TOPIC 3 (Part 1) Accounting Development in Malaysia

1. TOPIC 3 (Part 1) Accounting Development in Malaysia

2. Learning outcomes • Understand historical perspective of economic and accounting development in Malaysia • Understand the role of the State in such development • Explore the relationship between the State and the various interest groups • Discuss the development of accounting along the stages of economic development

3. Influential factor • Accounting development in Malaysia • Role played by state • Along the economic growth • Economic growth & accounting development • Economic growth

4. Stages of Economic Growth • The following Five Year Economic Plans that are: • Year 1956 to 1960 First Five Year Plan • Year 1961 to 1965 Second Five Year Plan • Year 1966 to 1970 First Malaysian Plan • Year 1971 to 1975 Second Malaysian Plan • Year 1976 to 1980 Third Malaysia Plan • Year 1981 to 1985 Fourth Malaysian Plan • Year 1986 to 1990 Fifth Malaysian Plan • Year 1991 to 1995 Sixth Malaysian Plan • Year 1996 to 2000 Seventh Malaysian Plan • Year 2001 to 2005 Eighth Malaysian Plan • Year 2006 to 2010 Ninth Malaysian Plan • Year 2011 to 2015 Tenth Malaysian Plan

5. Background • The colonial impact (40 yrs) • Economic structure • British aims to modify structure of Malayan economy from agriculture to export (timber & tin) & import consumer goods • To promote this, British encouraged immigration of labour • Problems: • Basic manufacturing base • Little development of local commerce & industry • Unbalanced occupational distribution • Early 1950s, G keen to get increase involvement in business & commerce • In Progress Report on the Development Plan 1950-52 - shortage of local trained staff (in audit & account) • The report: • a need for Cooperative College • to appoint senior audit clerks • Send 2/> of them to the UK for CA

6. Post colonial – 5-year plans • FFP – 1956-1960 • Development: • Political perspective - Independence • Economic • rubber replanting programme • Who’s benefited? Foreigners • Structural change in manufacturing sector • Handicraft Industries: • Rattan • Atap • clothing • Capital-intensive Industries: • Biscuits & soft drinks • cement • Wood-work

7. FFP – 1956-1960 • Marked prominent role of private sector & supportive role of state • State – see more individual development instead of foreign business sector • But – difficult to change colonial practice • colonial practice : • Minimal taxation • Avoidance of deficit • Unprotected market • Facing opposition on tariff protection • Break away from direct business pressure – deficit budget

8. FFP – 1956-1960 • 1958 – MACPA was incorporated under the Companies Ordinance 1940-1946 • Self-regulatory accountancy body • An orgnisation to elevate the accountants’ status • Provided actg edu, training & rule-setting • Enhance theory & practice of accounting • 20 members, all UK educated & trained • Influenced by British actg practices

9. SFP – 1961-1965 • Significant role of state • Major objective – rural development • Urban development • Urban infrastructure development • Rural development • Agriculture development • Rural infrastructure development • Social service – health, education

10. SFP – 1961-1965 • Significant role of state • Major objective – rural development • Urban development • Urban infrastructure development • Rural development • Agriculture development • Rural infrastructure development • Social service – health, education • 1961 - MACPA with UK counterparts • training local students • Exams OAEB → senior members and local IHL (1961-1970) • instituted 1st MACPA examination

11. SFP – 1961-1965 • Increasing attention at financial reporting practice • Used UK accounting pronouncement • Colonial • Establishment of major international accounting firms Establishment of local Bumiputra accounting firms (e.g. Hanafiah, Raslan and Mohamed set up in 1964) • 1965 – introduction of Company Act

12. SFP – 1961-1965 1965 – Company Act • Companies Ordinance, 1940 • Minimal disclosure • Sch 9 of CA1965 • Mandated disclosure requirements for P&L & BS items • Specified investment & FA methods Government acceptance of obligation to disclose financial information to shareholder

13. FMP – 1966-1970 • State involvement –Engaging in direct commercial & industrial activities • Private sector • Responsible for manufacturing operations • Government • Maintain favourable investments climate by providing • Industrial estate & transport • Power & comm facilities • Granting tax & other incentive • Establishment of Bank Bumiputra & MARA • Provide commercial loan ($124mil) • aspire Malay Entrepreneur

14. FMP – 1966-1970 • Restrained role by state. Why? • British dependency – military defence • Left plantation & mining concerns to British • Economic diversification • Primary commodity – industrial • Foreign investment – foreign sectors • Strengthen the free enterprise system – political arrangement = Malay cultural & political dominance  safeguarding of the Chinese economic position. • Political stability • Malay commercial development - Secondary

15. FMP – 1966-1970 • Act of Parliament • Income Tax Act, 1967 • Accounting policies to be adopted in the accounts e.g. The valuation of stock • Accountants Act, 1967 • Established MIA – need for local authority to regulate & ctrl the practice of actg profession & to ensure only qualified persons are admitted to the profession • Headed by the Accountant General • Role of MIA - Complement functions of MACPA • Not active – merely to please the Malays as an economic programme.

16. Era of NEP (1971-1990) • Greater involvement by the State – due to racial tensions • The 2nd Malaysian Plan (1971-75) • The 3rd Malaysian Plan (1976-80) • To balance the foreign & Chinese dominant in the economy • To achieve national unity – development of socio-economic foundation that provides viable & equitable participation of all races • New Economic Policy - 30% ownerships – foreign & Bumiputra

17. Era of NEP (1971-1990) • Increase control by the state over private sector • Many new regulations were instituted • 1974 – Foreign Investment Committee (FIC) • Initially, was to monitor foreign acquisitions of Malaysian companies • Now – important body to enforce NEP (i.e. to get large public and non-public corporations to restructure equity) • G encourage export-oriented business – establish free-trade zones

18. Era of NEP • Initial step - 1972 –MACPA issued Statement No 1 “Recommendations on the Presentations of Accounts” • 1974 – KLSE published 1st monograph – Corporate Financial Reporting in Malaysia • 1978 – MACPA adopted IAS 1 – 4 • 1973 – several foreign companies listed on the KLSE • Non-listed companies = subsidiaries of multinational com. • 1979 – adopted IAS 5-10 • 1979 – 1986 – 13 IAS were adopted

19. Era of NEP • 1979 – MACPA formed insurance committee • Clarify technical problems on auditing & accounting stds in the insurance industry • 1980s – insurance industry was regulated by Central Bank • Accounting profession – solely represented by MACPA • Organising seminars, talks • Supported by top leaders • Close rapport with government & its agencies for mutual benefits and for material interests

20. 4th MP • 4th Malaysian Plan (81-85) • Background –economy slowdown • Recession (79-80) • Annual growth dropped • In contrast, public investment grew – growing of public sectors • Ride out of recession – contribute to the development of more advanced industries (85 –production of national car) • Budget deficits – burden to the G • Called for more participation of private sector • corporatisation & privatisation • Reduce financial & administrative burden of government • 81- MACPA established the MACPA Educational Trust Fund – promoting & advancing education & research in accountancy

21. 4th MP • 82-84 – MACPA issued 5 Technical Bulletins – areas not governed by IAS • Suggested further disclosure for fin reporting • 1984 – Companies Act 1965 –amended • definition of ‘accounts’ • = P&L & BS • Including notes & statements • 1984 – issued MAS 1-Earnings per share • MAS – Malaysian context

22. 4th MP • 1985 – MACPA & MIM organized the 1st Malaysian Annual Corporate Reports Award Competition • Other statutory regulation influences practices: • The Securities Industry Act 1983 • The Islamic Banking Act 1983

23. 5th MP • 1986-90 • Increasing privatization • 1986 –ROC (MACPA) amended Companies Act, Sch 9 • Incorporate all IAS disclosure requirements • Introduced Statement of Changes in Financial Position

24. 5th MP • 1987 –MIA was reactivated • Track down ‘bogus’ accountants • Set up MAAT – respond to shortage of accountants issue • 1990 – MAAT (Malaysian Association of Accounting Technicians) – incorporated • 2nd-tier accountancy body • Provide a pool of accounting technicians to support MIA’s members • Provide qualification & organization • MIA adopted all std adopted by MACPA

25. 5th MP • MACPA – continued issue guideline & std • 1988 – issued 1st auditing guideline (MAG1) – Auditors’ Reports: Forms & Qualifications • Other statutory regulation influences practices – the Banking and Financial Institutions Act 1989

26. 6th MP • 1991-95 • Emphasized on balanced development of the economy • Policy – NDP (National Dev Policy) = NEP • Enable participation of all in the mainstream activities • Ensure political stability • National unity • After all – eradicate poverty & restructure society

27. 6th MP • Accelerating industrial restructuring • Move towards capital-intensive & technological sophisticated industries • Produce better Q & more competitive products • Development of Capital Market • Increasing share of the investment funds for public & private sector • Public & private debt securities • Corporate stock & shares

28. 6th MP • 1993 - Establishment of Securities Commission (SC) to strengthen regulatory framework of capital market. • The Future Industry Act, 1993 provided legal framework to safeguard investor • To be listed in KLSE, must meet the specified actg requirements • All listed companies were required to establish Audit Committees to ensure financial integrity of companies

29. 6th MP • Important role of insurance industry • MIA & MACPA issued MASs for insurance • Greater cooperation between public & private sector • 1992 – issued MACPA Guideline for Accounting in the public sector • 1991- MIT (Malaysian Institute of Taxation) was incorporated under Companies Act, 1965, Sec16(4) • Provide organisation for person concern with Malaysian taxation • Advances the status & interests of the taxation profession

30. 1987-1995 • Economic growth • Professionalism vs statutory control • Reactivation of MIA – 1987 • Design its on law on Prof Conduct & Ethics – 1990 • The establishment of MAREF (Malaysian Accountancy and Research Education Foundation) • MIA’s participation on ISAC & Public Sector Committee of the IFAC • Issuance of Actg Std & Prof Pronouncements, enactment of the SC Act - 1993

31. Seventh Malaysia Plan (1996- 2000) • Malaysia faces financial crisis due to East Asian financial crisis, 1998 • The financial crisis that hit Malaysia brought greater attention towards better transparency in both the public and private sectors • Malaysian Accounting Standards Board (MASB) and regulators play a role in carrying out a proper system of financial reporting, new structure outlined by the Financial Reporting Act (1997) • National Economic Action Council (NEAC) of the government of Malaysia announced the National Economic Recovery Plan

32. 1997 • Formation of MASB – 1997 • Setting stds • Adopted most of the IASs

33. Eighth Malaysia Plan (2001 - 2005)

34. Ninth Malaysia Plan (2006-2010)

35. Conclusion • Role of state in accounting development • Related to stages of economy development • 1956- 1995 • 1987 - 1995 – refer to Takiah Mohd Iskandar, 2000 • Other ref - External influences on the development and professionalisation of accounting in Malaysia, 1957-1969 (Azham Md. Ali, 2008) • 2000s - IFRS