organisation operates, whereas Professional Practices & Technical,
point. an excellent one takes it to the next encouraged participants to sign the
Appoint a Champion - There level by demonstrating connectivity pledge cards for IR adoption, with
has to be a driver within senior and linkages. The better the integrated the long-term outcome of enhancing
management, such as the CFO or head thinking, the better the connectivity of the quality of external reporting in
of communications, who can drive IR information. Malaysia. n
Accountability
Financial
Reporting
Disclosures
Communicating what matters listed entities for the period from July
2016 to June 2017, highlighting areas
that should be communicated better
The Financial Statements Review Committee highlights in the financial statements.
common deficiencies arising from the review of financial
statements of public-listed entities for the period from Does the entity have major
July 2016 to June 2017. customers?
Disclosures relating to major
customers enable stakeholders to
gauge an entity’s extent of reliance on
its customers to generate sales. Major
The financial statements serve as a sought to ensure adequate information customers represent a significant
fundamental communication tool in is disclosed in accordance with the concentration of risk to an entity. In
relaying the management’s objectives applicable accounting standards. volatile business environments,
and processes while demonstrating In providing guidance to relationships between suppliers and
governance over the assets they were members on good financial customers are constantly shifting.
entrusted with. In weaving the story reporting, the Financial Statements Customers, in their search for better
of an entity, preparers of financial Review Committee (“FSRC” or “the margins, may choose to switch suppliers
statements must decide on how much Committee”) wishes to highlight or even move to develop products
information they want to disclose to common deficiencies arising from the internally, adversely affecting the entity.
their users. A balance needs to be review of financial statements of public- Approximately one-third of the
Table A: Other common findings of FSRC for Review Period from July 2016 to June 2017
CONCLUSION
n By Majella Gomes
GST
“The Budget is an expansionary budget. It is not about
big spending but about encouraging innovation, technology,
automation and bringing more women into the workforce,”
explained Annie Thomas, Senior Assistant Director, Fraud
and Insights
the latest amendments to the legislation underpinning GST
guidelines and regulations. With GST providing about 18% of
government revenue, this value-added tax is here to stay, she
added, and traders were getting used to it.
Her GST updates covered the services by local authorities
Annie Thomas, Senior
and the related amendments to the Act. Among the updates:
Assistant Director, Fraud
Investigation Unit, RMCD
The current zero rating of some printed reading materials
provided guidance into the
will now be extended to cover all printed materials,
latest developments on GST effective from 1 January 2018.
Legislation and Guides at
Cruise ship operators would be given relief from payment
the recent MIA 2018 Budget
of GST for handling services, from 1 January 2018 to 31
Seminar. December 2020. These services include port and harbour
services, dock and berth, wharfage, conservancy, graving
dock services, mooring, demurrage, security and fire services.
n By Majella Gomes
HIGHLIGHTS:
Recent
Tax CasesIrene Yong, Partner, Tax and Revenue Practice
Group, Shearn Delamore & Co, covered ten cases
in her critical review of recent tax cases and
tax developments at the 2018 MIA Budget Seminar.
Below, we round up some of the key takeaways.
Yong provided salient examples of the DGIR appealed to the High Court but
IRBM’s cases against taxpayers accused the High Court agreed with the SCIT.
of transgressing tax laws, as well as A case of Judicial Review was also
cases where taxpayers challenged the presented, which involved the taxpayer
IRBM’s findings and sought redress seeking to quash the IRBM’s “decision”
through legal channels. Among her contained in a “letter of findings” – but
key examples were H Sdn Bhd which while the High Court decided in favour
argued that the IRBM had issued public of the respondent, on appeal, the Court
rulings which were conflicting. The of Appeal found for the IRBM, ruling
court ruled in H’s favour, and the IRBM that since the letter of findings did not
settled. constitute a decision, the taxpayer’s
In the case of DGIR (Director affirmed the SCIT’s decision, ruling that application had been prematurely filed
General of Inland Revenue) v United reimbursements do not incur tax. and was an abuse of the court’s process.
Malacca Bhd, land was compulsorily The SCIT ruled in favour of CIMB The taxpayer appears to be taking this
acquired by the government and late Bank Bhd as well, in a case involving case to the Federal Court.
payment charges were treated as databases acquired by CIMB from The case of DGIR v Toxicol Sdn
payment on income. The SCIT (Special another bank. The point in contention Bhd came about because of the loss
Commissioners of Income Tax) found was whether such databases qualified of business rights. Although the SCIT
for the taxpayer, holding that late for capital allowances. The DGIR initially found for the IRBM which
payment charges and reimbursement assessed the databases as “goodwill” had treated as revenue the RM23
of retrenchment benefits (paid out by not “plant” and penalised CIMB, but million received by Toxicol (whose
United Malacca Bhd in connection with the SCIT held that the databases were core business was the management,
the government’s acquisition of its land) intangible assets that could be included handling, removal and disposal of
should not be subject to income tax. On under “plant” because these were tools toxic waste) for the termination of its
appeal by the IRBM, the High Court used in the taxpayer’s business. The business, the High Court found for
Toxicol because it had lost its business which involved land acquired as far all these constituted a single source
rights with the receipt of the RM23 back as 1965, subsequently developed of income. The High Court found for
million, under circumstances that had in the 1980s, revalued, then sold, and MPHB; the IRBM did not appeal. Many
caused a forced sale. The IRBM’s appeal incorrectly assessed for real property groups of companies consequently
to the Court of Appeal was dismissed. gains tax, according to developer SUEPP. benefitted from this ruling.
In another case, Kualiti Alam, a The SCIT held that these assets were In FFHM Bhd v KPHDN,
waste management company which stock-in-trade and therefore is subject to investment company FFHM took loans
collects, stores, treats and disposes of RPGT; SUEPP filed for judicial review, to finance business activities and that of
scheduled waste, claimed reinvestment and both parties appealed to the High its subsidiaries. It also lent or advanced
allowance for plant and machinery but Court but later entered into a consent money to these subsidiaries; some as
was rejected by the IRBM on the basis judgement to settle the case. interest-bearing loans and some as
that the taxpayer was not manufacturing Multi-Purpose Holdings Bhd v DGIR interest-free, and contended that both
or processing products within the involved investment holding company these types of loans constituted a single
meaning of paragraph 8 of Schedule 7A Multi-Purpose Holdings Bhd, which source of income – thus deductions
of the ITA. While the SCIT found for the received dividend income from the should be given for all interest incurred.
taxpayer, the High Court allowed the holding of shares in various companies, The SCIT disallowed the expenses
IRBM’s appeal because it felt that the and giving loans and deposits. The on the non-interest bearing loans and
taxpayer was providing a service. DGIR treated each counter of shares, held that interest-free loans granted to
Describing it as a “Blast from each loan and all deposits as separate the subsidiaries were not a source of
the Past,” Yong presented the case sources of MPHB’s income but the income, present or future; the High
of KPHDN v SUEPP Bhd from 2001, SCIT found for MPHB, holding that Court upheld the SCIT’s decision. n
NOTICE
MOORE STEPHENS ADVISORY SDN BHD (1128087-T)
MOORE STEPHENS TNT (AF0740)
Take notice that the aforesaid entities, Moore Stephens Advisory Sdn Bhd (1128087-T) and Moore
Stephens TNT (AF0740) have ceased to be member firms of Moore Stephens International Limited
with effect from 1 January 2018.
Lim Huck Hai, Dato’ Ab. Halim bin Mohyiddin, Tiong Ian Ping, Teo Kin Mia and Ng San Chuan, being
the directors/partners of the aforesaid entities are no longer authorised to act in any way
whatsoever for or on behalf of Moore Stephens.
n By Majella Gomes
Assessing
Budget
2018
Touted as a Budget for the Malaysia, when
people, the 2018 Malaysian Budget kicking off the
had goodies for many segments of opening session at
society and the economy. “The 2018 the recent MIA 2018
Budget is intended to improve the Budget Seminar with
standard of living of all Malaysians, the theme of Encompassing
and took into consideration the TN50 Aspirations.
global economic performance and Azizal focused his presentation on
synchronised economic growth,” said Budget 2018’s main proposals in five
Mohamad Azizal Abd Aziz, Principal major categories: income tax, stamp
Assistant Secretary, Incentive Section, duty, international tax, GST and tax
Tax Division, Ministry of Finance, incentives. Income tax
2018, GST will not apply to all service of Finance (MoF) from 27 October management of appeals and operations,
providers. 2017. the Customs Appeal Tribunal and the
• To harmonise GST treatment between • From 1 January 2018, big-ticket items GST Appeal Tribunal will be merged,
Federal and State government and on the MoF’s approved list will not be becoming the Customs Appeal
local authorities, all supplies made by subject to GST if brought in by firms Tribunal effective from 1January 2019.
local authorities will not be subject to involved in the aviation, shipping
GST. Local authorities will no longer and oil & gas industries. Companies Tax incentives
need to be registered under the GST involved in the oil & gas industry
Act 2014 and will not be eligible will have further relief through GST Twelve tax incentives have been
to claim input tax credit. They will exemption on goods imported under proposed, ranging from incentives
be granted GST relief on all goods lease agreements into Malaysia from to promote automation in the
excluding petroleum and commercial Designated Areas. manufacturing sector, to boosting
buildings or land, and on the import of • Cruise ship operators will be given existing incentives to encourage
cars. relief from GST on handling services industrial transformation through
• Full (100%) GST relief will be granted provided by sea operators in Malaysia, more concerted adoption of technology
on construction services for school to attract more cruise ships to make across the industrial board. These
buildings and places of worship Malaysia a port of call and increase the include the following:
financed through public donations, for number of inbound travellers. • Employers who take on disabled staff
applications submitted to the Ministry To ensure smooth, efficient will be eligible for deductions.
• The application period for incentives in or from Malaysia, effective from YA forum discussion assessing the likely
for new 4- and 5-star hotels has been 2018 to YA 2020. impacts and outcomes of the Budget.
extended; and tour operators will • Investors will find two proposals most Remarking that the 2018 Budget
be exempted from tax on income encouraging: exemptions that include was essentially a one-year plan that
derived from tour packages within income received from management nobody should get excited over, Dr.
and to Malaysia with a certain number fees and performance fees in Veerinderjeet said that the Ministry
of participants. Medical tourism too managing venture capital company of Finance had to look at many issues,
will be incentivised to encourage the funds, and a three-year extension internally and externally, taking into
upgrading of private healthcare service of the tax incentive period for angel account a wide range of domestic
infrastructure and medical facilities. investors. and global dynamics, when crafting
• Further support will be given via • Finally, women who take a career the Budget. Thus, Budget strategies
double deductions for private break, then return to the workforce involved invigorating investment,
healthcare providers which obtain may be eligible for individual income developing the future generation,
quality systems and standards tax exemption for 12 consecutive prioritising the people’s wellbeing,
certification from recognised bodies. months after resuming their jobs. driving inclusive development,
Tax exemption levels will also be fortifying industry and the digital
increased from 50% to 100% on Following this, Dr. Veerinderjeet economy and enhancing efficiency
income derived from healthcare Singh, Chairman, Taxation Practice and delivery of public service.
services exported to foreign clients Committee, MIA, moderated a lively Malaysia’s budget deficit has
Take advantage of the special admission pathways for MIA members with a minimum
of 5 years membership.
cpaaustralia.com.au/malaysianinstitute
Technical
Comparison between
MPSAS, MPERS and MFRS:
Investment Property
In this article, we analyse the accounting treatment
for investment property under Malaysian Public Sector Definition
Accounting Standard (MPSAS) 16, Malaysian Financial Investment property is property (land or a
Reporting Standard (MFRS) 140 and Section 16 of Malaysian building – or part of a building – or both) held
Private Entities Reporting Standard (MPERS). by the owner or by the lessee under a finance
This analysis focuses on the significant requirements in lease to earn rentals or for capital appreciation,
MPSAS that are similar and different from the requirements or both, rather than for:
in MFRS and MPERS in relation to (i) recognition; (ii) i. Use in the production or supply of goods
measurement; (iii) disclosures and (iv) first-time adoption. or service, or for administrative purposes;
This comparison does not discuss the requirements in MFRS or
or MPERS that are not available in MPSAS. ii. Sale in the ordinary course of operations.
Recognition
The following table discusses the recognition principle in the three frameworks:
Measurement
MFRS MPERS MPSAS
Initial Measured at cost on initial recognition and transaction costs should be • Measured at cost (including transaction
measurement included in the initial measurement. cost) for exchange transaction.
• Measured at its fair value as at the date of
acquisition for non-exchange transaction.
Measured at the lower of: Measured at the lower of: Measured at the lower of:
i. fair value of the property; and i. the fair value of the property and i. the fair value of the property and
ii. present value of the minimum ii. the present value of the ii. the present value of the minimum lease
lease payments minimum lease payments payments
for property held under a lease for property held under a lease and for property held under a lease and classified
and classified as an investment classified as an investment property as an investment property as prescribed for a
property as prescribed for a as prescribed for a finance lease, finance lease.
finance lease. even if the lease would otherwise
be classified as an operating lease.
Subsequent An accounting policy choice to Measured at fair value at each An accounting policy choice to measure using
measurement measure using either: reporting date with changes in fair either:
i. cost model; or value recognised in profit or loss. i. cost model; or
ii. fair value model ii. fair value model
and shall apply to all its and shall apply to all its investment property,
investment property, except: except where a property interest is held by a
• where a property interest held lessee under an operating lease, the fair value
by a lessee under an operating model shall be applied.
lease, the fair value model
shall be applied; and
• an entity chooses either the
fair value model or cost model
for all investment property
backing liabilities that pay a
return linked directly to the
fair value of, or returns from,
specific assets.
There is a rebuttable presumption Investment property whose fair There is a rebuttable presumption that an
that an entity can reliably value cannot be measured reliably entity can reliably determine the fair value of
determine the fair value of without undue cost or effort shall be an investment property on a continuing basis.
an investment property on a accounted for using the cost model
continuing basis. in Section 17 Property, Plant and
Equipment.
The three frameworks are similar Generating Assets which are similar standards will be discussed in future
in relation to the depreciation and to MPERS and MFRS with no issues.
impairment with no significant significant differences noted. While
differences noted. For impairment, if the asset is a non-cash generating Transfers and
both MPERS and MFRS have similar asset, the requirements in MPSAS 21 disposal
requirements. However, under Impairment of Non-Cash-Generating In relation to transfers and disposal,
MPSAS, an entity has to determine Assets should be complied with. A the three frameworks stipulate the
whether the asset is a cash-generating1 comparison of the impairment following:
or non-cash generating2 asset. If
the asset is a cash-generating asset, 1
Cash-generating assets are assets held with the primary objective of generating a
the entity applies the requirements commercial return.
in MPSAS 26 Impairment of Cash- 2
Non-cash-generating assets are assets other than cash-generating assets.
MIA notice
Decisions of the Disciplinary Committee of the Malaysian Institute of
Accountants (Institute) against members pursuant to Rule 18(1) of the
Malaysian Institute of Accountants (Disciplinary) Rules 2002
Phuah Hian Kee (1119) as one of the proprietors of Messrs. H.K. costs of RM2,000-00 and ordered to attend a course conducted by the
Phuah & Co. (the Firm) had been punished and imposed a fine of Institute on Audit Quality Enhancement Program by the Disciplinary
RM3,000-00, costs of RM2,000-00 and ordered to attend a course Committee of the Institute on 28 September 2017 after the Firm had
conducted by the Institute on Audit Quality Enhancement Program been rated as ‘unsatisfactory’ as indicated in the Follow-up Review
by the Disciplinary Committee of the Institute on 28 September 2017 Report dated 9 February 2015 which detailed the weaknesses in the
after the Firm had been rated as ‘unsatisfactory’ as indicated in the audit work performed.
Follow-up Review Report dated 9 February 2015 which detailed the
weaknesses in the audit work performed. Tay Yok Suan @Tay Yoke Soon (917) as the sole proprietor of Messrs.
Sykt. Y.S. Tay (the Firm) had been punished and imposed a fine of
Wong Chie Hong (987) the partner of Messrs. Liew & Company (the RM3,000-00, costs of RM2,000-00 and ordered to attend a course
Firm) had been punished and imposed a fine of RM3,000-00 and costs conducted by the Institute on Audit Quality Enhancement Program
of RM2,000-00 by the Disciplinary Committee of the Institute on 28 by the Disciplinary Committee of the Institute on 28 September 2017
September 2017 after the Firm had been rated as ‘unsatisfactory’ as after the Firm had been rated as ‘unsatisfactory’ as indicated in the
indicated in the Follow-up Review Report dated 25 September 2015 Follow-up Review Report dated 29 March 2016 which detailed the
which detailed the weaknesses in the audit work performed. weaknesses in the audit work performed.
Wong Chi Tieng (3920) the partner of Messrs. Liew & Company (the Dato’ Saw Eng Guan (3910) as the sole proprietor of Messrs. Guan
Firm) had been punished and imposed a fine of RM3,000-00 and costs & Associates. (the Firm) had been punished and imposed a fine of
of RM2,000-00 by the Disciplinary Committee of the Institute on 28 RM3,000-00, costs of RM2,000-00 and ordered to attend a course
September 2017 after the Firm had been rated as ‘unsatisfactory’ as conducted by the Institute on Audit Quality Enhancement Program
indicated in the Follow-up Review Report dated 25 September 2015 by the Disciplinary Committee of the Institute on 28 September 2017
which detailed the weaknesses in the audit work performed. after the Firm had been rated as ‘unsatisfactory’ as indicated in the
Follow-up Review Report dated 2 June 2016 which detailed the weak-
Phang Chin Ping (6457) as the sole proprietor of Messrs. Phang & nesses in the audit work performed.
Co. (the Firm) had been punished and imposed a fine of RM3,000-00,
Disclosure
MPSAS 16, MFRS 140 and Section 16 of MPERS have some similar requirements in relation to disclosure. Both MPSAS 16
and MFRS 140 have some additional requirements on disclosure compared to Section 16 of MPERS.
First-time adoption
General requirements in relation to first-time adoption in relation to investment property are as follows: