MGM 4193 CURRENT ISSUES IN ACCOUNTING AND AUDITING

1. MGM 4193CURRENT ISSUES IN ACCOUNTING AND AUDITING Lecturer: Dr. Zulkarnain Bin Muhamad Sori GROUP 4 Tan Siew Hui 115480 Sakthivani Selvaraju 116450 Jackleen Wee Siew Ping 119627 Khayathri Narayansami 127971

2. Corporate Governance Practices in Malaysia

3. Content • Corporate governance in Malaysia • Corporate governance reform • Achievement of Corporate governance in Malaysia • Minority Shareholders Watchdog Group • Advise to Mr. Danish

4. Introduction • Corporate Governance initiated from the event of East Asian economies collapsed in the second half of 1997 • Different views on the causes of the crisis • Paul Krugman (1998) and Corsetti et al (1998):crisis due to structural weaknesses in domestic financial institutions • IMF (1999)-weaknesses in domestic financial system, poor governance and risk management • Sang Woo Nam and I1 Chong Nam: companies controlled by family owners which pursue own interests relatively easily and often at the expense of minority shareholders and firms’ profits

5. Definition • Corporate governance is been defined as the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the main objective of realizing long term shareholders’ value, and at the same time taking into account the interests of other stakeholders by Finance Committee on Corporate Governance (FCCG)

6. Corporate Governance Practices in Malaysia • Before Asian Financial Crisis 1997/1998 • the efforts are more to piecemeal rather than concerted as it focused more on individual basis. • 1996, Code of Ethics for Directors, by Companies Commission Malaysia--enhance the standard of corporate governance and corporate behaviour, encourage a spirit of social responsibility and accountability • 1997, Malaysian Accounting Standards Board (MASB)--issue, approve and review accounting standards, and to replace the accounting standards

7. After Asian Financial Crisis • need to strengthen the existing practice by Kim (1998), Claessens et al. (1999b), and A-Kadir (2000) • crisis is believed to occur partly due to weak corporate governance, which resulted in substantial loss of confidence by investors in Malaysian capital market as well as role of directors and regulators in safeguarding their interests (FCCG, 1999).

8. ownership concentration • Sang-Woo Nam and Il Chong Nam, ownership concentration in Malaysia is the second highest among Indonesia, Korea and Thailand • more than half of Malaysian corporations, particularly in the hands of family/ individual and state control and the rareness of separation of management from ownership control also increased the need to strengthen the corporate governance practices • Shleifer and Vishny (1997), high ownership concentration may enable the owners to gain full control and the owners prefer to use firms to generate their own benefits of control that are not shared by the minority shareholders, resulted in conflict between large and small shareholders

9. New Economic Policy • The unequal distribution of wealth among the different major ethnic groups, therefore economic, social and asset ownership distribution among major races has been restructured • aimed to raise the Bumiputera’s share of equity • eliminate the identification of races based on the economic functions

10. Corporate Governance Reform The Malaysian corporate governance reform agenda focuses on the following key areas: • Fair treatment of all shareholders and protection of shareholder rights, with particular focus on the rights of minority shareholders; • Transparency – through the timely disclosure of adequate, clear and comparable information concerning corporate financial performance, corporate governance and corporate ownership; • Accountability and independence of the board of directors; • Strengthening regulatory enforcement; and • Promoting training and education at all levels to ensure that the framework for corporate governance is supported by the necessary human resource capital.

11. Malaysian Code of Corporate Governance • Recommended by Finance Committee of Corporate Governance (FCCG) • aimed to increase the standards of corporate governance • setting out principles and best practices for companies.

12. Malaysian Institute of Corporate Governance • established in 1998 • recommended FCCG • increase corporate participants’ awareness of the need for good financial reporting • enhance the role of companies’ auditors.

13. Capital Market Master Plan • introduced by the Securities Commission in February 2001 • development of the Malaysian corporate governance reform agenda • vitality of corporate governance among the public listed companies in order to provide more conducive environment for investors

14. Financial Sector Master Plan • launched by Bank Negara Malaysia • develop a more resilient, competitive and dynamic financial systems, which contributes to economic growth and technology driven.

15. Achievements of Corporate Governance Practices in Malaysia • viewed internally and externally • Internally-board of directors and equity ownership • Externally-takeovers and market, legal/ regulatory systems • Enhance the quality and independence of auditors • improving communication between company and shareholders • enhancing disclosures in the annual reports

16. Continue… • auditor independence, effectiveness the quality of the members in the audit committee • protect the interests of minority shareholders and investors • provide investors with a better understanding of the committee’s oversight role • Disclosure quality had been measured as one of the tools in assessing the corporate governance of a firm

17. Minority Shareholders Watchdog Group • Vision: enhancing shareholder activism and protecting minority interests • Mission: the development of knowledgeable as well as vibrant minority shareholders and have development of the capital market

18. MSWG’s Objectives • To become the forumon minority shareholders’ experiences • To become thethink-tank andresources centre • To develop and disseminate the educational information of corporate governance • To become the platform to initiate collective shareholder activism on unethical or questionable practices by management of public listed companies

19. Continue… • To influence the decision making process in public listed companies as the leader for minority shareholders’ legitimate rights and interests • To continuously monitor for breaches and non-compliance in corporate governance practices by public listed companies • To initiate where appropriate, reports to regulatory authorities

20. Conclusion • corporate governance was aimed towards regulating companies to be more transparent and accountable in their actions in order to gain investors’ confidence • safeguarding the interests of stakeholders through transparency, accountability, trustworthiness and responsibility • reduce the effects of the agency theory and signaling theory • improve the capability of companies • directors and managers to handle the strategic challenges of globalization • strengthen the competitiveness

21. Advise to Mr. Danish Crawford • Government and the non-governmental organizations (NGOs) have taken their best actions in improving the governance practices • Disclosure quality-company more transparent • Voluntary disclosure-provide more information to gain investors’ confidence,

22. Continue… • Therefore, Mr. Danish Crawford should not hesitate to invest in the Malaysian capital market.

23. Thank you!!!