Description of the Companies
Discuss About The Financial Reporting Framework In Malaysia.
Companies operating in Malaysia follow the standards provided by MASB. The main objective of such compliance is to give fair representation of the financial position of the company. There are numerous of standards in the framework of Malaysian Financial Reporting that are applied by almost each and every company. Out of many, there is one standard named as MFRS101 Presentation of Financial Statements, generally used for the preparation of company’s financial documents reflecting the performance highlights. This standard has certain requirements which are been discussed in the report. Apart from this, Malaysian companies especially unit trust funds follows the guidelines of Securities Commission while preparing their financial documents.
The report comprises of the disclosure of requirements of MFRS101 and Securities Commission Guidelines. It considers the two big Malaysian banks named as CIMB Group and Public Bank Berhad. The first part deals with the description of the banks and later on the requirements of the standard and guideline are been discussed. In the later part of the report, the compliance with the above is been discussed. The report also highlights the comparison between MFRS and US GAAP, considering the Bank of America as a comparative corporation. The last part deals with the summary portion containing all the discussion in the nutshell and followed by the conclusion.
A financial institution situated in Kuala Lumpur, Malaysia engaged in offering financial services to the country as well as to the Asia-Pacific region. Currently, the public bank is the second largest bank of Southeast Asia and was founded back in 1966 by Teh Hong Piow. It got listed on Malaysian Stock Exchange in 1967. In terms of shareholders’ funds and market capitalization, it is the largest and second largest bank in Malaysia after Maybank (Public Bank. 2018). The main activities of the bank include offering variety of financial products and services like personal and commercial banking, Islamic banking, nominee and trustee services, investment banking and many more. Talking about the financial highlights, the operating revenue RM 20,858 million which was more than the revenue of 2016 that was RM 20,103 million. The operating profit of the bank was RM 6,745 in 2016 which increased to RM 7319 million. Apart from that, the shareholders’ equity and total assets has also risen during the year (Reuters. 2018).
It is a universal bank in Malaysia having its headquarters situated at Kuala Lumpur. CIMB operates in high growth economy in ASEAN and has a wide network of retail branches across the region. The entities covered by the group are CIMB Bank, CIMB Investment bank and many more. Concerning the history, it was formed by merging various other banks in the past. The primary activities of the group includes providing consumer banking services, wholesale banking, treasury and markets, integrating investment and corporate banking and making strategic investments and group strategy (Bloomberg. 2018). Main markets covered by the group are Indonesia, Thailand, Malaysia and Singapore. Taking into account its financial highlights, the net revenue of the group has increased from RM 3,550,792 to RM 4,410,259. However, overall it has faced a shortfall of income over expenditure worth RM 4,359,008 which is pretty less than the figure reported in 2016. Also the total assets of the group has been reduced during the year (CIMB. 2018).
Requirements of MFRS101 and Securities Commission Guidelines
Companies operating in Malaysia are required to follows the standards issued by Malaysian Accounting Standard Board (MASB). Such standards provide the basis for financial reporting for all the entities which are running their business in the country. They are known as Malaysian Financial Reporting Standards (MFRS). Public bank and CIMB, being financial institutions are required to comply with the provisions and requirements of all MFRS that are applicable to them. Among the various standards, MFRS101 is the one which deals with the presentation of financial statements of a company (Deloitte. 2017). The IAS 1 is equal to the Malaysian standard 101 and the requirements are also somewhat same. The main requirements of this standard are:
- As per MFRS 101, the financial statements of a unit trust must include the following:
- Balance sheet
- Income statement
- Statement of cash flow prepared as per MFRS 107
- Statement showing changes in equity
- Notes to financial statements
- Comparative information as required by the standard ( 2018).
- It is mandatory for the unit trust fund to represent their financial statements as per MFRS101.
- The financial statements must present the true and fair view of the company’s financial position, its performance and flow of cash.
- MFRS 101 requires the management to take an assessment of the ability of the organization to survive for the longer period. Reason being, financial statements are prepared on the assumption that the business will be going concern. If any uncertainties or discrepancies are there, the company must disclose the same properly.
- The statements must be prepared on the basis of accrual accounting except the information of cash flow.
- The unit trust fund is required to display the comparative information in respect of the previous years’ performance, both in the statement and in the notes. It is been provided for the narrative and descriptive purposes ( 2018).
- It is required to prepare such statements at least annually and if the reporting period changes, the entity must disclose the same.
- Statement of financial position must classify the assets and liabilities as current and non-current.
The unit trust in Malaysia are governed by the guideline issued by Securities Commission on March 2008. These guidelines are issued in order to provide a regulatory framework that protect the interest of public investments and developing the unit trust industry in Malaysia. According to the schedule VI of Securities commission guidelines, the unit trust funds are required to prepare their financial statements as per the generally accepted accounting principles, the trust deed, statutory requirements that are applicable and as per the other regulatory requirements.
- Assets and liabilities statement
- Statement of income and expenditure
- Financial statements note and a statement of changes in the value of net assets
- Disclosure of some specific items reported in each financial document
Preparing financial statements according to MASB and above guidelines results in the meeting of reporting requirements of schedule VI. In addition to that, the trust must separate the capital of unit holders from realised and unrealised gains or losses. The disclosure must be done separately.
The public bank and CIMB has complied with all the requirements of MFRS101 and the guidelines of Securities Commission. The same is been disclosed in their annual report. Talking about Public Bank Berhad, the below abstract shows that the group has prepared and audited its financial statements according to MFRS, IFRS and Companies act 2016 applicable in Malaysia.
Apart from this, the directors has also fulfilled their responsibility of assessing the bank and group’s ability to continue in a long run and operate as a going concern entity. The above abstract proves that the accounting of the bank and group is been done on the basis of going concern principle until and unless the directors thought of liquidating the bank or the group. This also one of the requirement of MFRS101 whichi is completely complied by Public Bank. In addition to this, according to the directors and auditors, the financial statements prepared shows a true and fair view of the financial position of the institution (Public Bank. 2017)
Compliance and Format of Disclosure by the Selected Banks
The above abstracts shows the format in which Public Bank displays its financial information. Just like the balance and profit and loss statement, the annual report of the bank also includes statement of changes in equity and cash flow statement. Furthermore, the notes to financial statements are also presented in the annual report covering all the disclosures and the MFRS standards used for various accounting treatment (Public Bank. 2017). The first and foremost requirement of MFRS 101 is completed by the bank that it has presented all the documents that should be included in the financial statements. However, after making a critical review it is observed that Public Bank do not classify its assets and liabilities as current and non-current according to the standard. The statement of financial position prepared by it shows the total amount of assets and liabilities by combing both the types. The statements shown above are prepared on accrual basis and are displayed in comparative format. They show both the financial results of both the group and bank. Also, the performance of the current year is measured against the previous year. On a whole, it gives a comparative view to the users (Public Bank. 2017).
CIMB has also prepared its financial reports as per the standards prescribed by MFRS. Below is the abstract of independent auditor’s report which shows that the group has followed IFRS, MFRS and provisions of companies act 2016 properly at time of preparing the statements. All the requirements and guidelines are been kept in mind by the group while preparing the financial statements (CIMB. 2017).
In order to fulfil the requirement of keeping an entity going concern, the trustees of the foundation have assessed the capability of CIMB group to survive in the future. They have clearly disclosed the matters related to the continuity of the business and accounting is also done on this basis only as long as the directors have not taken any decision related to liquidation or ceasing the operations (CIMB. 2017).
The above disclosure of the financial information shows that CIMB has also completely followed the guidelines and the requirements of the standard MFRS 101. The group has prepared a statement of assets and liabilities which is the first and the foremost requirement of Schedule VI of Securities Commission’s guidelines. Also the bank has properly differentiated between the current assets and non-current assets along with its liabilities. Moreover, they has also provided a comparative view with clear presentation of their performance in the current year as well as in the previous year (CIMB. 2017). So, on a whole it can be said that both the banks has fully complied with the standard’s requirements and has adopted a proper format of disclosure.
The entities operating their businesses in United State of America are required to use Generally Accepted Accounting Principles (GAAP) for reporting their financial data in the annual reports. However the GAAP is slightly different and similar to the Malaysian standards of reporting. Taking comparison into account, the Bank of America (BOA) is been considered against the CIMB and Public Bank of Malaysia.
BOA is the America based multinational company engaged in providing financial services to the country and its people. The headquarters of the corporation are situated in Charlotte, North Carolina. It is considered as the second largest and twenty-sixth largest bank in America by the virtue of total assets and revenue respectively (Bank of America. 2018). Looking at the recent annual report of BOA it is been observed that the bank has prepared and presented its consolidated financial statement as per the US GAAP. The principles are adopted by the Securities and Exchange Commission of United States (SEC) (Bank of America. 2017). It is been required that the companies or the financial institutions listed on SEC must comply with all the requirements of accepted principles of accounting. In a country like USA, for the accounting practices, the Accounting Standards Codification is a single authority for US GAAP which is maintained by FASB. ASC has some codes which covers all the areas that are to be covered while preparing the financial reports of the organization (PWC. 2017).
There are some similarities and differences in the US GAAP and MFRS 101. They are as follows:
- Under MASB, the standard for presentation of financial statements is MFRS 101 and as per the FASB, in GAAP it is ASC 205.
- The major difference is GAAP is rule based accounting whereas MFRS is principle based.
- GAAP does not require to classify the assets and liabilities in current and non-current, while the same is done in Malaysian Standard. Also, in US the items of balance sheet are presented in decreasing order of liquidity. However, the same is not there in MFRS 101.
- The income statement prepared by BOA includes the classification of interest and non-interest income while the same was not displayed in the case of Public Bank and CIMB.
- The cash flow statement prepared under US accounting standards provides more clear way than the one presented as per Malaysian standards ( 2013).
- Malaysia has its own accounting standard board as compare to United States.
Similarities
- The format for statement of changes in equity and cash flow remains the same in both the countries.
- The requirements of the documents of financial statements are same.
- Both the standards aim at providing fair and transparent view of company’s financial position.
From the above comparison, one thing is very clear that the presentation of financial statements is very much different in both the countries. Though, the comparative corporation also belongs to the banking industry but it uses different standards as belongs to different country. However, there are some common requirements also in both the countries’ accounting standards.
From the above report, following are the key points which are explained in a summarised form or in nutshell.
- It is very much important for the banks in Malaysia to adopt a regulatory reporting framework. They are required to follow the guidelines and the standards.
- The presentation of CIMB is much more understandable than the financials presented by Public Bank.
- The Public Bank did not follow all the requirements of the standard.
- There is a slightest difference in the format of both the banks.
- The requirements of MFRS101 and the guidelines for the contents to be displayed in the company’s financial statements are same.
- The statements prepared must stand true and should reflect the fair position and performance of the banks in financial terms.
- Directors and trustees are required to take an assessment of the continuing capacity of the banks in order to ensure that it is a going concern entities.
- All the companies or corporations conducting their businesses in Malaysia are required to report their financial data as per the standards prescribed by MASB and must follow the guidelines of Securities Commission.
- In United States, companies are required to follow GAAP which provides a rule based accounting framework.
- US GAAP does not allow the classification of assets and liabilities as current and non-current.
- The income in the profit and loss statement are required to be segregated as interest and non-interest.
Conclusion
The above report concludes that entities involved in providing financial services to the people are required to follow a regulatory framework while reporting the data in their annual reports. Banks and financial institutions of Malaysia are required to comply with the requirements of MFRS 101 which provides the recommendations for presenting the financial statements in the annual report. Also they have to follow the guidelines issued by Schedule VI of securities commission. The report also concludes that the disclosure requirements are different in USA as the country has adopted GAAP which is somewhat different from MFRS
References
Bank of America. (2017). Annual Report. Retrieved from https://media.corporate-ir.net/media_files/IROL/71/71595/BOAML_AR2017.pdf
Bank of America. (2018). Who we are. Retrieved from https://about.bankofamerica.com/en-us/who-we-are.html#fbid=ThhJzg2t1M2
Bloomberg. (2018). Company Overview of CIMB Bank Berhad. Retrieved from https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=11712801
CIMB (2017). ANNUAL REPORT 2017. Retrieved from https://www.cimb.com/content/dam/cimbgroup/pdf-files/annual-reports/CIMB_AR_2017_180413.pdf
CIMB. (2018). Who We Are. Retrieved from https://www.cimb.com/en/who-we-are.html
Deloitte. (2017). Financial Reporting Framework in Malaysia. Retrieved from https://www.iasplus.com/en/jurisdictions/asia/malaysia (2013). US GAAP versus IFRS The basics. Retrieved from https://www.ey.com/Publication/vwLUAssets/EY-US-GAAP-vs-IFRS-the-basics-2013/$FILE/EY-US-GAAP-vs-IFRS-the-basics-2013.pdf
MASB. (2018). Disclosure Initiative (Amendments to MFRS 101). Retrieved from https://www.masb.org.my/pdf.php?pdf=Disclosure%20Initiative_MFRS_101_23Jan2015%202015%20reprint.pdf&file_path=pdf
MASB. (2018). MASB Standard 1 Presentation of Financial Statements. Retrieved from https://www.masb.org.my/pdf.php?pdf=!masb1.pdf&file_path=pdf
Public Bank. (2017). Forging a Sustainable future – Annual Report. Retrieved from https://www.publicbankgroup.com/CMSPages/GetFile.aspx?guid=f3a38fcb-2f55-470c-b2f1-c275825bbc92
Public Bank. (2018). Public Bank Corporate Homepage – Corporate Profile. Retrieved from https://www.publicbankgroup.com/About-Us/Corporate-Profile
PWC. (2017). IFRS and US GAAP: similarities and differences. Retrieved from https://www.pwc.com/us/en/cfodirect/publications/accounting-guides/ifrs-and-us-gaap-similarities-and-differences.html
Reuters. (2018). Public Bank Bhd (PUBM.KL). Retrieved from https://in.reuters.com/finance/stocks/company-profile/PUBM.KL
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