An Overview of IFRS Adoption in ASEAN – Part One

By: Dezan Shira & Associates
Editor: Maxfield Brown

In part one of this three part series on financial reporting within the Association of South East Asian Nations, ASEAN Briefing outlines the state of IFRS implementation in two of the regions most capitalized economies – Singapore and Malaysia.

International Financial Reporting Standards, known commonly by their acronym IFRS, are a product of the International Accounting Standard Board (IASB) and help to harmonize basic guidelines on financial reporting throughout the world. By adopting this common language, countries place themselves at a competitive advantage for investment by cutting down on due diligence and reducing compliance costs.

Although regional bodies such as the ASEAN Federation of Accountants (AFA) have made ground in standardizing accounting practices within the region, a fully harmonized system of accounting has yet to emerge.

Singapore

Under the auspices of the Singapore Accounting Standards Council (ASC), Singapore Financial Reporting Standards (SFRS) guide reporting within the city state. These standards are closely modeled after IFRS, and in general only lag IFRS standards by three months. However, there are a few key exceptions outlined below.

Although understanding SFRS will be critical for many investors, it is important to note that accommodations made by regulators allow for IFRS to be substituted for SFRS in two cases:

1. The company in question is also listed on another stock exchange outside of Singapore that requires IFRS financial statements.

2. An exemption is granted by Authorities

In the event that a foreign listing mandating IFRS reporting cannot be established and an exemption is not procured, the following differences between SFRS and IFRS – laid out by the International Financial Standards Association – should be noted:

• The following effective IFRS is yet to be adopted as SFRS: IFRIC 2 (Members’ Shares in Co-operative Entities and Similar Instruments).

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Malaysia

IFRS & Malaysian Financial Reporting Standards (MFRS)

Regulation of financial reporting in Malaysia is carried out by the Malaysian Accounting Standards Board (MASB) and codified in Malaysian Financial Reporting Standards (MFRS) via the MFRS Framework. As of 2012, MFRS have been word-for-word in agreement with existing standards set by the IASB. As part of the MFRS Framework, the MASB will continue to update MFRS to mirror relevant changes in International Financial Reporting Standards. Recent MFRS alterations made by the Malaysian Accounting Standards Board pursuant to the MFRS Framework include:

• Adoption of MFRS 15 Revenue from Contracts with Customers, effective for annual periods beginning on or after 1 January 2017.
• Amendments to MFRS-116 and MFRS 141 – dealing with Agriculture and Bearer Plants in particular – which will be effective for annual periods beginning on or after 1 January 2016.

While IFRS have been transposed into Malaysian Standards and required since January 2012, authorities have made accommodations for certain “transitioning entities” – Agriculture (MFRS 141) and Construction of Real Estate (IC 15) – which have been, or are soon thought to be, affected by MFRS updates. To allow transitioning entities time to effectively prepare and comply with newly established financial reporting standards, the MASB has set January 1^st, 2017 as the deadline for transitioning entity migration to MFRS.

With regard to all entities preparing financial statements in compliance with the MFRS, the MASB has also set in place a requirement that these statements include an “explicit and unreserved statement of compliance with IFRS.”

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IFRS for SME’s & Malaysian Private Entities Reporting Standards (MPERS)

In 2014 the Malaysian Accounting Standards Board issued accounting guidelines for Small and Medium Sized Enterprises through the establishment of Malaysian Private Entities Reporting Standards (MPERS). While these standards are largely taken word-for-word from IFRS for SMEs, certain areas of divergence are observed:

• Section 1 (Small and Medium-sized Entities): modified to prescribe the applicability of the MPERS in the Malaysian context. In this regard, all references to “SMEs” and “public accountability” in Sections 1-35 have been replaced by the term “private entities”.

• Section 9 (Consolidated and Separate Financial Statements): requires the ultimate Malaysian parent to prepare consolidated financial statements regardless of whether its ultimate parent that is not incorporated in Malaysia prepared consolidated financial statements.

• Section 29 (Income Taxes): revised to incorporate the principles in IAS 12 Income Taxes and the content therein is based on the income tax chapter in IASB ED/2013/9 IFRS for SMEs issued in October 2013

• Section 34 (Specialized Activities): amended to provide guidance on the accounting for property development activities in Malaysia. Consequently, Example 12 on Agreements for the Construction of Real Estate contained in the Appendix to Section 23 Revenue has been removed.

IFRS Compliance in ASEAN

With a diverse range of financial reporting standards, all at varying stages of cohesion with IFRS, it is recommended that those interested in establishing operations in ASEAN or expanding throughout the region fully comprehend relevant compliance requirements.

With over two decades experience in specialist tax and accounting guidance to help foreign companies do business throughout Asia, the experts at Dezan Shira & Associates are in a unique position of strength to advise companies on accounting standards as they pertain to their business interests in ASEAN. For further consultation, please contact the specialists in our Singapore Office at singapore@dezshira.com.

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