Insights into Malaysia’s convergence with IFRS

KPMG in Malaysia
Insights
into Malaysia’s
convergence
with IFRS
Transition to IFRS-compliant Malaysian
Financial Reporting Standards (MFRS)
December 2011
kpmg.com/my
About this publication
This publication has been produced by KPMG in Malaysia and the views expressed herein are those
of KPMG in Malaysia.
Content
The purpose of this publication is to assist you in understanding the main differences between the
existing Financial Reporting Standards (FRSs) and IFRS-compliant Malaysian Financial Reporting
Standards (MFRSs) that are effective from 1 January 2012. This publication also discusses the
relevant transition exemptions under MFRS 1, First-time Adoption of Malaysian Financial Reporting
Standards that are applicable in the period when an entity first adopts and applies MFRSs.
The new IFRS-compliant MFRSs issued by the Malaysian Accounting Standards Board (MASB) are
equivalent to International Financial Reporting Standards (IFRSs) issued by the International
Accounting Standards Board (IASB).
This publication does not discuss every possible difference; rather, it highlights those differences that
an entity could expect to encounter when transitioning to the new MFRS framework.
Generally, the standards and interpretations discussed in this publication are those that are applicable
for an annual reporting period beginning on 1 January 2012. The differences and changes from
MFRSs with effective date after 1 January 2012 are not covered in this publication. For example,
implications arising from MFRSs 9, 10, 11, 12 and 13 are not included in this publication. However, an
entity may early adopt these standards before they are effective.
MFRSs and their interpretations change over time. Therefore, it is important for companies planning
their adoption of MFRSs to monitor developments that may impact their conversion. Accordingly, this
publication should not be used as a substitute for referring to the standards and interpretations
themselves.
Organisation of the text
This publication is organised into topics, following the typical presentation of items in financial
statements. Section 2 discusses the main differences between FRSs and MFRSs on general topics
such as business combinations and relevant transition exemptions under MFRS 1. Section 3 and 4
deal with specific statement of financial position items and specific statement of profit or loss and
other comprehensive income items respectively. Section 5 mainly highlights the new and major
changes to the disclosure requirements under MFRSs for the annual periods beginning on or after 1
January 2012.
Other ways KPMG can help
Other KPMG publications
Copies of this publication are available from
the Professional Practice Department of
KPMG in Malaysia. Please contact us at:
We have a range of publications that can assist you
further, including:
KPMG
Professional Practice Department
Level 10, KPMG Tower
8, First Avenue
Bandar Utama
47800 Petaling Jaya, Selangor
Malaysia
Phone: +60 (3) 7721 3388
Email: [email protected]
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Insights into IFRSs
IFRS Handbook: First-time adoption of IFRS
First Impressions publications, which discuss
new pronouncements
New on the Horizon publications, which discuss
consultation papers and exposure drafts
IFRS Disclosure Checklist
Illustrative Financial Statements
Technical information is also available at
kpmg.com/ifrs.
Your conversion to MFRS/IFRS
As part of a global network of member firms with experience in more than 1,500 IFRS convergence
projects around the world, we can help determine that the issues are identified early and can share
leading practices to help avoid the many pitfalls of such projects. KPMG has extensive experience
and the capabilities to help support you through your MFRS/IFRS assessment and conversion
process. Our experienced professionals can advise you on your MFRS/IFRS conversion process,
including training company personnel and transitioning financial reporting processes.
For further assistance with your conversion to MFRS/IFRS, please speak to your usual KPMG
contact.
Abbreviations used in this publication
FRS
Financial Reporting Standard issued by the MASB
IASB
International Accounting Standards Board
IAS
International Accounting Standard issued by the IASB
IC Int. or IC
Issues Committee Interpretation issued by the MASB
IFRS
International Financial Reporting Standard issued by the IASB
MASB
Malaysian Accounting Standards Board
MFRS
Malaysian Financial Reporting Standard issued by the MASB that is
effective for annual periods beginning on or after 1 January 2012
Contents
1
Introduction
1
1.1
New MFRS framework
1
1.2
Effective date and applicability
1
1.3
Differences between FRS and MFRS
2
1.4
Transition to MFRS framework
3
1.5
General principles of MFRS 1
3
2
General
4
2.1
Business combinations and contingent consideration
4
2.2
Foreign currency translation and presentation currency
5
2.3
Capitalisation of borrowing costs
7
3
Specific statement of financial position items
8
3.1
Property, plant and equipment and investment property
8
3.2
Prepaid lease payments
12
3.3
Biological assets
13
3.4
Income taxes
14
3.5
Government loans
17
4
Specific statement of profit or loss and other comprehensive
income items
18
4.1
Property development activities
18
4.2
Shared-based payment
21
4.3
Employee benefits
22
5
New and amended disclosures
23
5.1
Related party disclosures
23
5.2
Financial instruments: Transfers of financial assets
25
Appendix 1
IFRS-compliant Malaysian Financial Reporting Standards
26
1
Insights into Malaysia’s convergence with IFRS
1
1.1
Introduction
New MFRS framework
On 19 November 2011, the Malaysian Accounting Standards Board (MASB) issued a new MASB
approved accounting framework, the Malaysian Financial Reporting Standards (MFRSs). The issuance
of MFRS framework finalised MASB Exposure Draft 75, IFRS-compliant Financial Reporting
Standards issued in June 2011 and sealed the MASB’s plan to fully converge with International
Financial Reporting Standards (IFRSs) on 1 January 2012.
The issuance of MFRSs will result in the Malaysian financial reporting framework being recognised as
an IFRS-compliant financial reporting framework. The MFRSs are equivalent to IFRSs word-by-word
and have the same effective dates as IFRSs.
1.2
Effective date and applicability
Entities that are currently applying the existing Financial Reporting Standards (FRSs) shall apply the
new MFRS framework for annual periods beginning on or after 1 January 2012, except for entities as
discussed below.
Entities within the scope of MFRS 141, Agriculture or IC Interpretation 15, Agreements for the
Construction of Real Estate, are temporarily exempted from applying MFRS framework on 1 January
2012. An entity (i.e. parent, significant investor or joint venture partner) that consolidates, equity
accounts or proportionately consolidates another entity within the scope of MFRS 141 or IC
Interpretation 15 is also temporarily exempted from applying MFRS framework on 1 January 2012.
Such exempted entities (referred to as ‚Transitioning Entities‛) may continue to apply existing FRS
framework. Under existing FRS framework, IC Int. 15, Agreements for the Construction of Real
Estate has been withdrawn and IAS 41, Agriculture has not been adopted. As such, entities involved
in property development will continue to apply FRS 201, Property Development Activities and entities
in agriculture sector will continue to apply existing accounting policies.
Nevertheless, these Transitioning Entities will apply MFRS framework for annual periods beginning
on or after 1 January 2013. Early adoption of the MFRS framework is permitted.
This partial exemption model adopted by the MASB is likely to pose significant challenges to certain
group of companies or conglomerates operating in multiple industries since the exemption has not
been granted to other related entities within a group (subsidiaries, associates or joint ventures) of the
Transitioning Entities if they do not fall within the scope of MFRS 141 or IC Interpretation 15.
Insights into Malaysia’s convergence with IFRS
2
The following chart illustrates the entities that are exempted from applying MFRS framework (i.e.
may continue to apply FRS framework) and other group entities that are required to apply MFRS
framework:
FRS/ MFRS
FRS / MFRS
Holding company
and ultimate holding
company
MFRS
Significant investor / joint
venture partner
MFRS
FRS/ MFRS
Entities within
scope of MFRS
141 or IC 15
Other subsidiaries
Other associates /
joint ventures
MFRS
Subsidiaries not
within scope of
MFRS 141 or IC 15
MFRS
Associates not
within scope of
MFRS 141 or IC 15
Private entities currently applying the Private Entity Reporting Standards (PERS) may continue to
apply PERS or they may choose to apply the MFRS framework in its entirety for the annual periods
beginning on or after 1 January 2012.
1.3
Differences between FRS and MFRS
Many believe that IFRS Convergence will not bring a major impact to Malaysian entities since the
existing FRSs issued by the MASB are mostly adopted from IFRSs. However, this is not the case.
The differences between FRS and MFRS may arise from the followings:




certain key MFRS standards and interpretations were not previously adopted by Malaysian
entities;
different effective dates;
different transitional provisions; and
certain FRS requirements are allowed to be applied prospectively, whereas first-time
adoption of MFRS requires retrospective application.
This means certain balances in the financial statements prepared under existing FRSs may be
different under IFRS-compliant MFRSs.
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Insights into Malaysia’s convergence with IFRS
1.4
Transition to MFRS framework
Upon transition to MFRS framework, Malaysian entities are required to adopt MFRS 1 in order to
assert full compliance with MFRSs. MFRS 1 requires comparatives to be restated based on the
specific requirements of MFRS 1.
MFRSs require entities that are currently applying FRSs to apply MFRSs together with at least one
year of comparative information. In addition, public listed entities will be required to prepare interim
reports based upon MFRSs for their quarterly announcements. When an entity prepares the first
financial statements or interim report in MFRSs, their comparatives also need to be prepared in
accordance with MFRSs. The following table illustrates relevant dates for first-time adopters:
Financial year-end
31 December
31 March
30 June
30 September
Date of transition *
1 January 2011
1 April 2011
1 July 2011
1 October 2011
First interim reporting
date under MFRS
31 March 2012
30 June 2012
30 September 2012
31 December 2012
First annual reporting
date under MFRS
31 December 2012
31 March 2013
30 June 2013
30 September 2013
* The opening balance for the comparative period.
1.5
General principles of MFRS 1
Generally, an entity is required to apply all MFRSs retrospectively upon transition to MFRS
framework. MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards contains the
transitional requirements applicable to an entity on its first application of MFRSs, which provides
some relief and exemptions to an entity from full retrospective application of MFRSs.
An entity adopting MFRSs does not apply the transitional provisions of individual MFRS or
interpretations unless specifically required or permitted to do so under MFRS 1. An entity adopting
MFRSs also does not apply MFRS 8, Accounting Policies, Changes in Accounting Estimates and
Errors to any changes in accounting policies made upon transition to MFRS framework.
Insights into Malaysia’s convergence with IFRS
2
2.1
4
General
Business combinations and contingent consideration
Business combinations
Brief overview of certain requirements under MFRS 3, Business Combinations:
 All items of consideration transferred by the acquirer are measured and recognised at fair
value at the acquisition date, including contingent consideration. Subsequent changes in the
fair value of contingent consideration classified as liabilities or assets are recognised in
accordance with MFRS 139, MFRS 137 or other MFRSs, as appropriate (rather than by
adjusting goodwill).
 Transaction costs incurred by the acquirer in connection with the business combination do not
form part of the business combination. As such, they are expensed as incurred, unless they
relate to the issuing of debt or equity securities, in which case they are accounted for under
the financial instruments standards.
 The acquirer can elect to measure any ‘ordinary’ non-controlling interest (NCI) at fair value or at
its proportionate interest in the fair value of the identifiable assets and liabilities of the acquiree
on a transaction-by-transaction basis. Ordinary NCI is present ownership interest that entitles
its holder to a proportionate share of the entity’s net assets in liquidation. Other NCI generally
is measured at fair value.
 When a business combination is achieved in stages (step acquisition), the acquirer’s previously
held non-controlling equity interest in the acquiree is remeasured to fair value at the
acquisition date, with any resulting gain or loss recognised in profit or loss.
FRS 3
MFRS 3
Effective date
FRS 3 shall be applied prospectively to business Effective date and transitional provisions are not
combinations for which the acquisition date is on applicable to first-time adopter.
or after the beginning of the first annual reporting
period beginning on or after 1 July 2010. [FRS
3.64]
Transition exemptions under MFRS 1
upon first adoption of MFRS 3, Business Combinations
A first-time adopter may elect not to apply MFRS 3 retrospectively to past business combinations
(i.e. business combinations that occurred before the date of transition to MFRS framework).
However, if a first-time adopter restates any business combination that was occurred at a particular
date before the date of transition to comply with MFRS 3, it shall restate all later business
combinations and shall also apply MFRS 127 from that same date. [MFRS 1.C1]
Hence, a first-time adopter may:
(a) elect to apply MFRS 3 prospectively to business combinations that occurred after the date of
transition to MFRS framework; or
(b) claim that it has applied MFRS 3 for all business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or after 1 July 2010 as
FRS 3 is essentially equivalent to MFRS 3.
KPMG’s observation and comment
No significant impact is expected as a first-time adopter may elect to apply the transition exemption
to adopt MFRS 3 prospectively from the date of transition to MFRS framework.
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Insights into Malaysia’s convergence with IFRS
Outstanding contingent purchase consideration
FRS 3
MFRS 3
Transitional provision
Outstanding contingent purchase consideration
arising from business combinations before the
effective date of the revised FRS 3 (i.e. 1 July
2010) shall not be adjusted upon application of
the revised FRS 3. [FRS 3.65]
Transitional provision in FRS 3 or MFRS 3 is not
available to first-time adopter.
The contingent consideration is adjusted as part
of the purchase accounting without time limit
when it is probable and can be measured reliably.
Transition exemptions under MFRS 1
No specific exemption is provided in MFRS 1 for first-time adopter.
KPMG’s observation and comment
A first-time adopter measures the outstanding contingent purchase consideration at fair value at date
of transition and any fair value adjustment is taken up directly in retained earnings. Subsequent
changes in fair value are recognised in profit or loss.
2.2
Foreign currency translation and presentation currency
Translation of foreign operations
FRS 121
MFRS 121
Assets and liabilities of foreign operations are
translated to presentation currency at closing rate
at the end of reporting period, except for goodwill
and fair value adjustments arising from business
combinations occurred before 1 January 2006
which are reported using the historical rate at the
date of acquisitions, an entity may continue to
use that historical rate. [FRS 121.59]
Assets and liabilities of foreign operations are
translated to presentation currency at closing rate
at the end of reporting period including goodwill
and fair value adjustments. [MFRS 121.48]
Transition exemptions under MFRS 1
Under MFRS 1, a first-time adopter may elect not to apply MFRS 121 retrospectively to goodwill and
fair value adjustments arising in:
(a) business combinations that occurred before the date of transition to MFRS framework; or
(b) business combinations that occurred before a designated business combination that the entity
elects to comply with MFRS 3, as discussed in Section 2.1 above.
If the entity does not apply MFRS 121 retrospectively to those goodwill and fair value adjustments,
carrying amounts of those goodwill and fair value adjustments at the date of transition to MFRS
framework or at the designated business combination date the entity elected under item (b) above
are ‚frozen‛ and not subsequently re-translated. [MFRS 1.C2]
Insights into Malaysia’s convergence with IFRS
6
KPMG’s observation and comment
We expect the following impacts to a first-time adopter depending on how the entity elects to apply
MFRS 121 upon transition to MFRS framework.
(a) Apply MFRS 121 prospectively
If an entity elects not to apply MFRS 121 retrospectively to all business combinations occurred
before the date of transition to MFRS framework, the carrying amounts of those goodwill and fair
value adjustments at the date of transition are ‚frozen‛ and not subsequently re-translated. Any
translation differences relating to goodwill and fair value adjustments after the date of transition
that are reported under FRS in the comparative period are to be reversed.
(b) Apply MFRS 121 retrospectively from a designated business combination date
An entity may elect to apply MFRS 121 retrospectively to all past business combinations that
occurred after a designated business combination that the entity elects to comply with MFRS 3.
For all other past business combinations occurred before that designated business combination
(date), carrying amounts of those goodwill and fair value adjustments at the designated business
combination date are ‚frozen‛ and not subsequently re-translated.
(c) Apply MFRS 121 retrospectively
If an entity elects to apply MFRS 121 retrospectively to all past business combinations, the entity
needs to restate the translation of goodwill and fair value adjustments arising in past business
combinations to use the closing rate at the end of previous reporting periods. This will have an
impact to an entity if it has been using the historical rate at the date of acquisitions for business
combinations occurred before 1 January 2006 as allowed under FRS 121.
Partial disposal of foreign operations
FRS 121
MFRS 121
Transitional provision
An entity shall apply the following requirement
prospectively for annual periods beginning on or
after 1 July 2010. [FRS 121.60B]
Transition provision in FRS 121 or MFRS 121 is
not available to first-time adopter.
All foreign currency translation reserve (FCTR)
relating to a foreign operation is reclassified to
profit or loss for the following disposals of foreign
operation even if the entity retains an interest in
the former subsidiary, associate or jointly
controlled entity: [FRS 121.48A]
(a) the loss of control of a subsidiary;
(b) the loss of significant influence over an
associate; and
(c) the loss of joint control over a jointly
controlled entity.
Transition exemptions under MFRS 1
A first-time adopter shall apply the accounting for loss of control over a subsidiary prospectively from
the date of transition to MFRS framework, unless it elects to apply MFRS 3 retrospectively to all
past business combinations or designate the retrospective application of MFRS 3 from a business
combination (date) onwards. [MFRS 1.B7]
When MFRS 3 is not applied retrospectively to all past business combinations, a first-time adopter
will have to apply the transition exemption to deem FCTR for all foreign operations to be zero at the
date of transition to MFRS framework. Any gain or loss on subsequent disposal of any foreign
operation shall exclude FCTR that arose before the date of transition to MFRS framework and shall
include later FCTR. [MFRS 1.D13]
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Insights into Malaysia’s convergence with IFRS
Presentation currency
FRS 121
MFRS 121
Translation to the presentation currency
For financial statements presented in Malaysia,
the presentation currency shall be in Ringgit
Malaysia. [FRS 121.38AA]
An entity may use any currency as the
presentation currency.
Transition exemptions under MFRS 1
No specific exemption is provided in MFRS 1 for first-time adopter.
KPMG’s observation and comment
MFRS 121 provides an avenue for a Malaysian company to present its financial statements in
Malaysia in a currency other than Ringgit Malaysia, which is currently prohibited by FRS 121. This
may be relevant for a company having a functional currency other than in Ringgit Malaysia.
However, we do not expect any significant changes arising from this as companies in Malaysia will
still need to comply with Ninth Schedule 6(1) of the Companies Act, 1965 to present statutory
financial statements in Ringgit Malaysia. For example, if a company prepares its financial statements
using a functional currency other than Ringgit Malaysia, the company is required to translate and
present the financial statements in Ringgit Malaysia for statutory purposes.
2.3
Capitalisation of borrowing costs
Capitalisation of borrowing costs
FRS 123
MFRS 123
Effective date and transitional provision
Prior to the effective date of the revised FRS 123 Effective date and transitional provisions are not
(i.e. 1 January 2010), an entity has an option to
applicable to first-time adopter.
expense all borrowing costs in profit or loss.
On adoption of the revised FRS 123, the option to
expense all borrowing costs in profit or loss has
been removed and any change in this accounting
policy may be applied prospectively. [FRS 123.27]
Transition exemptions under MFRS 1
A first-time adopter may elect to apply MFRS 123 prospectively to borrowings costs relating to
qualifying assets for which the commencement date for capitalisation is on or after the date of
transition to MFRS framework. [MFRS 1.D23]
KPMG’s observation and comment
No significant impact is expected as a first-time adopter may elect to apply the transition exemption
under MFRS 1.
Insights into Malaysia’s convergence with IFRS
8
3
Specific statement of financial position
items
3.1
Property, plant and equipment and investment property
Property, plant and equipment
FRS 116
MFRS 116
Revalued amount as surrogate cost
An entity that had not adopted a policy of
revaluation is allowed to continue carrying the
revalued amounts of property, plant and
equipment on the basis of their previous
revaluations when MASB first adopted IAS 16,
Property, Plant and Equipment in 1998. [FRS
116.77AA]
Cost model or revaluation model
An entity shall choose either the cost model or
the revaluation model in measuring its property,
plant and equipment. [MFRS 116.29]
If revaluation model is chosen, valuations should
be kept sufficiently up to date such that the
carrying amount does not differ materially from its
fair value at the reporting date. [MFRS 116.31]
The transitional provision that allows revalued
amount to be carried as deemed cost in FRS 116
is not available in MFRS 116.
Investment property
FRS 140
MFRS 140
Revalued amount as surrogate cost under cost
model
Under the cost model, an entity may have
previously treated its investment property in
accordance with MASB 15, Property, Plant and
Equipment before the transition to FRS 140 in
2006 and carried the revalued amount of
property, plant and equipment (now the
investment property) on the basis of their
previous revaluations when MASB first adopted
IAS 16, Property, Plant and Equipment in 1998.
An entity shall choose either the cost model or
the fair value model in measuring its investment
property. [MFRS 140.30]
The transitional provision that allows revalued
amount to be carried as deemed cost in FRS 140
is not available in MFRS 140.
The entity may carry the revalued amount as
allowed under MASB 15 as the cost for
investment property on transition to FRS 140 in
2006. [FRS 140.75AA]
Transition exemptions under MFRS 1
A first-time adopter who elects to measure its property, plant and equipment or investment property
using the cost model may apply the ‚deemed cost‛ transition exemptions.
(a) Use of previous revaluation as deemed cost
A first-time adopter may elect to use the previous revaluation of an item of property, plant and
equipment and investment property at or before the date of transition to MFRS framework as
deemed cost at the date of the revaluation. The deemed cost becomes the new MFRS cost
basis at the date of the revaluation. [MFRS 1.D6, D7]
Any existing revaluation reserve at the date of transition is reclassified to retained earnings or as
a separate component of equity, but is not described as revaluation reserve. [MFRS 1.11]
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Insights into Malaysia’s convergence with IFRS
(b) Use of fair value at date of transition as deemed cost
An entity may also elect to measure an item of property, plant and equipment and investment
property at the date of transition at its fair value and use that fair value as its deemed cost at that
date. That item of investment property will be measured using the cost model subsequent to
the date of transition. The entity recognises the fair value adjustments directly in retained
earnings or a separate component of equity, but is not described as revaluation reserve. [MFRS
1.11, D5, D6]
Existing revaluation reserve, if any, relating to previous revaluation of that item of property, plant
and equipment and investment property is reclassified to retained earnings or a separate
component of equity, but is not described as revaluation reserve. [MFRS 1.11]
The following decision tree outlines the deemed cost exemptions available for property, plant and
equipment (PPE) and investment property (IP). [MFRS 1.D5, D6]
Any item of PPE or IP that is carried
at valuation or accounted for using
revaluation model?
No
Yes
Does the entity elect to continue
using revaluation or fair value model
subsequent to transition?
Does the entity elect to measure
item of PPE or IP at fair value at date
of transition?
Yes
No
Yes
The entity continues to carry existing
carrying amounts upon transition
No
The entity uses previous revaluation
at or before the date of transition as
deemed cost at the date of
revaluation
OR
The entity uses fair value at the date
of transition as deemed cost
KPMG’s observation and comment
We expect most entities that are affected will use the transition exemptions in MFRS 1. With the
transition exemptions, no impact is expected upon transition to MFRS framework, other than the
reclassification of any existing revaluation reserve to retained earnings or as a separate component of
equity, or fair value adjustments taken up directly in retained earnings or separate component of
equity if an entity elects to use the fair value at the date of transition as deemed cost.
Malaysian public listed entities are required to disclose a breakdown of the unappropriated profits or
accumulated losses into realised and unrealised profits or losses. It is unclear whether the
reclassification of revaluation reserve or fair value adjustments taken up directly in retained earnings
are considered as realised or unrealised profit or loss in the context of disclosure pursuant to Bursa
Malaysia listing requirements. In our view, such reclassification of revaluation reserve or fair value
adjustment into retained earnings is not considered as realised profit or loss.
Transition to MFRS framework also gives an opportunity to companies within the same group to realign their accounting policies in respect of measurement of property, plant and equipment and
investment property. For example, prior to the MFRS framework, certain companies within the same
group are using cost model to measure investment properties while other companies are using the
fair value model. These entities using the fair value model will be able to change their accounting
policy of investment properties to cost model.
Insights into Malaysia’s convergence with IFRS
10
The diagram below outlines the accounting policy choices available for property, plant and equipment
and investment property that a first-time adopter may elect upon transition to MFRS framework.
FRS
At date of transition
MFRS
Property, plants and equipment
At cost
Cost model
Revaluation
model
At
revaluation
Cost
model
(1) The entity continues to carry existing carrying
amounts upon transition; or
(2) The entity uses fair value at the date of
transition as deemed cost.
The entity revalues entire class of property,
plant and equipment to which an asset belongs
at their fair value at the date of transition and
any revaluation surplus is adjusted directly in
equity as revaluation reserve.
(1) The entity uses previous revaluation at or
before the date of transition as deemed cost at
the date of revaluation; or
(2) The entity uses fair value at the date of
transition as deemed cost; or
(3) The entity restates back to its original cost.
Revaluation
model
The entity continues to carry existing carrying
amounts upon transition, provided the carrying
amounts are not materially different from their
fair value at the date of transition.
Investment property
Cost
model
(1) The entity continues to carry existing carrying
amounts upon transition; or
Cost
model
(2) The entity uses fair value at the date of
transition as deemed cost; or
(3) The entity uses previous revaluation (surrogate
cost) at or before the date of transition as
deemed cost at the date of revaluation; or
(4) The entity restates the surrogate cost, if any,
back to its original cost.
Fair value
model
Fair value
model
Cost
model
Fair value
model
The entity measures investment property at
its fair value at the date of transition.
(1) The entity uses fair value at the date of
transition as deemed cost; or
(2) The entity restates back to its original cost.
The entity continues to carry existing carrying
amounts upon transition.
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Insights into Malaysia’s convergence with IFRS
No depreciation on idle assets
FRS
MFRS 116
No depreciation on idle assets
Prior to the effective date of the revised FRS 116
(i.e. 1 January 2006), there was no explicit
requirement whether an asset that becomes idle
or retired from active use is subject to
depreciation.
Depreciation does not cease even when the
asset becomes idle or retired from active use
unless the asset is fully depreciated. [MFRS
116.55]
As such, in the past some entities might have
ceased depreciating an asset when it was idle or
retired from active use.
Transition exemptions under MFRS 1
No specific exemption is provided in MFRS 1 for first-time adopter.
KPMG’s observation and comment
A first-time adopter adjusts the accumulated depreciation of the asset retrospectively as if the
depreciation had been provided for even when the asset was idle or retired from active use
previously. Any depreciation adjustment is taken up directly in retained earnings at the date of
transition to MFRS framework.
Alternatively, a first-time adopter may elect to apply deemed cost exemptions under MFRS 1 to such
an asset when it is impracticable to re-compute the depreciation charge retrospectively.
Capitalisation of severe foreign exchange loss
MASB 6
MFRS 121
Capitalisation of severe foreign exchange loss
An entity may have capitalised foreign exchange Except for certain limited circumstances, all
loss as part of the cost of an asset, if the foreign exchange gains or losses shall be recognised in
exchange loss is arising from severe devaluation profit or loss.
of a currency against the foreign currency liability
which arises directly on the acquisition of that
asset. [MASB 6.21]
Transition exemptions under MFRS 1
No specific exemption is provided in MFRS 1 for first-time adopter.
KPMG’s observation and comment
A first-time adopter adjusts the cost and accumulated depreciation of the asset retrospectively by
reversing the foreign exchange loss previously capitalised as part of the cost of that asset. Any
adjustment is taken up directly in retained earnings at the date of transition to MFRS framework.
Alternatively, a first-time adopter may elect to apply deemed cost exemptions under MFRS 1 to such
an asset when it is impracticable to retrospectively reverse the capitalisation of severe foreign
exchange loss.
Insights into Malaysia’s convergence with IFRS
3.2
12
Prepaid lease payments
Leases
FRS 117
MFRS 117
Revalued leasehold land classified as prepaid
Prepaid lease payments to be stated at cost
lease payments
Prepaid lease payments are required to be
An entity is allowed to carry unamortised revalued stated at cost. No revaluation is permitted.
prepaid lease payments (leasehold land) as
surrogate cost for those that were previously
stated at revaluation on transition to FRS 117 in
2006. [FRS 117.67AA]
The prepaid lease payments often refer to
leasehold land that do not meet the classification
of a finance lease and classified as operating lease.
Transition exemptions under MFRS 1
A first-time adopter may continue to use the surrogate cost of an asset established under the
previous FRS framework because of an event such as a privatisation or initial public offering, as the
deemed cost of that asset upon transition to MFRS framework. The deemed cost becomes the new
MFRS cost basis at the date of the revaluation. [MFRS 1.D8]
Any existing revaluation reserve at the date of transition is reclassified to retained earnings or as a
separate component of equity, but is not described as revaluation reserve. [MFRS 1.11]
The following decision tree outlines the deemed cost exemption available for prepaid lease
payments. [MFRS 1.D8]
Is prepaid lease payment previously
reclassified from revalued
leasehold land?
No
The entity continues to carry
existing carrying amounts upon
transition.
Yes
Was the valuation made because of
an event such as a privatisation or
initial public offering?
Yes
No
Retrospective adjustments
The entity restates the revalued
prepaid lease payments to their
original costs and any revaluation
surplus is retrospectively adjusted.
The entity may use the previous revaluation as deemed cost at the date of revaluation
and continues to carry existing carrying amounts upon transition.
KPMG’s observation and comment
The transition to MFRS 117 will impact an entity who has previously revalued prepaid lease
payments. The entity will need to restate the revalued prepaid lease payments to their original costs
and any revaluation surplus will have to be retrospectively adjusted, unless the revaluation of prepaid
lease payments was made because of an event such as a privatisation or initial public offering.
We do not expect that there will be material adjustment arising from this. Based on our observation,
subsequent to the amendment to FRS 117 in 2010, most leasehold land are treated as finance lease
and classified as property, plant and equipment. Refer to section 3.1 for transition exemptions
applicable to property, plant and equipment.
13
3.3
Insights into Malaysia’s convergence with IFRS
Biological assets
Accounting for biological assets
Commonly used accounting practices
Measurement of biological assets
Entities in Malaysia commonly use the following
methods to measure biological assets:
a)
Capital maintenance method
Capital maintenance method is commonly
used in the plantation sector. This method is
normally not applied to other biological
assets. Under the capital maintenance
method, costs of new planting are capitalised
and not amortised subsequently. Replanting
cost is recognised in profit or loss for the
period in which the cost is incurred.
b) Cost amortisation method
MFRS 141
Measurement of biological assets
MFRS 141 requires biological assets to be
measured on initial recognition and at subsequent
measurement at fair value less estimated costs to
sell, unless the fair value cannot be reliably
measured. [MFRS 141.12]
Under limited circumstances, the fair value of a
biological asset may not be reliably measured on
initial recognition. In such a case, that biological
asset shall be measured at its cost less any
accumulated depreciation and any accumulated
impairment losses until the fair value becomes
reliably measured. [MFRS 141.30]
Under the cost amortisation method, initial
costs and subsequent costs that fulfill the
recognition criteria are capitalised and
amortised.
Gain or loss on initial recognition of biological
assets at fair value less costs to sell, and changes
in fair value less costs to sell of biological assets
during a period, are recognised in profit or loss.
There are entities who measure biological assets [MFRS 141.26]
at fair value but this is not common in Malaysia.
Measurement of agricultural produce
Measurement of agricultural produce
Agriculture produce is measured at fair value less
Agricultural produce is generally stated at the
costs to sell at the point of harvest. [MFRS
lower of cost and net realisable value.
141.13]
Gain or loss on initial recognition of agricultural
produce at fair value less costs to sell is included
in profit or loss in the period in which it arises.
[MFRS 141.28]
Transition exemptions under MFRS 1
No specific exemption is provided in MFRS 1 for first-time adopter. An entity with biological assets
applies MFRS 141 retrospectively at the date of transition.
KPMG’s observation and comment
The adoption of MFRS 141 will significantly impact earnings reporting of plantation and other entities
dealing with other biological assets (for example, aquaculture and poultry farming) in Malaysia.
As there is no transition exemption provided under MFRS 1, an affected entity will need to fair value
the biological assets of the opening and closing balances for its comparatives. For example, a
plantation company which has a financial year end on 31 December will need to fair value its
biological assets as at 1 January 2012 and also 31 December 2012 in order to prepare the
comparatives for the financial year ending 31 December 2013.
The adoption of MFRS 141 may also significantly impact the costing of other inventories if agricultural
produce that is measured at fair value less costs to sell at the point of harvest is the input cost of
other inventories. For example, an oil palm plantation and refinery company measures the fresh fruit
brunches at fair value less costs to sell at the point of harvest, which will be the input cost for its
refinery operations.
Insights into Malaysia’s convergence with IFRS
3.4
14
Income taxes
Deferred tax: recovery of underlying assets
FRS 112
MFRS 112
Measurement of deferred tax assets and
liabilities
Deferred tax of an asset is measured based on
expected tax rates applicable to the usage or sale
of an asset. [FRS 112.47, 51]
Exception to the measurement principles in
specified circumstances
An exception to the measurement principles of
deferred tax assets and liabilities is available
under MFRS 112. The exception is specifically
given to investment property measured using the
fair value model.
If an entity expects to retain and recover the
asset through use, the tax rate applicable to the
usage of the asset is used.
If an entity expects to sell the asset without
further use, the tax rate applicable to the sale of
the asset is used.
When a depreciable asset is revalued, the
deferred tax on the revaluation is measured using
the tax rate applicable to the usage of the asset.
Hence, deferred tax is normally recognised for
buildings and leasehold land which are classified
as investment properties and measured at fair
value by applying the corporate tax rate.
There is a rebuttable presumption that the
carrying amount of the investment property will
be recovered through sale. Consequently, an
entity uses the tax rate applicable for the sale of
investment property to compute the deferred tax
liability or asset arising from fair value changes.
[MFRS 112.51C]
The presumption is rebuttable only if the
investment property is depreciable and held
within a business model whose objective is to
consume substantially all of the asset’s economic
benefits over the life of the asset. [MFRS
112.51C]
When a non-depreciable asset is revalued, the
deferred tax on the revaluation is measured using When non-depreciable investment property (e.g.
the tax rate that applies upon disposal. [IC 121.5] freehold land) is measured at fair value, the
deferred tax on the fair value changes is
measured using the tax rate that applies upon
disposal. [MFRS 112.51B]
Transition exemptions under MFRS 1
No specific exemption is provided in MFRS 1 for first-time adopter.
KPMG’s observation and comment
Upon transition to MFRS framework, an entity with investment property measured using the fair
value model will be affected as it is presumed that the investment property will be recovered through
sale and the entity uses the tax rate applicable to the sale of the investment property to compute the
deferred tax assets or liabilities, as opposed to the tax rate applicable to the usage, unless such
presumption is rebutted.
The exception also applies to investment properties acquired in a business combination accounted
for in accordance with MFRS 3, Business Combinations provided the acquirer subsequently
measures these assets using the fair value model. This may lead to the restatement of deferred tax
assets or liabilities if MFRS 112 is applied to investment properties acquired in a business
combination that occurred in the previous reporting periods.
An entity recognises any adjustments to the deferred tax assets or liabilities directly in retained
earnings at the date of transition to MFRS framework.
15
Insights into Malaysia’s convergence with IFRS
Example – Deferred tax on investment property
Company T holds a portfolio of investment properties for more than five years from which it currently
earns rental income. The investment properties are measured at fair value.
The sale of investment property is not subject to tax if it is held for more than five years. Corporate
income tax rate is 25%.
The carrying amounts, tax bases and resulting temporary differences of the land and buildings
components are as follows:
Carrying amount
Temporary
(fair value)
Tax base
difference
Freehold land
200,000
100,000
100,000
Leasehold land
300,000
180,000
120,000
Buildings
250,000
110,000
140,000
Total
750,000
390,000
360,000
Under MFRS 112, the measurement of deferred tax depends on T’s business model, which is
illustrated using the following scenarios:

Scenario A: T’s business model is to sell properties in the future in order to participate in the
increase in real estate prices (i.e. it consumes substantially all of the investment properties’
economic benefits through rental income and sales).

Scenario B: T’s business model is to hold properties for strategic purposes on long term
basis (i.e. it consumes substantially all of the investment properties’ economic benefits
through rental income). T rebuts the presumption under paragraph 51C of MFRS 112.
The deferred tax liability under each scenario is calculated as follows:
Temporary
difference
Applicable tax
rate
Deferred tax
liability
360,000
0%
Nil
Freehold land
100,000
0%
Nil
Leasehold land
120,000
25%
30,000
Buildings
140,000
25%
35,000
65,000
Scenario A:
Investment properties
Scenario B:
Under existing FRS 112, the deferred tax liability will be equivalent to Scenario B.
Insights into Malaysia’s convergence with IFRS
16
Unutilised investment tax incentives
FRS 112
MFRS 112
Commonly used accounting treatments
FRS 112 does not deal with the methods of accounting MFRS 112 does not deal with the methods
for investment tax incentives. [FRS 112.4]
of accounting for investment tax incentives.
In practice, entities in Malaysia commonly account for
the unutilised investment tax incentives, such as
reinvestment allowances and investment tax
allowances using the following methods:
a)
In our view, the tax base method is not
appropriate.
Recognised as deferred tax assets
An entity accounts for the unutilised investment
tax incentives as deferred tax assets by analogy to
accounting for unused tax credits, to the extent
that it is probable that future taxable profits will be
available against which the unutilised investment
tax incentives can be utilised.
b) Do not recognise as deferred tax assets
An entity treats the investment tax incentives as
part of the tax base of an asset and does not
recognise the resulting deferred tax asset on initial
recognition of the asset and subsequently.
This tax base method is applied by analogy to
MASB 25, Income Taxes issued by the MASB,
which is applicable under the Private Entities
Reporting Standards Framework.
Transition exemptions under MFRS 1
No specific exemption is provided in MFRS 1 for first-time adopter upon transition to MFRS
framework. If the transition results in an entity recognising unutilised investment tax incentives as
deferred tax assets or as a reduction in the tax rate applied to deferred tax liabilities, an entity makes
a retrospective adjustment and recognises the resulting adjustments directly in retained earnings at
the date of transition to MFRS framework.
KPMG’s observation and comment
In our view, an entity that applies the tax base method and does not recognise the unutilised
investment tax incentives may need to change its accounting policy to recognise the unutilised
investment tax incentives using one of the following approaches:-


as deferred tax assets by analogy to the accounting for unused tax credits; or
as a reduction in the tax rate applied to deferred tax liabilities (tax rate reduction method).
Under the tax rate reduction method, an entity recognises lower deferred tax liabilities by applying
the adjusted tax rate that is expected to apply when the taxable temporary differences reverse. A tax
incentive is treated as a reduction of the tax rate as and when it is utilised and hence, deferred tax is
measured using the reduced tax rate.
17
3.5
Insights into Malaysia’s convergence with IFRS
Government loans
Government loans with below-market rate of interest
FRS 120
MFRS 120
Transitional provision
An entity measures government loans with a
Transitional provision in FRS 120 or MFRS 120 is
below-market rate of interest received on or after not available to first-time adopter upon transition
1 January 2010 at fair value on initial recognition. to MFRS framework.
[FRS 120.43]
For government loans received before 1 January
2010, an entity is allowed to measure the loans at
cost based on loan proceeds received. [FRS
120.43]
Transition exemptions under MFRS 1
No specific exemption is provided in MFRS 1 for first-time adopter. Upon transition to MFRS
framework, a first-time adopter applies MFRS 120 retrospectively to measure existing government
loans received before 1 January 2010 at fair value at date of loan origination.
However, in October 2011 the IASB issued an exposure draft to propose an amendment to IFRS 1.
The proposed amendment would require that first-time adopter applies MFRS 120 prospectively to
government loans received on or after the date of transition. A first-time adopter continues to carry
existing carrying amounts of government loans at date of transition.
A first-time adopter may apply MFRS 120 retrospectively, provided the information needed for
retrospective application to a government loan as a result of a past transaction was obtained at the
time of initially accounting for that loan.
The proposed amendment, when finalised, will become effective for annual periods beginning on or
after 1 January 2013. Early application of the amendments is permitted.
KPMG’s observation and comment
At the date of this publication, the proposed amendment has not been finalised by the IASB. Until
the proposed amendment is finalised, a first-time adopter applies MFRS 120 retrospectively to all
government loans regardless when the loan was originated.
Insights into Malaysia’s convergence with IFRS
4
4.1
18
Specific statement of profit or loss and
other comprehensive income items
Property development activities
Property development activities and agreements for the construction of real estate
FRS 201, Property Development Activities
Percentage of completion method
Under FRS 201, an entity that is involved in
property development activities applies
percentage of completion method in
recognising revenue and profit from the sale of
real estate.
Land held for future property development
Land held for future property development
shall be classified as non-current asset and
stated at cost less any accumulated
impairment losses.
IC Interpretation 15, Agreements for the
Construction of Real Estate (MFRS)
Revenue recognition
Under IC 15, an agreement for the construction of
real estate that does not meet the definition of a
construction contract (MFRS 111) shall be
accounted for as sale of goods under MFRS 118.
Revenue from sale of goods agreement is
recognised by reference to the stage of completion,
if and only if, the revenue recognition criteria of
MFRS 118 are met continuously as construction
progresses (i.e. continuous transfer of significant
risks and rewards of ownership).
Land held for future property development
An entity may need to account for a piece of land as:
(1) investment property if it is held for
undetermined future use; or
(2) inventory if it is held for planned development.
Transition exemptions under MFRS 1
Agreements for the construction of real estate
There is no exemption provided in MFRS 1 for first-time adopter and there is no specific transitional
provision in IC 15. Hence, an entity applies IC 15 retrospectively at the date of transition.
Land held for future property development – accounted for as investment property
If a piece of land has been previously revalued and is to be accounted for as investment property
using cost model, then an entity may elect to use the previous revaluation of that piece of land as
deemed cost at the date of revaluation or use its fair value at the date of transition as its deemed
cost at that date upon transition to MFRS framework. [MFRS 1.D5, D6]
Any existing revaluation reserve and fair value adjustments at the date of transition are reclassified
or adjusted directly in retained earnings or a separate component of equity, but is not described as
revaluation reserve. [MFRS 1.11]
Land held for future property development – accounted for as inventory
If a piece of land is to be accounted for as inventory under MFRS 102, Inventories and the land was
previously revalued while it was classified as land held for property development, an entity may
continue to carry the existing revalued amount upon transition to MFRS framework if the revaluation
was made because of an event such as initial public offering or privatisation. Otherwise, the land will
need to be stated at the lower of original cost and net realisable value. [MFRS 1.D8]
Any existing revaluation reserve at the date of transition is reclassified to retained earnings or a
separate component of equity, but is not described as revaluation reserve. [MFRS 1.11]
19
Insights into Malaysia’s convergence with IFRS
KPMG’s observation and comment
Agreements for the construction of real estate
Depending on the outcome and development of the debate of whether percentage of completion
method or completed method may be applied for property development activities in Malaysia, there
could be a significant change and impact in this area. If the adoption of IC 15 results in a change of
revenue recognition from percentage of completion method to completed method, the impact of this
policy change will be adjusted retrospectively.
Land held for future property development
Upon transition to MFRS framework, a property developer may account for a piece of land as:
(a) Investment property
An entity classifying a piece of land as investment property may be affected based on the
measurement model adopted for its investment property:
i) Where an entity is using the fair value model, the piece of land is measured at fair value at
the date of transition to MFRS framework.
ii) Where an entity is using the cost model, the piece of land may be restated to its original
cost or measured at deemed cost at the date of transition to MFRS framework.
Section 3.1 above discusses the transition exemptions relevant to investment property for a
first-time adopter.
(b) Inventory
Certain entities may have revalued land held for development as allowed under MAS 7,
Accounting for Property Development Activities and retained the revalued amount as surrogate
cost when they adopted MASB 32, Property Development Activities (which was later renamed
as FRS 201) in 2004. Under such circumstance, if a piece of land is to be reclassified as
inventory under MFRS 102, the following options are available for a first-time adopter:
i) Where the piece of land was not previously revalued, an entity continues to carry the land at
its existing carrying amount upon transition to MFRS framework.
ii)
Where the piece of land was previously revalued, an entity restates the land back to its
original cost, unless the revaluation was made due to an event such as initial public
offering or privatisation, in which case an entity may carry the land at its revalued amount
as deemed cost at date of revaluation.
In both the above options, land accounted for as inventory is stated at the lower of cost (or
deemed cost) and net realisable value (NRV) in accordance with MFRS 102.
Insights into Malaysia’s convergence with IFRS
The following decision tree outlines various accounting treatments for land held for property
development by a property developer upon transition to MFRS framework.
A piece of land
Held for currently
undetermined future
use? (i.e. no planned
development)
Yes
Account for as
Investment
property
Fair value
model
Measure at
fair value at
the date of
transition.
Cost
model
No
Account for as
Inventory
Stated at revalued
amount?
No
Yes
Was the revaluation made
because of an event such as
an IPO or privatisation?
Continue to
carry existing
carrying amount
upon transition
Yes
Use previous
revaluation as
deemed cost
No
Restate back to the lower of its original
cost and NRV
(1) Measure at original cost; or
(2) Use fair value at the date of transition as deemed cost; or
(3) If the land was previously revalued, may use the previous revaluation at or
before the date of transition as deemed cost at the date of revaluation.
20
21
Insights into Malaysia’s convergence with IFRS
4.2
Shared-based payment
FRS 2, Share-based Payment
Effective date and transitional provision
For equity-settled share-based payment transactions, an entity shall apply FRS 2 to grants of shares,
share options or other equity instruments that were granted after 31 December 2004 and had not
yet vested at the effective date of FRS 2, i.e. 1 January 2006. [FRS 2.53]
Transition exemptions under MFRS 1 upon first adoption of MFRS 2
7 November 2002
Date of transition
e.g. 1 January 2011
Grant date and vesting period
Application of MFRS 2
1.
Encouraged, but not required
2.
Encouraged, but not required
3.
Apply MFRS 2
Granted
Vested or not vested
Granted and vested
Granted but not yet vested
1. Under MFRS 1, a first-time adopter is encouraged, but not required, to apply MFRS 2 to equity
instruments that were granted on or before 7 November 2002. [MFRS 1.D2]
2. A first-time adopter is also encouraged, but not required, to apply MFRS 2 to equity instruments
that were granted after 7 November 2002 and vested before the date of transition. [MFRS 1.D2]
3. However, a first-time adopter applies MFRS 2 to equity instruments that were granted after 7
November 2002 and has not yet vested at the date of transition. [MFRS 1.D2]
KPMG’s observation and comment
Although MFRS 2 has an earlier cut-off as compared to FRS 2, no significant impact is expected since
it is unlikely that a scheme that was granted on or before 31 December 2004 still has not yet vested
as of the date of transition to MFRS framework. Hence, we do not expect that there will be a
significant impact to most companies in Malaysia.
Insights into Malaysia’s convergence with IFRS
4.3
22
Employee benefits
Prepayments of a minimum funding requirement
Amendments to IC Int. 14 (FRS)
IC Interpretation 14 (MFRS)
Different effective dates
An entity shall apply these amendments for
An entity shall apply those amendments for
annual periods beginning on or after 1 July 2011. annual periods beginning on or after 1 January
Earlier application is permitted. [IC 14.27B]
2011. Earlier application is permitted. [IC 14.27B]
The original IC 14 states that a surplus in a plan –
whether created by a prepayment or otherwise –
is not regarded as an economic benefit available
as a reduction in future contributions if the future
minimum funding contribution required in respect
of future accrual of benefits exceeds the future
service cost. Therefore, under the original IC 14
(and if the entity did not have an unconditional
right to a refund of surplus) a prepayment would
be recognised as an expense.
Under the amended IC 14, such a prepayment
would be recognised as an asset, on the basis
that the entity has a future economic benefit from
the prepayment in the form of reduced cash
outflows in future years in which minimum
funding requirement payments would otherwise
be required.
Transition exemptions under MFRS 1
No specific guidance provided under MFRS 1 upon adoption of these amendments to IC 14.
Generally, first-time adopter applies the transitional provisions in the amendments to IC 14
retrospectively from the beginning of the earliest comparative period presented. If the entity had
previously applied this Interpretation before it applies the amendments, it shall recognise the
adjustment resulting from the application of the amendments in retained earnings at the beginning
of the earliest comparative period presented. [IC 14.29]
KPMG’s observation and comment
No significant impact is expected upon transition to MFRS framework.
23
5
5.1
Insights into Malaysia’s convergence with IFRS
New and amended disclosures
Related party disclosures
MFRS 124, Related Party Disclosures
Overview of major changes
Revised and clarified definition of a related party
Related party relationships were made symmetrical between each of the related parties, i.e. if A is
related to B, then B is also related to A.
The following are new relationships included in the definition of a related party:
1. In the financial statements of subsidiary A, any associate of the controlling shareholder of
subsidiary A is a related party to the subsidiary A.
2. In the financial statements of an entity (B) controlled or jointly controlled by a person, who is
also the key management personnel of another entity C, entity C is a related party to entity
B.
3. In the financial statements of an entity (D) jointly controlled or significantly influenced by a
close family member of an individual investor (P), any entity jointly controlled by that
individual investor P is a related party to entity D.
4. In the financial statements of an entity (E) that is significantly influenced by an individual
investor (Q), where the same investor Q also controls or jointly controls another entity (F),
entity F is a related party to entity E.
Two entities are no longer related if one of them is under significant influence of a person and the
other is:
1. under significant influence of that person’s close family member; or
2. managed by that person in his capacity as key management personnel.
Corporate and individual investor are treated in the same manner.
MFRS 124 clarifies that references to associates and joint ventures include the subsidiaries of those
associates and joint ventures.
Partial disclosures exemption for government-related entities
MFRS 124 does not fully exempt state-controlled entities from disclosing transactions with other
stated-controlled entities.
A government-related entity may apply the exemption from disclosing fully the transactions and
outstanding balances with other government-related entities. A government-related entity applying
this exemption is still required to disclose: [MFRS 124.25, 26]
(a) the name of the government and nature of its relationship; and
(b) nature and amount of individually or collectively significant transaction.
Disclosure of major customers
An entity shall disclose information about the extent of its reliance on its major customers. The
requirements to treat the government and government-related entities as a single customer have
been relaxed whereby an entity is now required to exercise judgement to assess whether a
government including government agencies under the control of that government are considered a
single customer, taking into consideration of the extent of economic integration between the
government and government-related entities. [MFRS 8.34]
Effective date
MFRS 124 is effective for annual periods beginning on or after 1 January 2011.
Insights into Malaysia’s convergence with IFRS
24
Transition exemptions under MFRS 1
An entity applies MFRS 124 retrospectively and hence, it is required to disclose the related party
information for the comparative period.
KPMG’s observation and comment
Government-related entities are not fully exempted from providing related party information in their
financial statements as MFRS 124 requires them to provide certain information about individually or
collectively significant transactions with the government or other government-related entities.
Management of government-related entities will need to exercise judgement in determining whether
a transaction is individually or collectively significant as the standard provides no quantitative
threshold. This might require some changes to these entities’ internal reporting procedures and
record keeping process.
An entity may need to re-assess the list of its related parties and relationships. This may require the
collection and disclosure of additional information, including information for the comparative period,
especially in respect of roles of individual investors and their close family members.
We expect MFRS 124 will bring significant challenges to government-related entities in identifying all
their relationship with other government-related entities and the related transactions.
25
5.2
Insights into Malaysia’s convergence with IFRS
Financial instruments: Transfers of financial assets
MFRS 7: Disclosures – transfers of financial assets
New disclosure requirements
Financial assets that are not derecognised in their entirety
For each class of transferred assets:
 the nature of the risks and rewards associated with those assets;
 a description of the relationship between the transferred assets and the associated liabilities,
including the restrictions on the entity’s use of those assets;
 the carrying amounts of the transferred assets that the entity continues to recognise and of
the associated liabilities;
 fair value information of the transferred assets and associated liabilities in transactions in
which the counterparty’s recourse is limited to the transferred assets; and
 the carrying amounts of the original assets at the time of transfer in transactions in which the
transferred assets are recognised to the extent of the entity’s continuing involvement.
Financial assets that are derecognised in their entirety but where the entity retains
continuing involvement
For each type of continuing involvement:
 the carrying amounts and fair values of the assets and liabilities representing the entity’s
continuing involvement;
 the entity’s maximum exposure to loss and how this maximum exposure was determined;
 a maturity analysis of the undiscounted cash flows that may be payable to the transferee in
respect of the transferred assets;
 the gain or loss on transfer of the assets;
 income and expenses arising from the entity’s continuing involvement (for the current period
and cumulatively); and
 specific detailed disclosures in respect of situations in which transfer activity is not evenly
distributed throughout the reporting period (e.g. a high level of activity in the closing days).
Effective date
The effective date for the new disclosure requirements is for annual periods beginning on or after 1
July 2011.
Transition exemptions under MFRS 1
An entity is required to apply the new disclosure requirements for annual periods beginning on or
after 1 July 2011 but is not required to provide the disclosures for any period that begins prior to 1
July 2011. Earlier application is permitted.
KPMG’s observation and comment
Since the new disclosure requirements only impact the disclosure aspects, no financial impact is
expected upon transition to MFRS framework. Furthermore, transfers of financial assets are not
common.
Insights into Malaysia’s convergence with IFRS
Appendix 1
26
IFRS-compliant Malaysian Financial Reporting Standards
The term ‘Malaysian Financial Reporting Standards’ or ‘MFRSs’ refers to Standards (including IC
Interpretations) issued by the Malaysian Accounting Standards Board that apply to annual periods
beginning on or after 1 January 2012.
The MFRSs contained below are equivalent to IFRSs as issued by IASB, including IFRSs that are not
yet effective.
Standards applicable on 1 January 2012
The table below contains MFRSs applicable on 1 January 2012.
Entities, other than Transitioning Entities, are required to comply with all the Standards and IC
Interpretations set out in the table below, including MFRS 1, First-time Adoption of Malaysian
Financial Reporting Standards, for annual periods beginning on or after 1 January 2012.
Standard
Title
MFRS 1
First-time Adoption of Malaysian Financial Reporting Standards
MFRS 2
Share-based Payment
MFRS 3
Business Combinations
MFRS 4
Insurance Contracts
MFRS 5
Non-current Assets Held for Sale and Discontinued Operations
MFRS 6
Exploration for and Evaluation of Mineral Resources
MFRS 7
Financial Instruments: Disclosures
MFRS 8
Operating Segments
MFRS 101
Presentation of Financial Statements
MFRS 102
Inventories
MFRS 107
Statement of Cash Flows
MFRS 108
Accounting Policies, Changes in Accounting Estimates and Errors
MFRS 110
Events after the Reporting Period
MFRS 111
Construction Contracts
MFRS 112
Income Taxes
MFRS 116
Property, Plant and Equipment
MFRS 117
Leases
MFRS 118
Revenue
MFRS 119
Employee Benefits
MFRS 120
Accounting for Government Grants and Disclosure of Government Assistance
MFRS 121
The Effects of Changes in Foreign Exchange Rates
MFRS 123
Borrowing Costs
MFRS 124
Related Party Disclosures
MFRS 126
Accounting and Reporting by Retirement Benefit Plans
MFRS 127
Consolidated and Separate Financial Statements
MFRS 128
Investments in Associates
MFRS 129
Financial Reporting in Hyperinflationary Economies
MFRS 131
Interests in Joint Ventures
27
Insights into Malaysia’s convergence with IFRS
Standard
Title
MFRS 132
Financial Instruments: Presentation
FRMS 133
Earnings per Share
MFRS 134
Interim Financial Reporting
MFRS 136
Impairment of Assets
MFRS 137
Provisions, Contingent Liabilities and Contingent Assets
MFRS 138
Intangible Assets
MFRS 139
Financial Instruments: Recognition and Measurement
MFRS 140
Investment Property
MFRS 141
Agriculture
IC Interpretations
Title
IC Interpretation 107 Introduction of the Euro
IC Interpretation 110 Government Assistance – No Specific Relation to Operating Activities
IC Interpretation 112 Consolidation – Special Purpose Entities
IC Interpretation 113 Jointly Controlled Entities – Non-Monetary Contributions by Venturers
IC Interpretation 115 Operating Leases – Incentives
IC Interpretation 125 Income Taxes – Changes in the Tax Status of an Entity or its Shareholders
IC Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease
IC Interpretation 129 Service Concession Arrangements: Disclosures
IC Interpretation 131 Revenue – Barter Transactions Involving Advertising Services
IC Interpretation 132 Intangible Assets – Web Site Costs
IC Interpretation 1
Changes in Existing Decommissioning, Restoration and Similar Liabilities
IC Interpretation 2
Members’ Shares in Co-operative Entities and Similar Instruments
IC Interpretation 4
Determining whether an Arrangement contains a Lease
IC Interpretation 5
Rights to Interests arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds
IC Interpretation 6
Liabilities arising from Participating in a Specific Market – Waste Electrical and
Electronic Equipment
IC Interpretation 7
Applying the Restatement Approach under MFRS 129 Financial Reporting in
Hyperinflationary Economies
IC Interpretation 9
Reassessment of Embedded Derivatives
IC Interpretation 10
Interim Financial Reporting and Impairment
IC Interpretation 12
Service Concession Arrangements
IC Interpretation 13
Customer Loyalty Programmes
IC Interpretation 14
MFRS 119 – The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction
IC Interpretation 15
Agreements for the Construction of Real Estate
IC Interpretation 16
Hedges of a Net Investment in a Foreign Operation
IC Interpretation 17
Distributions of Non-cash Assets to Owners
IC Interpretation 18
Transfers of Assets from Customers
IC Interpretation 19
Extinguishing Financial Liabilities with Equity Instruments
IC Interpretation 20
Stripping Costs in the Production Phase of a Surface Mine
Insights into Malaysia’s convergence with IFRS
28
Standards and amendments with an effective date after 1 January 2012
The table below contains new and amendments to Standard with an effective date after 1 January
2012. An entity may apply a Standard or amendment that is not yet effective if that Standard or
amendment permits early application and has been issued by the MASB.
Standard
Title
Effective date
MFRS 9
Financial Instruments
1 January 2013
MFRS 10
Consolidated Financial Statements
1 January 2013
MFRS 11
Joint Arrangements
1 January 2013
MFRS 12
Disclosures of Interests in Other Entities
1 January 2013
MFRS 13
Fair Value Measurement
1 January 2013
MFRS 119
Employee Benefits (as amended in 2011)
1 January 2013
MFRS 127
Separate Financial Statements (as amended in 2011)
1 January 2013
MFRS 128
Investments in Associates and Joint Ventures
1 January 2013
MFRS 101
Presentation of Items of Other Comprehensive Income
(Amendments to MFRS 101)
1 July 2012
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