Prepared by Arabella Volkov University of Southern Queensland

1. Prepared by Arabella Volkov University of Southern Queensland

2. References • Text – Chapter 12 Standard setting ina political environment

3. Learning Objectives At the conclusion of this lecture, you should have an appreciation of: • The development of the accounting standard-setting in malaysia • Three theories proposed to understand the process of regulation – public interest, regulatory capture and private-interest theory • a comparison of the free market and regulatory approaches to standard setting and the role of ethics in setting accounting standards

4. Accounting std-setting in Malaysia • 1940 the companies ordinance prevailed • Very minimal disclosure requirement • 1958 MACPA was incorporated • Self-regulatory accounting body • provide an organisation for accountants to advance the status & theory & practice of accountancy • Undertook the responsibility of developing & promulgating a set of accounting, auditing & ethical stds • The 1st to institute a system of training & examination – a prof. accountancy qualification • 1961 the MACPA examinations were 1st instituted • Assisted by OAEB until 1970 • 1961-5 (SFP) • increasing attention at companies’ FR practice • Accounting pronouncement from the UK were widely used • Several local Bumiputra accounting firms were set up • 1965 the Companies Act was introduced

5. Accounting std-setting in Malaysia • Companies Act, 1965 • Mandated disclosure requirement under the Ninth Schedule for items of both P&L and the BS • Government seen to have accepted its obligation to require companies to disclose financial data to its S/H • Acts of Parliament were passed pertaining to the regulation of the corporate sector • Income Tax Act, 1967 • Accountants Act, 1967 • Established MIA • Regulate the practice of the accountancy profession in Malaysia • Early 2002, Play a more significant role as regulator after the enforcement of the amendments of the Accountant Act, 67 • Complement the functions of MACPA

6. Accounting std-setting in Malaysia 1997- financial Reporting Act • established FRF & MASB • FRF – representation from all relevant parties in the standard setting process • Initial source of views for the MASB on proposed std & pronouncement • No direct responsibility with regard to std setting • MASB – std setter

7. Accounting std-setting in Malaysia Challenge for std setting • Lack of technical expertise • Lack of adequate research in an issue • Lack of research evidence of empirical studies to guide MASB deliberations

8. Theories of regulation Three views of regulatory activity • Public interest theory • Agents seek to protect public through regulation • Assumption of potential market failures • protect consumer interests • Application to accounting standard setting

9. Theories of regulation Regulatory capture theory • All members of society economically rational/self interested • Government has no independent role in regulatory process • Redistribution of wealth • Regulatee comes to control regulator • Application to accounting standard setting

10. Theories of regulation Private-interest theory • Regulatory activity reflects relative power of interest groups • the power to coerce • Politicians are not neutral arbiters • Regulation sought by ‘producer’ private interest groups • Application to accounting standard setting

11. Theories of regulation Why is accounting regulated? • Three theory frameworks • Public-interest theorists • Capture theorists • Private-interest theorists • Help us to understand the emergence of different approaches to regulation in different countries

12. Standard setting approaches Free or regulated market? • should accounting standards be formulated by authoritative bodiesor left to the free market? • should accounting standards be formulated in the public or private sector?

13. Standard setting approaches • Free-market approach • demand and supply of accounting information • Regulatory approach • market mechanisms will not be able to achieve a socially optimal equilibrium price for accounting information

14. Ethics of standard setting • economic consequences of decisions • sacrifice of qualitative criteria • users may be misled • imposition of costs on preparers of information

15. Key terms and concepts • Standard setting • Measurement • Economic consequences • Ethics • Market mechanisms

16. Summary • 1960s criticisms of the accounting profession have attracted increasing public attention • Legitimising procedure of standard-setting process • Political environment • Alternative interest groups

17. Where to get more information • Other courses • List books • Articles • Electronic sources