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  • 1. Issues in Social and Environmental AccountingVol. 1, No. 1, June 2007Pp. 109-148 Accounting In Malaysia In The Post-New Economic Policy (NEP) Era Azham Md. Ali Faculty of Accountancy Universiti Utara Malaysia, MalaysiaAbstractFollowing the economic recession in 1985-86 but prior to the Asian Financial Crisis in the thirdquarter 1997, accounting in Malaysia appeared to have been energised with major amendmentsof the Companies Act 1965, activation of the statutory accounting body Malaysian Institute ofAccountants (MIA) and talks over the setting up the Malaysian Accounting Standards Board(MASB). This study attempts to find out the reality of these changes and the reasons behindthis reality. By applying the political economic approach to accounting (Cooper & Sherer,1984) and with data obtained from primary and secondary source documentation and in-depthinterviews, it is found that superficial accounting changes had taken place: Companies Actamendment on additional auditor reporting duty was lacking in enforcement, the revived MIAacted inadequately as accounting regulator; and, the MASB was established with no enforce-ment capability. These changes were consistent with and stemmed from Malaysias social, eco-nomic and political attributes which were supported by the elite class.Keywords: accounting, Malaysia, post-NEP era, elite, environmental attributesIntroduction of Sarawak, Sabah and Singapore, the Parliament passed Companies Act 1965A year after the Malay Federation and the Accountants Act 1967. Thegained its independence from Britain in passing of the Accountants Act 1967 has1957, twenty local accountants set up led to the establishment of the Malaysianthe Malayan (later Malaysian) Associa- Institute of Accountants (MIA) with thetion of Certified Public Accountants responsibility (as stated in Section 6 of(MACPA) (see Azham, 2001a). Not the Accountants Act) to regulate thelong after the Federation of Malaysia practice and promote the interests of thewas created in 1963 comprising the Ma- profession.lay Federation and the British coloniesAzham Md. Ali is a lecturer at the Faculty of Accountancy, Universiti Utara Malaysia (UUM). He is presently an Asso-ciate Professor in the Audit and Governance Unit of the faculty. Email: azham@uum.edu.my
  • 2. 110 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148Unfortunately, the MIA was hardly ac- social concepts in order to gain deeptive in the next two decades of its exis- understanding of the functioning of ac-tence (see Azham, 2001b). This time counting in Malaysian society. Thus, theperiod coincided to a large extent with theory looks at the accounting functionthe implementation of the nation’s New within the broader structural and institu-Economic Policy (NEP) by the govern- tional environment in which it operates.ment. With the MACPA whose power islimited to only a fraction of the total For data collection, the case study re-number of accountants in the country search method is utilised (see Yin, 1994;was at centrestage, there emerged vari- Miles & Huberman, 1994; Ryan et al.,ous problems in the nation’s accounting 1992; Patton, 1990; and Scapens, 1990).arena. These included the proliferation Qualitative data which come in the formof unqualified accountants, the nonexis- of "words", "phrases", "sentences" andtence at the national level of a common "narrations" are gathered from primarycode of ethics binding "all" accountants and secondary source materials and fromand related machinery to investigate and in-depth interviews of selected partici-discipline errant behaviour, the shortage pants taking place in first half of 1997of qualified accountants and the minimal (see the list in Appendix 1). To avoid thedisclosures in corporate annual reports. so-called the "elite bias" (talking only to high-status interviewees), numerous in-Later in the 1980s, amendments were formal talks with a number of peoplemade to the Companies Act 1965 in who were at the peripheries of the sub-1985 and the MIA activated in 1987. ject under study were also conducted.After several years of polemic, in 1997, Insights from the informal talks and an-the government had set up the Malaysian swers coming from a list of open-endedAccounting Standards Board (MASB) to questions sent out to the former financeovertake the MIAs authority over the minister, Tun Daim Zainuddin1, aresetting of accounting standards in the added up to those coming from thecountry. This paper attempts to detail documents and interviews.out the changes taking place and theirreality that emerged in the ten-year pe- In the accounting field, numerous schol-riod after the (unofficial) end of the NEP ars argue that qualitative research meth-in the mid-1980s to the beginning of ods provide rich descriptions of the so-Asian Financial Crisis in the third quar- cial world, particularly the meaningster of 1997. Just as important, this paper attached to actions in the language ofattempts to determine the factors that led actors. In short, they argue that qualita-to the problematic state of accounting tive methods help in understanding howduring the period. accounting meanings are socially gener- ated and sustained. These scholars in-For that matter, the theory of political clude Humphrey & Scapens (1992),economy of accounting (Cooper & Ryan et al. (1992), Ansari & BellSherer, 1984) is applied. It is a view of (1991), Scapens (1990), Covaleski &accounting embedded in interests and Dirsmith (1990), Smith et al. (1988),conflicts and points towards the need to 1 He earlier had agreed to be interviewed. But due tosupplement the marginalistic analysis of some timing problems, this interview had at the endcompetitive markets with political and failed to take place.
  • 3. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 111Kaplan (1983, 1984, 1986), Hopper & socio-economic and institutional envi-Powell (1985) and Hopwood (1983). ronment. Interpretation of a nations spe- cific economic features will be less ade-The reminder of this paper is comprised quate if insufficient attention is given toof five sections. The first delineates the the surrounding social and politicaltheoretical framework. The second dis- processes.cusses the three main changes takingplace in the post-NEP era in the nation’s Thus, Cooper & Sherer (1984) haveaccounting arena. The third pinpoints the pointed out that a political economy ofmyriad of problems and uncertainties in accounting is useful for understandingthe accounting arena. By applying the how the accounting process interactstheory of political economy of account- with its social, economic and politicaling, the following forth section is an at- environments. They write (p. 208):tempt to explain the reasons behind theless than healthy state of accounting. ... the objectives of and for account-The paper ends with a section on conclu- ing are fundamentally contested,sions. arises out of recognition that any ac- counting contains a representation of a specific social and political context.The Theoretical Framework Not only is accounting policy essen- tially political in that it derives fromThe conceptual or theoretical framework the political struggle in society as ais the political economy of accounting whole but also the outcomes of ac-introduced by Tinker (1980) and refined counting policy are essentially politi-by Cooper & Sherer (1984). Tinker cal in that they operate for the benefit(1980) introduces a classical political of some groups in society and to theeconomic approach to financial report- detriment of others.ing. He proposes that the social relationsof production work together with the This leads to the assumption that thereeconomic forces of production as two exists no basic harmony of interests inrelated dimensions of capital shaping the society where power is widely diffusedsocial and economic life of a nation. In and which results with the unproblem-recognising the presence of social rela- atic view of the social value of account-tions, it would make it less cumbersome ing reports. Instead, accounting practiceto understand the economic forces of is viewed as favouring specific dominantproduction that are operating at any par- interests in society and disadvantagingticular time period and in any society. others. Dye (1986) argues that a cohe-Tinker (1984) explains that such rela- sive "power elite" exercise authoritytions are reflected through a set of insti- over a variety of institutions. This elite istutional forms and arrangements that are comprised of a small group of dominant,constructed to interact with economic authoritative individuals or entities. Therelations (i.e. the type of economy). Ac- elite functions through, among othercordingly, in order to understand what is things, interlocking directorships, inter-going on in the economic sphere, which locking institutional experiences andmay include the accounting function, similar social backgrounds. However,there is a need to identify the related instead of a single power elite, Dye
  • 4. 112 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148(1986) says that a society may have dif- stated by Argyris & Schon (1974):ferent groups of individuals or entities "Espoused theories" are what people saythat exercise power in its various sec- they do and the "theory-in-use" is whattors. Thus, leadership or authority is dis- really happens. In getting a clear under-persed. More importantly perhaps it is standing of an accounting process anot unusual for the elites to be in conflict greater focus on social relations purposewith each other. In relation to account- is needed, for it is assumed that in anying, both views of elitist domination and locality and a specific time period thepluralist anarchy signify the contested social relation goal is always successfulvalue of the accounting reports and prac- in modifying the structural purpose.tices. In other words, accounting reportsare hardly impartial and objective, nor is In the next section, the three most im-the accountant in the position of a disin- portant changes taking place in Malay-terested and innocuous historian. sia’s accounting arena during the post- NEP era are described. Two took placeBesides the presence of power-play in at the beginning of the era and the thirdsociety, Cooper & Sherer (1984) say that one just before Malaysia began to sufferanother important variable affecting the from the quagmire of the Asian Finan-value of financial accounting reports is cial Crisis 1997-98. These changes pro-the specific historical and institutional vide the appearance that at long last aenvironment comprising the social and new accounting era had emerged, befit-political structures and cultural values of ting the so-called transfer of responsibil-the society that provide the context for ity from government to private sector asthe delivering of the accounting reports. the nation’s engine of the economy.In short, historical specificity is crucialin coming out with a fair assessment ofthe social value of the accounting func- Accounting Transformationstion. The first accounting development of in-All in all, the application of a political terest took place with the amendmentseconomy approach leads to the recogni- made to the Companies Act 1965 intion of the presence of both apparent and 1985. This is followed by the activationhidden purposes underlying accounting of the statutory accounting body MIAprocess taking place in a specific locale with its first AGM in September 1987.and time period. The apparent, structural Ten years later, the government with thepurpose reflects the proclaimed needs of passing of the Financial Reporting Acta society. It provides the "right" func- of 1997 set up the MASB to overtake thetionalist kind of impression. The more MIAs authority over the setting of ac-hidden underlying purpose associated counting standards in the country.with social relations on the other handensures the maintenance of the status The 1985 Amendment to the Compa-quo. In short, it protects the underlying nies Act 1965. With the power to regu-power arrangement. As a result, there is late company law is vested in the Fed-a difference in what the elite say and do eral Legislature under the Malaysian(and perhaps also what is in their mind) Federal Constitution, the Companies Actin the matter of accounting. This is as 1965, which became effective on 15
  • 5. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 113April, 1966, brings together company dards of auditing.legislations which prevailed in the com-ponent states in 1963 when Malaysia Finally, an auditor is required to reportwas created (Azham, 2001a). At the be- to the ROC if he or she were to find thatginning, as shown in the Parliamentary there has been a breach or non-Debates (Vol II, no. 8, 9 Aug. 1965, Col. observance of any provisions of the Act.1558), the Companies Act 1965 had two The onus is on the auditor to justify whyobjectives: to protect investors and to he has not reported a breach of the Actattract “foreign investors” into the coun- to the Registrar. This seems to be a ma-try. Later, after two decades have jor break with the tradition in Malaysianpassed, in 1985, the Companies Act was Company Law based as it is on the Brit-substantially revised (Helinna & ish system2, although it is contained inWishart, 1989). The revised Act became the corresponding sections of the Aus-effective from 1 February 1986. As tralian and Singaporean Acts. Failure tomentioned by a number of interviewees, report could result in a requirement forthe 1985 amendment as a whole was the auditor to justify in a court of law hisintended to attract foreigners to invest in or her opinion that the breaches havethe country, through placing greater em- been otherwise adequately dealt with byphasis on the need for those associated either one of these two approaches: by awith companies to be more accountable comment about such matter in his or herto the minority shareholders, who would audit report or by bringing the matter toinclude the foreigners. the attention of the company directors. The fulfilment of either of these two ap-Thus, in the revised Companies Act, proaches ensures that the reporting dutyextensive changes are made to the exist- of an auditor to the Registrar is a limiteding Ninth Schedule to incorporate those one.elements that are regarded as best ac-counting standards and practices leading The Activation of the MIA in 1987.towards a much higher disclosure level When the Malaysian Parliament passedthan previously. For example, compa- the Accountants Act 1967 in Septembernies now are required to prepare funds that year, the MIA came to existence asstatement (statement of changes in fi- a statutory body (Azham, 2001a). Sec-nancial position) together with the in-come statements and balance sheets that 2 Walton (1986) says that the Malaysian Act drew mainly on two sources: the Victoria Companies Act ofthe auditors have to report on. Also, the 1961 and the British Companies Act of 1948. The1985 amendment requires for the first former in turn was based upon UK Companies Acttime all public accounting firms and the 1908, 1929 and 1948, while the latter on UK Compa- nies Act 1929. However, in the Parliamentary Debatesindividual partners of such firms to reg- (Vol. II, no. 8, 9 Aug. 1965, Col. 1558), it was statedister with the Registrar of Companies by the then minister of commerce and industry, Dr. Lim Swee Aun, that the committee with the responsi-(ROC). Each partner is allocated a num- bility to draft the Companies Bill (whose chairmanber that must be cited in all audit reports. came from the ministry of commerce and industry andIn addition, the term of an audit license with the assistance of John Finemore, a Colombo Plan draftsman from Australia) had considered not only theis reduced from three to two years and present legislation in force in the UK, Australia, Indiathe procedure of granting licenses over- and New Zealand, but also the draft code prepared forhauled to make it a more effective Ghana by Professor Gower and the reports presented in the UK by the committees chaired by Lord Cohenmethod of monitoring and policing stan- and Lord Jenkin.
  • 6. 114 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148tion 6 of the Act provides a list of the MICA for there was already in the coun-various functions of the MIA. The MIA try an accounting body entrusted with allis in short supposed to be the body to the needed task to spearhead the ac-promote and regulate the accounting counting profession in the form of theprofession in the country. Unfortunately, MIA (MIA 1967-87 Annual Report, p.hardly any part of the Act except for the 11)3. Two years later, what should haveestablishment of the MIA council and taken placed two decades earlier finallythe appointment of its heads had taken occurred: MIA had its first AGM in Sep-place in the reminder of the decade. tember 1987. It appears that the govern-And it may safely be said that nothing ment was instrumental in having thesubstantial had actually taken place in MIA activated. Said the MIA presidentthe following decade of 1970s except for on the day before the MIAs inauguralthe passing of Accountants Rules in AGM (The Malaysian Accountant, Oct-1972 which, however, were not enforced Dec 1987, p. 9): "The ball has now beendue to the nonexistence of the statutory tossed into my hands as the new Presi-investigative and disciplinary commit- dent of MIA and my brief has been totees which could only be formed after an activate the MIA into a full professionalAGM. body representing all accountants in the country." See also Akauntan NasionalBeing inactive did not however stop the (Aug. 1992, p. 25).leaders of the MIA to conduct a series ofdiscussion with those from the MACPA The exact reasons for the MIA to be ac-to have the two bodies “merged” to form tivated were revealed on pages 5-6 of aMalaysian Institute of Chartered Ac- set of untitled bounded documents foundcountants (MICA) (Azham, 2001b). But, in the MIA library which was stampedon 17 June 1985, the federal cabinet re- on its first page as "Confidential" andjected the establishment of MICA dated 1 October 1988 and which appears(Business Times, 12 Oct. 1988). The rea- to have been forwarded to the then fi-son given was that there was no need for nance minister by the MIA council to gain his approval for the various amend- ments suggested for the Accountants Act3 But from interviews, it was found that there would 1967 (from hereon it is known as thehave been a merger if only those from the MIA and the "MIA 1988 Bounded Document").MACPA were to agree with the terms set by the gov-ernment. What happened was that the government Firstly, this document stated that thewould have agreed for the "merger" to take place if the MIA was "directed" by the governmentnew merged body MICA would have in its schedule list to be active (after the federal cabinetof recognised accounting bodies a number of govern-ment sponsored accounting bodies and qualifications rejected the MACPA proposal for the(where majority of the people involved happened to be merger of the MACPA with the MIA)bumiputras – see next footnote). The inclusion of thesebodies and qualifications would ensure that those in- because of the state of the then account-volved could be taken in as public accountants and in ing profession reflected in various finan-turn would have them permitted to audit companies. cial scandals which resulted with a lossBut those leaders of the MIA and MACPA would havenone of this. Their reluctance to agree to the terms set of confidence in the profession amongby the government led the latter to decide that there the general public and “foreign business-was no need for unification. Thus, there was no men” who were considered crucial for"outright" rejection by the government and that it wasnot due to the presence of the MIA that MICA could Malaysia to become an industrialisednot come into reality. country. Next, it stated that the govern-
  • 7. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 115ment would like the MIA to be activated The Setting up of the MASB in mid-due to the proliferation of unqualified 1997. For the two decades when theaccountants who had caused the govern- MIA laid low, the MACPA spearheadedment to incur millions of ringgit of the efforts of introducing accountinglosses as a result of their falsification of standards for local consumptiontheir clients accounts. Thus, the MIA (Azham, 2001b). Thus, it was as early aswas now to play the regulatory role as June 1972 that the MACPA issued State-expected of it when it was created two ment No. 1. Within the few years afterdecades earlier. This idea was clearly Statement No. 1, the MACPA issuedexpressed by none other than the then three more statements. Later in Octoberfinance minister on the night before the 1975, the MACPA was admitted as ainaugural AGM of the MIA in 1987 member of the International Accounting(The Malaysian Accountant, Oct-Dec. Standards Committee (IASC). Following1987, p. 8): "As the Minister responsible its membership of the IASC, thefor implementing the Accountants Act it MACPA in 1978 adopted the Interna-is my hope that members of the Institute tional Accounting Standards (IAS) 1 to 4will make MIA an effective professional (The Malaysian Accountant, July 1986,body responsible for looking after the p. 11). Nevertheless, it appears that inprofessional standards, education and implementing the IAS, the MACPAtraining and supervising over the profes- faced with a lot of non-compliance bysional conduct of members." companies leading to much diversity in accounting practices between industriesThe MIA 1988 Bounded Document had and between companies in the same in-also mentioned some other reasons for dustry for both listed and unlisted com-the MIA to be active. This concerned panies (Cooper, 1980; Megat, 1980, p.the need to increase the number of in- 5). Worse problems appeared to havedigenous accountants and the use of the emerged when it concerned small busi-Malay language in the accounting pro- nesses (The Malaysian Accountant,fession. The report stated that the gov- 1980, pp. 45-46).ernment was "horrified" and "saddened"to discover that up to 1984, there were Later in late 1980s, it appeared thatless than five percent of the total quali- nothing much had changed when it con-fied accountants in the country who cerned companies’ compliance with thewere “bumiputra”4. IAS which were now adopted by the recently activated MIA. In 1989, Lee Hwa Beng, the MIAs chairman of the Financial Statements Review Committee4 The word “bumiputra” in direct translation in English (FSRC) mentioned that the review madeis “sons of the soil”. The word denotes those withcultural affinities indigenous to the region as opposed recently on the accounts of 187 compa-to those known as immigrants who originated from nies (selected on the basis of stratifiedoutside the Malay archipelago. Thus, bumiputra is sampling) had shown that "a large num-comprised of three broad groups: the aborigines, theMalay-related and the ethnic groups residing in Sara- ber of companies" did not comply withwak and Sabah. Note however that the Constitution the Generally Accepted Accountingdefines a Malay on a cultural instead of racial terms.That is, a Malay is “a person who professes the Mus- Principles (GAAP) (NST5, 20 Maylim religion, habitually speaks the Malay language, 1989). Several years later Tay (1994)[and] conforms to Malay custom.” See Syed (1965, who conducted a study on financial in-1985) and Chee (1983, Chapter One).
  • 8. 116 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148formation disclosure and accounting to review all accounts but on a ran-measurement methods of 30 smaller and dom basis with special emphasis tolarger KLSE-listed companies men- the public with the authority to calltioned the same thing. Tay (1994) spe- for information on a very private andcifically stated that one possible problem confidential basis.faced by users of the financial state-ments was the failure of companies to He pointed out that review of accountscomply with legal and professional re- would act as an "impetus" for companiesquirements. Finally, just before Malaysia to comply with accounting standards.was caught up in the 1997-98 Asian Fi- He also said (p. 13):nancial Crisis, the vernacular newspaperUtusan Malaysia (8 July 1997) in its When set up, the new independentfront page story reported that a number FSR should also be given the powerof companies was found to have filed in to impose penalties in the form ofaccounts with the ROC which were dif- fines and in the event of severe orferent to those which were laid out at the recurrent failure to comply with ac-AGMs. And there were still other cases counting standards, the FSR shouldwhere accounts filed with the ROC were also have the authority to recommendquite confusing in content while those to the various Registrars to disqualifysent to the Securities Commission (SC)6 directors from holding office and toand the finance ministry were showing the licensing boards to remove orthe very best of financial conditions. suspend audit licenses and to the ac- countancy associations for discipli-With all this in the background, it is not nary proceedings.surprising to find that as early as 1987,Oh Chong Peng, who was a senior part- Unfortunately, no one seemed to payner of Coopers and Lybrand and later any attention to this suggestion of hisMACPA president, had raised the idea which was made just before the MIAof the need for a separate committee to had its inaugural AGM. In fact, onereview companies compliance with ac- could say from available evidence that incounting standards issued by a body the later part of its active life, those atwhich he labelled as the "Malaysian the helm of the MIA were rather satis-FASB" (Peng, 1987, p. 12): fied with the quality of financial report- ing in the country. For example, in 1993, The next step should then be to en- the MIAs chairman of public practice sure compliance with accounting committee (PPC) disagreed with a re- standards. To do this, the FSR mark made by "an accountant" at a con- [Financial Statement Review Com- ference that Malaysias corporate report- mittee] must be given more authority. ing was weak (Business Times, 17 Dec. One way is for the FSR to be set up 6 The SC was established in 1993 (Mohd.-Ariff, 1993; along the lines of the FASB, possibly Mohd.-Salleh, 1993). The SC is given the task of pro- as an off shoot of the FASB. The new moting the modernisation and ensuring orderly develop- independent FSRs main task will be ment of the capital market in Malaysia. It regulates the issue of securities, designation of futures contracts and takeovers and mergers of companies. It is also responsi-5 NST stands for the nation’s vernacular newspaper New ble for supervising and monitoring the activities of anyStraits Times. exchange, clearing house and central depository.
  • 9. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 1171993). This "accountant" mentioned the strive to be world class competitors,IASCs 1993 survey that identified Ma- we need to provide for tighter andlaysia as one of the countries lacking more timely standards which cansufficient amount of disclosure. This earn the support of preparers, audi-survey placed Malaysia together with tors and users alike by their quality. Icountries such as Japan, Hong Kong and believe the time has come for us toSingapore for having less comprehen- consider the establishment of an Ac-sive disclosures compared to countries counting Standards Board backed bysuch as UK, France and US. The MIAs a body which can ensure strongerPPC chairman mentioned that such re- arrangements for securing compli-mark could be damaging to the country ance and which has the financial re-in the effect that it would have on sources."foreign investors". He also appeared tothink that to be in such category with The following year in October, duringSingapore and Hong Kong was not so his 1996 budget speech, he announcedbad. Questions may be raised too as to that his ministry would set up the Finan-the efficacy of the work conducted by cial Accounting Foundation (FAF) andthe MIA (and for that matter the the Malaysian Accounting StandardsMACPA too) in reviewing financial Board (MASB) as part of the govern-statements. The MIAs Financial State- ments continuing strategy to develop thements Review Committee (FSRC) ap- capital market (NST, 28 Oct. 1995). Hepeared to have only published results of also said that the establishment ofits review works for the years 1989 MASB to formulate accounting stan-(Akauntan Nasional, June 1989) and dards and identify related areas of regu-1994 (Akauntan Nasional, Apr. 1994). lation and "enforcement" would ensure aThe MACPAs FSRC has not seemed to high level of financial reporting and dis-publish any over the years. (See also closure in the corporate sector. HeTay, 1994, pp. 242-243 in this matter of pointed out that with the maturity of thethe FSRCs of the accounting bodies.) capital market and the further introduc- tion of sophisticated financial instru-In the middle of all this mess, in 1994, ments, the level of "monitoring" neededthe then finance minister came out to upgrading and investors required protec-argue on the need to have high quality tion by the government.accounting standards in preparing thefinancial statements and to ensure com- A year later, in the midst of stiff opposi-panies directors complied with the stan- tion from the MIA over the idea ofdards. He also said that it was MASB because the latter’s existence"unreasonable" and "unrealistic" to de- would ensure that the task in setting ac-pend on the accountants for high quality counting standards would be effectivelyfinancial reporting since this was the pull out from the former7 he mentionedresponsibility of companies directors 7(The Malaysian Accountant, June 1994, During an interview, an MIA council member men- tioned that the MIA had made a presentation at thep. 14). Next he mentioned (pp. 14-15): finance ministry to lobby against the setting up of the MASB - to no avail. In the presentation, the MIA “begged” the ministry to say what was wrong with the As our financial and capital market MIA in its accounting standard-setting efforts. The MIA become more sophisticated and as we also argued that it was the best party to handle account-
  • 10. 118 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148that for the country to strive for and not just by the accounting profession"disclosure-based regulation" of its capi- (NST, 8 Oct. 1996). He argued that intal markets8 with greater emphasis on many countries the accounting profes-high standards and levels of disclosure sion together with the preparers, usersleading towards "a financial reporting and regulators had recognised that highenvironment of international standard", quality accounting standards wouldthe financial reporting standards "must" emerge with the active participation ofbe accepted by the business community the relevant parties and that the process being made "independent" of any par- ticular interest group including the ac-ing standard-setting since it did not have any vested inter- counting profession (Business Times, 8est in whatever way a standard came up to be. The MIA in Oct. 1996). He stressed that a mecha-short would be the independent party suited for such a task nism was needed that allowed the in-and not the MASB which would be comprised to someextent with parties from the listed companies, etc. who volvement of all relevant parties in themight do things to their benefits but which could damage financial reporting process. It is notablethe country somehow. Besides interviews, several docu-mented sources provide evidence on the MIA’s opposition that all these arguments were supportedover the idea of MASB. Two examples: in 1995, the NST about a week later by Sir Bryan Cars-(11 Sept. 1995) quoted the MIA president saying: "In the berg, the secretary-general of the IASCinterest of the public and the country as a whole, we do notagree that the proposed MASB should be independent of (NST, 16 Oct. 1996). Apparently, thethe accounting profession and the institute". He proposed SC, which was directly responsible inthat instead of forming the MASB, it would be better to the establishment of the MASBhave the MIAs Accounting and Auditing Standards Com-mittee to be upgraded as a Board with that of a review (Securities Commission 1995 Annualboard was also set up to form an Accounting Standards Report, p. 3), arranged for Sir BryanAdvisory Board (ASAB). The ASAB he said wouldgreatly enhance the consultative process in accounting Carsberg to issue a set of statements tostandards setting which many claimed was lacking at the local newspapers.present. The second example is the Editorial to the MIAsofficial journal Akauntan Nasional (January 1996). Here,it was mentioned that the MIA was recently elected to the Later in late 1996, the Parliament passedBoard of IASC; thus, it signified that “Malaysia is held in the Financial Reporting Act 1997. Thehigh esteem internationally”. Next, it said that at the local Act states that the MASB would havelevel the MIA did not get similar treatment. It also said: “Apublic announcement on the formation of the independent eight members comprising the chairman,accounting standards board was made while the Institute Accountant-General and six others withstrongly believes that the accounting standards settingprocess should remain with accountants ... The Institute is experience in financial reporting and inindeed facing an issue which affects the very core of the one or more of the following areas: ac-accountancy profession .…”8 counting, law, business and finance. The apparent exception took place in two occasions: onein 1992 when the MIA president was reported to say that Five out of these eight members shallthe MIA had found from its recent investigation involving also be members of the MIA. The Board40 accountants that there were auditors who had failed to is assigned three advisors coming fromissue proper audit report (NST, 12 Apr. 1992). And anotherin 1993 under the headline "MIA Warning to Errant Mem- three regulatory authorities: SC, Centralbers" (NST, 28 Jan. 1993). But on closer inspection, the Bank and ROC. The functions of thestory involved members of MIA who colluded with un-qualified accountants. Thus, this story was nothing new. It MASB as listed in the Act are extensiveis because on this subject of collusion between members and include the issuance of accountingand those people unregistered, the MIA over the years was standards, reviewing pre-existing ac-fond of issuing numerous statements to the media makingone warning after another that stern action would be taken counting standards to be issued as ap-against its members with really no news whether actions proved accounting standards and thehad in fact been taken. See The Malay Mail (4 Feb. 1988; development of a "conceptual frame-26 Feb. 1992) and NST (17 Sept. 1988; 31 Jan. 1991). work". The MASB is also required to
  • 11. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 119seek the FAF views for a number of its Debilitating Outcomes of Accountingfunctions. Also, as mentioned in the Act, Transformationsthis FAF is comprised of 18 individualsincluding a chairperson appointed by the During the period of ten years or so priorfinance minister. Six out of these 18 in- to the Asian Financial Crisis 1997-98,dividuals are the following people or the nation’s accounting arena appearedtheir representatives: secretary general to have made progress with amendmentsof the Treasury, Central Bank Governor, made to the Companies Act 1965, theSecurities Commission chairman, Com- activation of the MIA and establishmentpanies Registrar, KLSE executive chair- of the MASB. But appearance can beman and MIA president. Another nine deceiving as proven by the reality on thecome from public listed companies (4), ground. This can be seen in particular inaccounting firms (4), law firm (1). While the lack of enforcement of the Compa-the MASB has variety of functions, the nies Act’s amendments on auditor’sFAF only has the following four func- ROC reporting duty, MIA’s failure ontions: to provide its views to the Board; being strong regulator and MASB cre-to review the Boards performance; to ated without the enforcement capability.manage the Boards financial affairs; andto perform any other function as the fi- The 1985 Amendments to the Compa-nance minister may authorise and which nies Act 1965.is published in the Government Gazette. In requiring the auditors to report to theAbout six months after the passing of ROC in certain cases where there havethe Financial Reporting Act 1997 and been breaches or non-observance of anyjust before the country began to experi- provisions of the Act is surely an excel-ence the impact of the Asian Financial lent idea – on paper. Previously, theCrisis, the NST (11 July 1997) reported auditor could only use the audit reportthat both the FAF and MASB com- and by the time the report is presented tomenced operations on 1 July 1997. It the members of the company, the dam-also said that the finance minister had age caused by the transgressions mightappointed Tan Sri Wan Azmi Wan well have been irreparable. However, inHamzah, chairman of five KLSE listed practice, it does not look like a doable –companies, as the chairman of FAF and even when the law has made it clear thatRaja Datuk Arshad Raja Tun Uda, the auditor who has failed to make such re-executive chairman of Price Water- port was liable to spend two years in jailhouse, as the chairman of the MASB. and/or pay RM 30,000. As claimed by an auditor in an interview, it was notAs said earlier, the three new develop- practical for auditors to report to thements in the accounting arena – Compa- ROC when certain situations arose be-nies Act’s amendments, MIA’s revival cause the auditors "at the end of the dayand the setting up of the MASB – appear were also businessmen." In most cases,to herald a new era for the nation’s ac- he said, the auditors, who were verycounting arena. The reality could not be much aware that their positions as audi-more further from the truth. This is de- tors were dependent on the support ofscribed next. the companies directors, would be more inclined to support the directors rather
  • 12. 120 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148than take a stand and report matters to found in several interviews with audi-the ROC. tors.Thus, it is perhaps not surprising to find The Activation of the MIA in 1987.that the minister of domestic trade and As noted earlier, based upon docu-consumer affairs had noted to the ac- mented sources, it is clear that the MIAcountants audience in a seminar that half was made to be active by the govern-a decade after the amendments were ment for primarily two reasons: to in-passed, the ROC had only received crease the number of indigenous ac-“two” reports from the auditors (NST, 29 countants and to clean up the accountingJan. 1991). This he said had taken place profession from “undesirable elements”.when his ministry had found numerous From those interviewed, a good supportinstances of companies failing to comply was found for the former; however, verywith statutory and KLSE requirements little was mentioned about the latter. Theas well as approved accounting stan- interviews had also uncovered manydards in their annual reports (The Malay- other reasons including personal onessian Accountant, Feb. 1991, p. 21). The among those who were said to have ac-following year, he mentioned (NST, 17 tively sought for the MIA to be revived.Dec. 1992): “Auditors are still avoiding These reasons included the MIA wastheir responsibilities under the law to used as a platform by one or two person-report any breach or non-compliance of alities as stepping stones for “betterthe Companies Act 1965 to the Registrar things in life” and that it was a vindic-of Companies." He claimed that if one tive act by certain personalities overwere to consider only the number of re- their unhappiness with the MACPAports made by the auditor, one would get leaders. From the viewpoint of thosethe wrong impression that Malaysian people interviewed who identified thesecompanies were law abiding even “personal” reasons, there was little beliefthough the reality showed otherwise. He that national interests in the form of in-revealed that the RM 7 million fines col- creasing the number of bumiputra ac-lected in the first 10 months of 1992 sig- countants, wiping out unregistered ac-nalised that far too many companies had countants, etc. were really the reasonscommitted various offences under the behind the move to activate the MIA. AAct. He also mentioned that in 1991, the number of them also claimed that thatROC collected RM 8 million fines from the motivation for the MIA to become7,148 companies. He next stated (The active was really from the accountants atMalaysian Accountant, Dec. 1992, p. the ground level and not the then finance12): "It is therefore apparent that not all minister or other parties in the govern-auditors are performing their duties in ment. With such confusion on MIA’saccordance with law." He warned the activation, perhaps it was not surprisingauditors that "appropriate action" would to find that an active MIA had failed tobe taken against those who did not carry deliver on both cases of raising the num-out their duties conscientiously (NST, 17 ber of bumiputra accountants andDec. 1992). But with no news reported emerging as a strong accounting regula-on such action, it may be deduced that tor. The latter is discussed next.the auditors concerned need not take thewarning seriously. This was in fact Accounting Regulator. The fact that
  • 13. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 121since the early 1980s white-collar crime Finally, it is notable that the Inlandin its various forms has proliferated in Revenue Department (IRD) had in 1988the country is well known (see Koon, voiced its dissatisfaction with the quality1994). Related to this, there were revela- of work of the nations public account-tions made by certain parties in the ants and the apparent weaknesses of thecountry as to the apparent ill health of MIA in fulfilling its regulatory role. Athe local audit practice. See Central letter sent to the MIA president by theBank (1987, p. 6), Malaysian Business then deputy director-general of the IRD(16 Aug. 1988, p. 16) and Choo (1991, dated 27 July 198810 showed that thep. 23). From interviews, it was found IRD was not happy with the work exe-that numerous parties including a few cuted by the MIA members who wereauditors themselves considered that al- working as tax accountants. The deputythough the last ten years had seen the director-general specifically mentionednation’s audit to have actually improved, collusion between unqualified account-there was still much room for improve- ants and qualified accountants and thatment. Two interviewees who were the IRD had also found cases whereclosely connected with the MIA had in MIA members who acted as tax account-fact stressed that year after year it was ants had not done their work properlyfound that the financial statements se- and in some cases had in fact "falsified"lected for reviews uncovered "serious" their clients accounts for the purpose ofdisregard of the approved accounting tax evasion. He also pointed out that thestandards and the relevant laws. With all MIA president needed to focus on thethis in the background, it is not surpris- fact that some auditors had failed to con-ing to find that certain parties in the duct their audit work in accordance withcountry had publicly aired their dissatis- auditing standards. He stressed that thefaction on the conduct of members of MIA president needed to ensure thatthe accounting profession and their rep- these problems were dealt with or elseresentative bodies. They also made it he would not just disclose these mattersclear that they would like to see changes to the public but would also put in placetaking place in the accounting profes- "measures" to stop their proliferation.sion. See remarks made by for example Two months after the letter was written,the former Governor of the Central Bank The Star (30 Sept. 1988) reported thatand the chairman of the bumiputra trust "six reputable accounting firms" withagency, Permodalan Nasional Berhad bases in Kuala Lumpur were warned by(PNB)9 and several listed companies the IRD to be more careful when prepar-Tun Ismail Ali (The Malaysian Account- ing audited accounts for limited compa-ant, July-Sept 1988, p. 18) and those by nies. The then deputy director-general ofthe then finance minister Tun Daim Za- the IRD was reported to say that submit-inuddin in 1989 (Akauntan Nasional, ted accounts had contained "gross dis-Sept. 1989, pp. 21-23) and 1990 crepancies". He also said that the depart-(Akauntan Nasional: Aug. 1990, p. 26 ment would not be lenient in the comingand Oct. 1990, pp. 20-21) year (1989) with audit firms found re-9 sponsible for any discrepancies in au- The PNB in 1988 had investments in 153 companieswhere 94 of them were quoted at the KLSE (The Ma- dited accounts. The IRD he pointed outlaysian Accountant, July-Sept. 1988, p. 20).10 10 It was found as Appendix 8 in the "MIA 1988 It was found as Appendix 8 in the "MIA 1988Bounded Document". Bounded Document".
  • 14. 122 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148would take accountants to court for abet- With this apparent early desire to be ating taxpayers to submit incomplete au- strong regulator, a few months after thedited accounts. MIA first AGM, The Malay Mail (13 Jan. 1988) reported that following com-While it is clear that the MIA needed to plaints against 15 accountants lodged bydo a lot to improve the quality of ac- companies, fellow accountants and gov-counting practice in the country, in just ernment departments, the MIA was go-one word, the MIAs apparent response ing all out to clean up the act of errantto the proliferation of white-collar crime accountants. The MIA president wasin the country is inadequate. This is es- reported to have said that 15 accountantspecially the case in the latter few years were under investigation for allegedcompared to its first two or three years malpractice and criminal breach of trust.after its activation in 1987. He also said that the accountants faced being de-registered while prosecution inThe MIA’s Actions and Inactions. On court awaits those who had violated thethe night before the MIAs first AGM in Accountants Act 1967. In the later part1987, the MIA president mentioned of 1988 and in early 1989, there were awhat he continued to repeat over the number of reports in the NST on whatnext three years:11 The MIA aimed to be the MIA leaders would do to erranta strong regulatory body (The Malaysian members. The headlines of the newsAccountant, Oct-Dec 1987, p. 10). He reports said all: "MIA May Expel Mem-stressed that after the inaugural AGM bers Who Break the Rules" (21 Junewhen MIA was then able to form its in- 1988); "MIA Warns Members of Sternvestigation and disciplinary committees, Action" (15 July 1988); "MIA May Ex-the council would have to make "a deter- pel Those Abetting Fraud" (17 Oct.mined effort" to clean up the image of 1988); "MIA to Haul Up Accountantsthe profession. The MIA president even Not Following Rules" (28 Feb. 1989).mentioned that to ensure a more effec- Also on 14 July 1988, in the Businesstive policing by the MIA in the future Times and The Star the following head-there would be joint investigation and lines appeared respectively: "Warningdisciplinary body comprising representa- from the MIA" and "MIA to Get Rid oftives from the Treasury, Registrar of Black Sheep". In the former, the MIACompanies and Registrar of Coopera- president was reported of saying that thetives. He had also volunteered to have MIA would not condone members whothe MIA to take over the "policing" task "... persistently refuse to comply withover the auditors handled by "a monitor- 13ing committee" in the finance ministry The apparent exception took place in two occasions: one in 1992 when the MIA president was reported tothat was recently formed and comprised say that the MIA had found from its recent investiga-of representatives from various bodies tion involving 40 accountants that there were auditorsincluding the MIA.12 who had failed to issue proper audit report (NST, 12 Apr. 1992). And another in 1993 under the headline "MIA Warning to Errant Members" (NST, 28 Jan. 1993). But on closer inspection, the story involved11 See the MIA 1988 Annual Report (p. 6), 1989 Annual members of MIA who colluded with unqualified ac-Report (p. 7) and Hanifah (1990, p. 15). countants. Thus, this story was nothing new. It is be-12 Information are hard to come by on this committee. cause on this subject of collusion between members andThe only available information found came in the form those people unregistered, the MIA over the years wasof a few lines appeared in Akauntan Nasional (Dec. fond of issuing numerous statements to the media mak-1990, p. 24). ing one warning after another that stern action would be
  • 15. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 123the statutory requirements, accounting tees15) the total number of cases investi-and auditing standards adopted by the gated, under review or pending have inInstitute." fact reached 25 (1996), 30 (1995), 25 (1994), "more than ten" (1993), 29But after the MIAs code of ethics was (1992), 28 (1991), 39 (1990) and 23made effective in April 1990, hardly (1987/88).anything like those stated above hadcome out from the MIA13 When refer- With the documented sources showingence is made to the MIA Annual Reports that the MIAs recent performance inover the years, it is found that since its regulating its members had left much tofirst AGM in September 1987 until the be desired, it should not be surprising toAGM in 1996, the MIAs disciplinary hear from an interviewee (who could becommittees had only taken disciplinary considered to have close connectionactions against members for the years with the MACPA) that the MIA had1987/88, 1991 and 1992. In other words, acted indifferent to the various com-in the later years after its activation, it plaints that he filed with the body. Heappears that the MIA has not found it said: "I have filed numerous complaints"fit" to discipline any members where to the MIA on the unethical activities ofcomplaints were filed against. For the their members. What did I get? I didyears 1987/88, 1991 and 1992, the MIA not see or hear any actions taken. I diddisciplined four members each year for a not even get a reply to all those letterstotal of 12 members in its first ten years that I sent to them! MIA is really hope-of active life.14 Since 1993 to the AGM less in disciplining its members." Allin 1996, it had failed to take any disci- this illustrate what Friedland (1989, p.plinary actions against members al- 74) says to be "the tremendous reluc-though the MIA Annual Reports showed tance" across accounting professionalthat “every year” since 1987 (except for bodies in the Far East to prosecute theirthe years 1989 and 1990 when not much membersdetails were disclosed in the MIA An-nual Reports on the works done by its As if the MIA’s failure to be effectiveinvestigative and disciplinary commit- regulator through enforcing existing rules and regulations was not badtaken against its members with really no news whether enough, the MIA had made it worse byactions had in fact been taken. See The Malay Mail (4 failing to implement “new” ideas that itsFeb. 1988; 26 Feb. 1992) and NST (17 Sept. 1988; 31Jan. 1991). leaders themselves claimed in so many14 The MIA in contrast to that of the MACPA did not instances as crucial in order todivulge the types of disciplinary action taken againstthe members in its annual reports. Why it did not find it strengthen the nations audit practice.fit to clearly spell what these actions were appears to One of the ideas was concerned with thebe one of those questions whose answers are every- practice of quality review of the auditones guesses.15 The excuse for no disciplinary actions taken in 1989 firms. See the MIA 1992 Annual Reportwas this as appeared in the MIA 1989 Annual Report (p. 7); Mingguan Malaysia (12 Apr.(p. 13): Dato Shamsir Omar who was sitting in the 1992); Akauntan Nasional (May 1992,disciplinary committee left the council and thus thecommittee too due to his retirement from his position p. 26; Nov/Dec. 1992, p. 31; June 1993,as the then Accountant-General. As for the year 1990, p. 22); NST (28 July 1992); and, finallythe excuse as found in the MIA 1990 Annual Report (p.13) was this: shortage of manpower "especially" with the MIA 1993 Annual Report (p. 15).the resignation of the Institutes legal officer. Another area is concerned with its vari-
  • 16. 124 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148ous proposals in 1992 related to the sub- “Malaysian context”. Thus, it is every-ject of the auditors independence which body’s guesses as what exactly they re-the MIA president claimed "ought" to be ferred to. Numerous other reasons wereimplemented with a few other measures also gathered as to why the MIA had notto strengthen the profession (see Akaun- acted effectively as a regulator includingtan Nasional - Conference Times, 15 the need for the MIA to protect its mem-July 1992, p. 1; Business Times, 15 July bers from outsiders and the difficulty1992). faced by the MIA in searching for the evidence of wrong doings. From twoIt is also perhaps important to note that documented sources other possible rea-in at least one case the MIA had ap- sons were also found. The first sourcepeared to go weak upon its earlier fine was the paper presented by the MIAeffort. This is concerned with the Con- president in 1990 where he mentionedtinuing Professional Development the financial constraint faced by the(CPD) that was made effective from 1 MIA in bringing errant members to taskMarch 1992 (Akauntan Nasional, March (Hanifah, 1990, p. 16). The second1992, p. 22). See the Akauntan Nasional source was the MIA 1994 Annual Re-(Nov. 1990, p. 20), NST (6 Nov. 1990) port (pp. 6-7) where it was stressed thatand Akauntan Nasional (Nov/Dec 1992, each member of the MIA needed topp. 30-31) where the MIA president stress on self-discipline.stressed why the MIA needed to havethe CPD made compulsory. But the Finally, it may also be inferred that theMIA 1995 Annual Report (p. 26) dis- MIA had been lenient in the later yearsclosed that "changes" that were intro- after its activation due to the fact thatduced in November 1994 and made ef- with Tun Daim Zainuddin leaving thefective from 1 January, 1995 had en- finance minister post in March 1991sured that what took place in the past, there had been since then little pressurewhere the MIA secretariat was the entity coming from the finance ministry for theresponsible for CPD record-keeping, MIA to show that it could regulate itselfwas replaced with members themselves well. The person who replaced him whomade responsible to do the record- was also holding the post deputy primekeeping individually. There is no more minister had not been critical at the per-need now for each member to submit an formance of the MIA as a regulator. Itannual CPD report in a prescribed form. seems that since he took over from TunInstead, members would be selected at Daim Zainuddin, only once - in the veryrandom and asked to produce evidence year when he got hold of the post - thatof compliance. he acted critical of the audit executed by local auditors. At the 7th National Ac-From interviews conducted with a num- countants Conference, he mentioned thatber of the MIA council members, they the government viewed the lack of credi-were those who readily admitted that the bility of the auditors as a serious matterMIA was not fit to regulate its members since there were among them those whobecause in "Malaysian context" mem- had followed the instruction of the com-bers were bound to fail in regulating pany directors or top management of theother members. They had however failed companies to ensure that the financialto give details as what was meant by statements reflected misleading picture
  • 17. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 125of the company affairs (Utusan Malay- Accounting Promoter. If as “accountingsia, 19 Sept. 1991). regulator” the MIA had not shown much promise, the opposite appears to be theLater on he seems to have a high regard case in the promotional field. Indeed, thein Malaysias (particularly big?) audit MIA had shown over the years the ten-firms as shown in the speech he made at dency to give great interest to promotethe MACPAs 36th Annual Dinner (The the interest of its members in a numberMalaysian Accountant, June 1994, p. of ways. Unfortunately, in just about14): “The accounting fraternity in Ma- every single case, the MIA provided thelaysia has come a long way since the picture that it was living in a world sepa-early days of independence … Since rate from the rest of the Malaysian soci-then, the industry and the country in ety! For example, in just over a year af-general has grown … Indeed, local ac- ter it was revived, in October 1988, thecounting firms have gained international MIA submitted a memorandum to therecognition for their high standards of finance minister requesting the govern-professionalism and expertise, standards ment to look into the desirability andthat are amongst the best in the region.” possible methods of limiting the ac-This stance of his contradicted that taken countants personal liability for negli-a year earlier by the then chairman of a gence claims. The government had notbody that came under the minister’s ju- bothered to respond to this MIAs pro-risdiction: the Securities Commission posal. As if the governments indiffer-(SC). In a hard-hitting lecture on Malay- ence was not embarrassing enough andsias corporate governance, he com- notwithstanding the apparent positivemented on problems in the audit profes- state experienced by local auditorssion that needed correction. First, he (where during the first four decades aftermentioned that he was uncertain whether independence there had only been onethe nations accounting bodies should be single case where Malaysian auditorsself-regulatory in nature (The Malaysian were brought to court – in 1965; see Az-Accountant, Oct/Dec 1993, p. 15). Next, ham, 2001b), the MIA had launched inhe pointed out that auditors in the coun- 1991 a professional indemnity insurancetry had much room for improvement. He scheme for its practising membersaid that "[t]here have been a number of (Akauntan Nasional, July 1992, p. 6).weaknesses in the performance of the Not surprisingly, the MIA had failed toaudit function which I do not propose to get good response from them. After ninedwell at length here.” months, only 10 percent of the some 800-member firms had signed up (NST,As if the MIA’s failure to be an effective 30 Sept. 1991). Thus, the MIA presidentregulator was not bad enough for the said that the MIA council would have tonation, the MIA right after its activation consider making it mandatory for allseemed to be spending much of its re- member firms to be covered by thesources for activities which at the end scheme (NST, 19 Oct. 1991).did not seem to have quite benefit any-one. One was concerned with its func- Also, the MIA had started early in 1988tion as “accounting promoter”, and the a fight against the unquali-other was its rivalry with the MACPA. fied/unregistered accountants. From February to November 1988, the MIA
  • 18. 126 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148resorted to the lodgment of police re- Manufacturers (FMM) (NST, 18 Feb.ports and at times the MIA senior staff 1994) and the Associated Chinesemembers would join the police to raid Chamber of Commerce and Industrythe premises of these unqualified ac- Malaysia (ACCCIM) (NST, 11 Feb.countants. The MIA also hired lawyers 1994). As a result, in August 1994, theto bring the matter to court. By the end MIA president announced that bodyof 1988, MIA had lodged 92 police re- would drop its minimum scale of auditports and the police had raided 19 firms fees effective 1 September 1994 and(NST, 5 Nov. 1988). The approach taken instead maintain it as a guide for itsby the MIA received a certain level of practising members (NST, 2 Aug. 1994).condemnation from various parties. Forexample, see the Editorial to the Busi- Accounting Rivalling. In the interviewsness Times (5 March 1988). The crack- conducted with both the MACPA anddown ended when Malaysian Institute of MIA leaders, many voiced their unhap-Corporate Secretaries and Administra- piness with each other quite forcefully,tors (MICSA) representing the unregis- including many revelations by one partytered accountants sent a letter of appeal of the faults of the other and the use ofto the then finance minister (NST, 5 critical labels to describe the other. FromNov. 1988). Later in 1992, the MIA interviews, it seems the rivalry had somelaunched the Malaysian Association of deep-seated reasons involving amongAccounting Technicians (MAAT) to others the issue of race (Malay-house most of these accountants - a controlled MACPA versus Chinese-move that with hindsight did not need controlled MIA), MACPA’s closed-shopthe MIA to initiate such a crackdown in policy over the years, big versus smallthe first place. That was precisely what audit firms and chartered accountantsthe MIA president claimed in 1989 versus certified accountants. On the(Akauntan Nasional, Sept. 1989, p. 24). other hand, from documents inspected, it appeared that the rivalry might be noth-Finally, the MIA in promoting the ac- ing more than competing attempts bycounting profession had proposed insti- two interested parties which wanted totutionalising its minimum audit fees be the sole leader in the nation’s ac-schedule (see MIA Council, 1994). The counting arena. Yap Leng Kuen (Thenew ruling that governed all MIA prac- Star, 23 Aug. 1988) argued that thetising members was supposed to be ef- MACPA when incorporated in 1958 hadfective from 1 January 1992 (Akauntan appeared to consider itself as the deNasional, Feb. 1992, p. 19), but it was facto leader of the accounting profes-later moved to 1 April 1993 (Akauntan sion in the country. The proof that thatNasional, May 1993, p. 16). At the end was the case may be found in severalit was turned into a mere "guideline" as documented sources penned by thoseof 1 September 1994. This was because who were leaders of the MACPA (seeas soon as the minimum fee schedule Nawawi, 1979, p. 5; Abu-Hassan, 1986,was implemented, the uproar began. The p. 3). Also, check out the following re-MIA came to face with severe opposi- vealing remark coming from thetion from parties such as the Perak Chi- MACPA 1985 Annual Report (pp. 13-nese Chamber of Commerce (NST, 17 16): "A Public Affairs Committee wasFeb. 1993), the Federation of Malaysian formed immediately after the last AGM
  • 19. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 127to take charge of the PR aspects of the first MIAs AGM in September 1987.16Associations activities. The Committee It also said that their defeat had resultedhas developed a scheme, to be launched in them using all the power and influ-in stages, to increase public awareness ences to obstruct the MIA council fromof the accountancy profession and to fulfilling the objectives of the MIA asposition the Association as the leader in stated in the Accountants Act 1967.the profession." (Emphasis added.) But Next, it pointed out that this group hadnow after thirty long years with the MIA suggested to the government to returnrevival in 1987 as the statutory body to the MIA back to its position before theoversee the development in the profes- activation as the registration body. Insion, the MACPA leaders had suddenly another publication, Berita MIAfound their association placed in a sec- (January 1988, p. 12), the MIA disclosedondary role. This was a fact that the as- that following the MIA’s inauguralsociation leaders resented very much AGM, the MIA council set up their ownand which they would do their best to secretariat which previously was sharedput aside. The “MIA 1988 Bounded with that of the MACPA. When theDocument" (pp. 44-46) provided a vivid MACPA council was informed that thatpicture of the MIA-MACPA rivalry. was the case, the MACPA president andEarly on it said that the MIAs problem his fellow council members becamewith the MACPA was the result of dis- “quite upset” and had two days latersatisfaction among a section of MACPA called off the joint committee arrange-candidates who were defeated in their ment that the MACPA had with theattempt to sit at the MIA council at the MIA.1716 In total, nine CACA members compared to four It was a few months later - in April 1988from the MACPA were elected to sit in the MIAs – that the general public first came tofifteen-person council (Business Times, 21 Sept. 1987).CACA was able to win many seats not just because it know about the problems between thehad a large group of members but also because its leaders of the accounting bodies. Themembers were better organised for the election thanthose of other MIAs recognised accounting bodies MIA president went to the media men-whose members also aimed to have "majority control" tioning that a group of people consistingin the MIA council (Business Times, 21 Sept. 1987). In of "officials of a smaller accounting1988, the CACA had more members (1,800) and stu-dents (about 6,000) in Malaysia than in any other coun- body" were "out to do mischief" (NST,try - except for Hong Kong (Business Times, 2 March 22 Apr. 1988). He also said that these1988). Internationally, the association had then 30,000 mischief makers "... are quite big. Theymembers with over 10,000 were based outside the UKand more than 70,000 students. In 1995, the CACA in have vested interests because they feelMalaysia had 12,000 registered students and about they are not represented in the council."2,000 members (Business Times, 22 May 1995).17 It was a few months prior to the MIA’s inaugural These people he claimed were collectingAGM that both the MIA and the MACPA agreed to proxies to vote against the MIA pro-have the cooperation between the two bodies enhanced posed changes to be tabled at an EGM.through the joint cooperation of most of the commit-tees of the two bodies (see The Malaysian Accountant, A few days later he said that the "rivalJuly 1987, p. 3). For more on what transpired related to accounting group" did not want to seethe topic of the disband of the joint committee arrange- the MIA playing a greater role (The Ma-ment, see the letter sent by the MIA president dated 5October, 1987 and the reply by the then MACPA presi- lay Mail, 25 Apr. 1988). In many of thedent, Subimal Sen Gupta dated 30 October, 1987 that newspapers reports, the MACPA wasare placed as Appendices 1 and 2, respectively, in the"MIA 1988 Bounded Document". not identified, though in the Utusan Ma- laysia (30 Apr. 1988) it was reported
  • 20. 128 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148that the culprits came from a profes- jority by a show of hands and the factsional accounting body which had been that they knew they would be defeatedsuccessful in influencing several large every time.accounting firms to support their actions.In the "MIA 1988 Bounded Document" This April 1988 EGM rivalry episode(pp. 41-42), it was stated specifically led to other distressing episodes of rival-that the body was the MACPA. Looking ry18 and what appeared at the end toat what transpired during the EGM, have resulted with the establishment ofthere was no doubt that it was those the MASB in mid-1997 to great disap-from the MACPA who were the “trouble pointment on the part of the MIA butmakers”. As noted Yap Leng Kuen (The much satisfaction for those leading theStar, 23 Aug. 1988), some MACPA MACPA. While documents analysedmembers objected to various proposals have failed to provide clear cut evidenceto amend the Accountant Rules 1972. of the MACPA’s direct involvement inFour MACPA members consistently the setting up of the MASB,19 the inter-asked for polls, despite a clear cut ma- views conducted with a number of lead- ers of the MIA provide the evidence that that was indeed the case. Their explana-18 Two more episodes took place in 1988. The one inJuly concerned the various proposals by the thenMACPA president to the MIA including the forming Times, 11 Feb. 1993). See also Business Times (13of an "accounting standards consultative committee" Feb. 1992). Also in 1992, another episode of rivalryto develop and issue accounting standards and audit- began which only came to an end in 1994. This rivalrying guidelines (NST, 23 July 1988). A council member revolved upon the use of statutory designations. Seeof the MIA had in response accused the MACPA of Akauntan Nasional (Feb. 1992, p. 20), (Aug. 1992, p."usurping the statutory powers of the MIA". See also 26) and The Malaysian Accountant (Feb. 1992, p. 15).The Malaysian Accountant (July-Sept 1988, p. 15), From an interview with two MIA council members,NST (26 July 1988) and (27 July 1988). Another one they mentioned that it was only due to the involvementtook place at the end of 1988 (NST, 8 and 17 Dec. of the finance ministry in this episode that stopped the1988). This and the one taking place at the end of two accounting bodies from having their differences1993 (NST, 9 and 18 Dec. 1993; The Star, 8 and 15 settled by the court.Dec. 1993) concerned the opposing groups of mem- 19 However, there certainly exist a number of “indirect”bers coming from the MACPA and the CACA who written evidence that that is the case. See remarksstrived to have their colleagues to fill the six seats in stated in the MACPA 1995 Annual Report (p. 38) andthe MIA council. In the case of the 1988 election, those uttered in a speech by the then MACPA presidentboth parties had mentioned to the media that they in the following year (The Malaysian Accountant, June/aimed to control the MIA council because that would Aug 1996, p. 17). The latter was very clear on the sup-give them a better opportunity to look after their inter- port given towards the government’s move in setting upests (The Star, 16 Nov. and 8 Dec. 1988). As for the MASB. Also note that there exist at least two docu-1993 election, the rivalry appeared to be more serious mented sources which were published in the previouswhere members of the MIA were personally ap- decade showing the picture that the MACPA leadersproached to secure their vote and proxy votes were were for years had hoped for such a body to emerge:collected from those unable to attend (NST, 18 Dec. Gupta (1987) and Peng (1987, p. 12). Finally, it was in1993). Sarcastic remarks were also thrown by one to 1988 when the then MACPA president gave a pressthe other in the written media. See the NST (9 Dec. briefing on the formation of an “accounting standards1993, 15 Dec. 1993) and The Star (8 Dec. 1993, 15 consultative committee” which had caused much con-Dec. 1993). Besides these episodes, one more took sternation in the MIA council (NST, 23 July 1988).place in 1992 with the involvement of a third party the Discussed earlier as one of MIA-MACPA rivalry epi-ROC. It concerned Companies Amendment Act 1992 sodes, the then MACPA president without discussingwhere its Section 132A had included the MACPA the matter beforehand with the MIA leaders stated thattogether with the MIA and Malaysian Association of the MACPA would initiate the formation of such entitythe Institute Chartered Secretaries and Administrators to develop and issue accounting standards and auditing(MAICSA) as the three bodies whose members were practices in Malaysia. The committee would have rep-recognised to be among those who were automatically resentations from the MACPA, the MIA, the universi-qualified to act as companies secretaries and who thus ties and the relevant regulatory authorities. All in all, itneeded not to be given licenses by the ROC (Business is difficult to believe that the MACPA was on the side-
  • 21. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 129tions were in fact substantiated by those They shun the advice of profession-coming from two leaders of the als. They forget that they are noMACPA. One of these two had even longer running a family company,gone on record to say that the MACPA that they are answerable to the law ...saw the MASB as a counterweight tothe MIA. He had also pointed out: “With Ten years after he made this remark, thethe MASB, the MACPA has very clev- situation had yet to improve. That is,erly cut the MIAs power by half!” although since 1994, the number of new companies registered yearly in the coun-Further evidence, albeit indirect, of the try was roughly 40,000 (NST, 23 Apr.MACPA’s involvement came in the 1997) to lead to a total of more thanform of those appointed as the heads of 404,000 companies by the third quarterMASB and FAF. For the MASB, the of 1996 (Business Times, 18 Sept. 1996)person mentioned earlier was also a for- and that the number of companies listedmer president of the MASB; while for at the KLSE had also grown by over 200the FAF, this person was also a former during the same time period, betweenmember of the MACPA’s council. It is January and August 1996, a total of overworth noting that all the big six audit 30,000 fines valued at nearly RM 8 mil-firms which were influential in MACPA lion were issued to errant companies bywere represented in either FAF or the ROC (Business Times, 18 Sept.MASB or both: one in both the MASB 1996). About 70 percent of this amountand FAF through Raja Datuk Arshad, was due to failure or delay in the tablinganother four in FAF and the last one in of their accounts at AGMs and sendingMASB. As for the MIA, it was only the in their annual returns and other docu-president represented in the MASB! ments to the ROC. This appears to be the basic story year after year ever sinceThe Setting up of the MASB in mid- 1988 when the ROC started to be strict1997. The renowned lawyer G. Sri Ram in imposing fines on companies (Thegave the following appalling picture of a Sunday Mail, 21 Aug. 1988)20. Thus, itsegment of the Malaysian corporate sec- is not an exaggeration to say that manytor (Ram, 1985, p. 1): Malaysian companies have found little hesitation to flout the law. [These public companies were] ... run like a family business with none to Unfortunately, that is not their only question and none to answer ... Even crime, for they are also famous for being family companies, seeking to reap reluctant to disclose much. See the re- huge profits, turn public. Shares are listed in the stock exchange. Yet some of these organisations find 20 Thus, for example, in 1988 total fines of nearly RM great difficulty in abandoning the 5.5 million were collected. In 1989, it was over RM 4 million - a reduction in amount compared to the previ- concept of unquestioned manage- ous year due to the temporary lowering of the com- ment. Many directors consequently pound rate (Shaari, 1990, p. 13). Two years later, in do not familiarise themselves with 1991, the ROC collected RM 8 million fines from 7,148 companies (The Malaysian Accountant, Dec. basic company law. They flout, 1992, p. 12). The following year, in 1992, the ROC sometimes quite arrogantly, estab- collected RM 7.39 million in penalties from 24,241 convicted companies (NST, 19 Feb. 1993). Finally, in lished principles of corporate law. 1993, it was reported that a total of 67,000 companies
  • 22. 130 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148marks made by Dr. Barjoyai Bardai in annual reports minus valuable infor-his newspaper column (Berita Minggu, mation. In some cases, copies of an-25 July 1993) and those in 1995 by the nual reports sent to shareholders con-then minister of domestic trade and con- tain only the bare minimum disclo-sumer (The Malaysian Accountant, Dec. sure stipulated by the law …1995, p. 17). See also the interestingspeech made by Tan Sri Datuk Jaafar With all this in the background, it mayHussein when he was the Central Bank be deduced that nothing much may thusGovernor where he mentioned the lack be expected from corporate bigwigs andof disclosures “and” the reasons for such their auditors in ensuring that compa-phenomenon (Jaafar, 1992). Besides nies’ financial reports abide to the re-these anecdotal accounts, an empirical quirement of full disclosure. And yet thestudy by Tong et al. (1989) and another Financial Reporting Act 1997 Actby Tong and Ann (1996), both on volun- (which has made it clear that MASBtary disclosures, found a high level of accounting standards are compulsory fornon-disclosure by samples of companies any published accounts of a businesslisted at the KLSE. As if the tendencies entity in Malaysia and its overseas sub-to flout the law and the reluctance to sidiary or associated companies whoseprovide sufficient disclosures are not accounts form the consolidated accountsbad enough, Malaysian companies are in Malaysia) does not make any directnot averse in treating their minority statement on the enforcement activity ofshareholders with a certain level of in- the MASB or other related bodies.difference or even contempt. This wasvividly described by the then minister of This is unexpected considering that earlydomestic trade and consumer affairs in on in 1994, when the then finance minis-mid-1990s (The Malaysian Accountant, ter first raised the subject of anFeb. 1995, p. 13): “independent” body to develop account- ing standards, he mentioned that “…the ... companies should not practice time has come for us to consider the es- double standards in distributing their tablishment of an Accounting Standards annual reports. Although it is appre- Board backed by a body which can en- ciated that a company would want to sure stronger arrangements for securing impress financial institutions, credi- compliance …” (The Malaysian Ac- tors, fund managers and prominent countant, June 1994, pp. 14-15). In the businessmen by issuing them well following year, during the 1996 Budget laid-out, coloured copies of their an- Speech he used the terms "enforcement" nual reports, [minority] shareholders and "monitoring" when talking about the should not be given second-class MASB (NST, 28 Oct. 1995). But just treatment and be merely served poor before the Parliament passed the bill on quality black and white copies of the the establishment of the MASB, hewere convicted by the domestic trade and consumer could only say that the FRF and MASBaffairs ministry (Business Times, 30 July 1993). And would be supplemented by appropriatejust like in 1992 and earlier years, the majority of these compliance and enforcement mecha-convictions were derived from failures to conveneAGMs or present the financial statements to members. nisms of the ROC, Central Bank and SCThe ministry had imposed fines between RM 200 to (Business Times, 8 Oct. 1996). Unfortu-RM 2,000 on each offender, while 126 companies nately, he did not go into detail howdirectors had been charged in court for serious offences.
  • 23. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 131these bodies would go about ensuring be expedient or necessary for carryingcorporate compliance. With the ROC out or giving effect to the provisions ofhaving little expertise in accounting and this Act."auditing,21 nothing much has been heardon the Central Bank’s enforcement ac- In fact, such provisions could very welltivity22 and the fact that to date the SC make things worse for the fact that per-has hardly shown any interest in compa- sons who hold the finance minister postnies financial reporting,23 it is uncertain may be biased in their decisions for theas to how far these regulators will be good of businesses which they are in-effective in their enforcement activities. volved either directly or indirectly through their associates. In the country,Therefore, it may not be an exaggeration politicians and their political partiesto say that with or without the MASB, which form the governing party arethe future state of financial reporting - known to be heavily involved in busi-assuming little intervention from the nesses. In other words, what could very“Asian Financial Crisis” - would con- well be an instrument for the good of thetinue much as it was when the MACPA country as a whole, the MASB may turn(with its limited power) and later the out to be an instrument beneficial forMIA controlled regulation of practice. It only a certain segment of the population.could not be expected to be that muchdifferent from its past even though the Already it was disheartening to find thatAct has ensured that the finance minister many of those who were influential inretains considerable authority over the the MACPA had got seats in the MASBpractice of financial reporting in the and/or its parent body the FAF – to thecountry: Section 15 notes that the minis- exclusion of many other parties whoters directions to the Foundation and the constituted the accounting sector in theBoard in regard to their respective func- country. For at least one of them, histions and authorities need to be appointment was a source of surprise for"listened" to and that both the FAF and the fact that (about a year prior to hisMASB will have to report their activities appointment) he in a speech had de-to him when they are required to do so graded the need for accounting standards"from time to time". Also, its final sec- and the function supposedly played outtion, Section 29, notes that "[t]he Minis- by the external auditors in the countryter may make such regulations as may (The Malaysian Accountant, Oct/Dec21 1996, p. 20). This person who was ap- This appeared to be the accepted view by more thana few who were interviewed. pointed as the chairman of FAF had said22 Exception perhaps may be found in the small publi- the following when giving his view overcation made available to the public in 1987! See Central the controversial issue of reporting forBank (1987).23 It was none other than Tan Sri Dato Dr. Jaafar Hus- goodwill (pp. 21-22):sein the former Central Bank Governor who mentionedin an interview that the SEC in the US had got a personknown as the SEC Accountant charged with the task of While the professions labours in-overseeing the reliability of financial statements filed tensely over issues of how to stan-by corporations and who was given the power to take dardise the writing down of goodwillactions against errant auditors and/or their accountingfirms. In his view, the SC in Malaysia could very well and such other items of extreme ac-also be playing the same function. The fact that the SC counting delicacy, the investing pub-so far had failed to do so had caused him much disap- lic is quite content to value a Malay-pointment.
  • 24. 132 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 sian Second Board company [at the arena in the post-NEP era had not seen KLSE] which may not have any spe- to lead to successful outcomes. In regard cial license, technology or brand to the Companies Act’s 1985 amend- name, at twenty times book. Reminds ments, this concerned the expansion of you of that time when whole commu- the auditor’s reporting responsibility. As nities of European clergy closeted for the revived MIA, one of the areas themselves and debated intensely which it was supposed to work on and over the sex of Angels while that which it had failed to show any signifi- continent labours under the Dark cant results was its regulatory responsi- Ages. What does it all mean? I sus- bility. Finally, when it concerned the pect it may mean that the investor, MASB, the focus is on its lack of power that mythical shareholders that all in enforcing the accounting standards auditors address their reports to, issued. By applying the political econ- doesnt give two hoots about audit omy of accounting theory, the following reports and accounting standards. section attempts to explain the reasons That the mythical shareholder actu- for the phenomenon of “the triumph of ally knows the severe limitations and hope over experience” of these account- relevance that accounts prepared on ing changes. lines of historical conventions have as instruments of shareholder infor- mation or protection. And that very Discussion notion of statutory audits as encapsu- lated in company legislation in Ma- Following the occurrence of racial vio- laysia and other jurisdictions are lost lence in May 1969 in Kuala Lumpur, the cause propositions. government launched the New Eco- nomic Policy (NEP) in 1971 with theThis damaging opinion coming from a purported aimed of fair distribution ofpersonality who was considered as one economic benefits among members ofof the leaders of the Malaysian account- society. This had in turn led the govern-ing profession was reinforced as follows ment to emphasise its “direct” participa-(p. 22): tion in the nations economy "on behalf" of the Malays and other bumiputras Perhaps the profession should find (Azham, 2001b). As a result, from early the great moment to finally own up 1970s onward, there was the strong pres- and tell government and legislators ence of the government in the corporate and regulators that the notion of ex- sector. As for the Chinese, by late 1970s ternal audits for investor protection is the ownership structure of their busi- over-rated, overly expensive and nesses had begun to evolve from major- quite futile. And if indeed share- ity sole proprietorships and partnerships holder protection is the objective, that to corporations – in an attempt to com- it would be cheaper to bring back the pete with the government companies. iron-maiden and other such delicate forms of medieval persuasions than The strong presence of the government to rely on our audit side. and the increasing involvement of local Chinese in the corporate sector appearedChanges taking place in the accounting to signify that those who owned, man-
  • 25. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 133aged and funded the corporations in the counting sector. What seemed to havecountry came from two separate groups pushed for changes to take place was theof people – each group had its own occurrence of two economic recessionsshared goals that were not only eco- taking place in the first six years of thenomic but also social and political. 1980s (see Ismail, 1994; Yan, 1994; Za-There was perhaps a mass base of indi- inal-Aznam, 1994; and Mohd.-Saufi,vidual investors and the financial sup- 1986). The first recession was mild andport from banks in each case. However, took place in 1981-82 when the rest ofthese people and those banks to a very the world also experienced recession.large extent possessed the same social, The second recession that occurred ineconomic and political aspirations as 1985-86 was the worse that the nationthose managing the companies. The en- had experienced to that date.terprises were registered as companiesbut in actuality they were unlike those The recessions had apparently shockedknown as companies in the western the government and jolted it into intro-sense of the word "company" with con- ducing a number of new policy meas-flicting interests of different parties. ures. For example, the Fifth MalaysianNonetheless, in the 1970s as also before, Plan (1986-1990) emphasised publicMalaysias industrial growth was heavily sector consolidation, rationalisation anddependent on foreign capital. As a result, completion of ongoing projects. It re-in the manufacturing sector in particular, nounced new major public sector initia-foreigners invested substantially in ac- tives and instead placed greater empha-cord with the governments encourage- sis on the private sector, calling for thement and the various incentives offered. privatisation of a number of govern- ment-held companies. Significantly, atWith such to be the case, perhaps it the wake of the 1985-86 economic re-could be expected that to a large extent cession, the government had intensifiedthe nation’s accounting landscape then its efforts to attract foreign investors towas transformed into a no-man’s land the countrys manufacturing sector.(Azham, 2001b). The Companies Act Guidelines on foreign equity participa-1965 and Accountants Act 1967 that tion were liberalised in 1986 along withearlier were aimed to facilitate the emer- access to credit markets, foreign ex-gence of free enterprise economy were change controls and the ability of for-mainly left unapplied until two decades eign firms to acquire lands.24 Thus, thelater. The government acted as if ac- NEP had to some extent come to an endcounting and accountants of being little around this time and not in 1990 asrelevant leading to the statutory account- planned in the early 1970s.ing body MIA lying low while the pri-vately established MACPA catering to Meanwhile, various new developmentsthe needs of foreign investors was al- also took place during this period in thelowed to be active in quite a taxing man-ner. In short, the nation’s accounting 24 It appears that these efforts had produced the desir-then was very much in a quagmire. able outcomes! While the net inflow of FDI into Ma- laysia averaged RM 200-RM 300 million annuallyLater, in the second half of 1980s, from the 1960s to the early 1970s and hovered aroundchange finally began to take place in the RM 1 billion annually during the period 1974-79 be- fore rising to a record level of RM 3.3 billion in 1982,nation’s economy and in turn in the ac- since 1987 the amount of FDI has shot up tremen-
  • 26. 134 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148manner the securities were traded and also finally taken place in the businessthe parties involved in the trading. A regulatory arena in regard to two gov-number of these developments were ini- ernment agencies: the Registrar of Com-tiated by the then finance minister and panies (ROC)27 and the Inland Revenueothers by the KLSE itself.25 Not surpris- Department (IRD).28ingly, by late 1980, the Malaysian stockmarket had grown by leaps and bound.26 It was within this national context thatBesides new developments taking place two new developments took place in thein the securities market, changes had accounting arena: the amendments made to the Companies Act 1965 in 1985 anddously: it was RM 1.1 billion in 1987, RM 1.9 billionin 1988, RM 6.8 billion in 1990 and RM 9.5 billion in panies (The Sunday Mail, 21 Aug. 1988). Thus, in July1991 (Yan, 1994, p. 569). In particular, private invest- and August 1988, only 43 out of almost 6,000 applica-ment in the manufacturing sector grew at an average tions for extensions of the presentation of accounts torate of 50 percent per year between 1987 and 1990. shareholders at the AGM were approved. In 1988, asThere was a three fold increase in three years of invest- mentioned above, total fines of nearly RM 5.5 millionment in the manufacturing sector with approved pro- were collected. It appeared that as late as 1987, compa-jects totalling RM 9.1 billion in 1988 increasing to RM nies which submitted accounts late were not fined while28.1 billion in 1990. Over the 1980-88 period, manu- appeals for extensions to submit accounts or to holdfacturing goods share of the nations total exports grew AGMs were usually granted. This was because thefrom 22 percent to 49 percent. In 1990, the export of ROC had only two choices: either to approve the exten-manufactures accounted for 60.4 percent of total ex- sion of time or to take the responsible party to courtports while the export of agricultural commodities (Akauntan Nasional, Oct. 1988, p. 16). In the NST (20accounted for only 10 percent (Anuwar, 1994, p. 710). Aug. 1988), the then trade and industry minister said25 The new developments included the followings: the that the latter was not executed for it involved a lot ofcorporatisation of the stockbroking members of the work. However, with the amendments to the Compa-KLSE, the installation of real-time price reporting nies Act 1965 which came into effect on 1 Februarysystem for brokers (MASA), the forming of Advance 1987, the Registrar had now been empowered to im-Warning and Surveillance Unit (AWAS), the launching pose compound fines on those who failed to table theirof the Second Board, the introduction of semi- accounts at the companys AGM within six months ofautomated trading system called System on Computer- the balance sheet date.ised Order Routing and Execution (SCORE) to replace 28 Like the ROC, the IRD also appears to come fully tothat of the open-outcry, the implementation of Fixed life during this time period. Berita Harian (31 Aug.Delivery and Settlement System (FDSS) to make clear- 1988) revealed that the IRD had failed to collect taxesing and settlement more efficient, the raising to RM 20 from 500,000 private limited companies and sole pro-million as the minimum capital requirements for all prietorship due to their inability of presenting appropri-stockbroking companies, the issuance of new listing ate financial statements. From 1989-onward howevermanual containing a new section of corporate disclo- the IRD would make it compulsory for these businessessure policies and penalties, the delisting of all Malay- to send out the complete financial statements. The IRDsian companies from the Stock Exchange of Singapore would implement for the "first time" Sections 82 andand last but certainly not the least the granting of per- 114 of the Income Tax Act 1967 in 1989 (NST, 25 Sept.mission for the listing of property trust, warrants and 1988). The following month, in a related and an inter-TSR in the KLSE. esting report published by the Akauntan Nasional (Oct.26 From 1980 to 1989, the 250 companies listed in 1988, p. 19), it was mentioned that with the enforce-1980 increased to 307 in 1989, and the nominal value ment of Sections 82 and 114 of the Income Tax Actand market capitalisation grew to RM 34.3 billion and 1967 in 1989, any businessmen who failed to provideRM 156.1 billion, respectively (Kuala Lumpur Stock true and complete records of accounting would incurExchange and Malaysian Strategic Consultancy Sdn. penalties that could go up to RM 10,000 or three yearsBhd., 1992, pp. 28-29). Also, the volume of transac- in prison or both. In addition, accountants who assistedtions rose from 1.5 billion units in 1980 to 10.2 billion their clients to falsify the accounting records wouldunits in 1989, while value increased from RM 5.6 face the same consequence. The director-general ofbillion to RM 18.5 billion in 1989. By the end of 1989, IRD had also issued in 1988 an "Advance Notice fora record RM 10.7 billion had been raised from the Submission of Income Tax Returns for Year Assess-market, the largest amount coming from rights issues, ment 1989" where it was stated that for all accountsat RM 6.1 billion. prepared they needed to be accompanied by confirma-27 In 1987, only about 50,000 companies out of tion letters from qualified accountants and tax agents150,000 companies regularly filed an annual return (The Star, 21 Jan. 1989). Such demand ensured that thewith the ROC (Peng, 1987, p. 7). From 1988 onward, unregistered accountants would fail to fulfil it.the ROC began to be strict in imposing fines on com-
  • 27. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 135the activation of the statutory accounting The failure of the authorities to do whatbody MIA with its very first AGM in was appropriate in the two cases involv-September 1987. And after several years ing Companies Act 1965 and the MASBof polemic, the government made the was however paled in comparison tomove to set up the MASB in mid-1997. their half-hearted conduct in ensuringThis action took place at a time when the the MIA was fulfilling its function as asophistication of the stock market had regulatory body. That is, while the ac-appeared not just in terms of greater tions of MIA in the regulatory field wereamount of money invested or the num- below expectations, the accountants andber of people involved, but also in the their representative body the MIA werelegal infrastructure.29 largely left undisturbed. In most cases, there were merely told to do better or atUnfortunately, the implementation of the best were given warnings by authoritiesamended Companies Act on external to improve. It was as if the appeals andauditor’s ROC reporting duty had left warnings were sufficient to force themuch to be desired for. At the most, the accountants and the MIA to get their actauthorities were only capable of giving together. In short, there was much rheto-warnings to the auditors to get their acts ric but nothing else. The half-heartedtogether. As for the MASB, its responsi- reaction to the MIAs self-regulatorybility to issue accounting standards was failure in particular and the quagmire innot equipped with the right mechanism the profession in general may be foundto ensure companies’ conformance. in speeches delivered by for example the then deputy finance minister Loke Yuen Yow in July 1988 (which may be found29 In regard to the former, for example, in 1993, the as Appendix 12 in the "MIA 1988daily trading averaged of the KLSE numbered to 800 Bounded Document") and later in 1990million shares compared to around 3 million sharestwo decades earlier (NST, 21 May 1993). At the end of (Akauntan Nasional, Oct. 1990, p. 21)1993, the market value of the KLSE rose to RM 620 and also in the speech by the then fi-billion - an increase of 152 percent from the RM 246billion recorded at the end of the previous year (NST, nance minister himself in September14 May 1994). In 1993 too, the total volume and turn- 1989 (Akauntan Nasional, Sept. 1989,over rose to 108 billion units valued at RM 387 billion, pp. 21-23).which exceeded the combined volume and turnover forthe past 20 years. In 1994, the International FinanceCorporation, an affiliate of the World Bank, posted in In understanding the failure on the partthe Internet that the KLSEs market capitalisation as at of the power-to-be to enforce auditor’sNovember 1993 was US$175 billions - the secondbiggest after Hong Kong among 22 emerging markets ROC reporting duty under the 1985capitalisation. As for the legal infrastructure of the amendments of the Companies Act, toKLSE, it was in 1993 too that the KLSE listing re-quirements was amended to stipulate that companies ensure MIA played the role of strongseeking listing must establish an audit committee. regulator and finally later in 1997 toExisting listed companies had to set-up such a commit- have the MASB equipped with thetee by 1 August 1994 (Akauntan Nasional, Nov/Dec.1993, p. 26). It was later extended to 1 October 1994 power to enforce its accounting stan-(NST, 2 Sept. 1994). The following year, the penalties dards, the theory of political economy offor any breach of the KLSE listing requirements, accounting appears handy. Specifically,which included non-disclosure of corporate informa-tion, were upgraded from public reprimands and sus- the accounting transformation lackingpension of trading to fines of up to RM 100,000 (NST, substance may be explained by the fact30 Sept. 1994). Finally, as mentioned earlier, it was in1993 also that the Securities Commission (SC) was that the accounting system existed in anestablished. environment where the economy was to
  • 28. 136 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148a large extent in the hands of the few 10,000 shares each (Kuala Lumpurwho were also deeply involved in the Stock Exchange, 1988, p. 22). Based onnation’s politics. the same data, Salleh (1989, p. 4) stated that on average, 75 percent of the equityElite in Malaysia. As a whole, the sig- of each company were normally held bynificant power held by the elite in the the 20 largest shareholders.nation’s economy, in particular the cor-porate sector, is not that hard to deci- In the 1990s, no study had apparentlypher. During the NEP era, in a study by been conducted to find out the extent ofLing (1977) of the top 98 manufacturing the elite’s share ownership. Nonetheless,companies in Malaysia in 1974-75, it is it is well noted that the local corporatefound that “one” percent of the over scene is filled with individuals or com-100,000 shareholders accounted for al- panies owning at least 51 percent of themost 80 percent of the shares held, shares of the so-called public companiesworth a total of about RM 1.2 billion - including those listed at the KLSE. The(see also Ling, 1982). Also, Hui (1981) NST (30 May 1994) reported that morein his study of share ownership of one than two-thirds of the 335 companies onhundred largest companies in Malaysia, the main board and all of the 92 on the1974-76, reveals that it was highly con- second board were controlled either bycentrated in the hands of a few institu- one or a few shareholders with moretions. The share ownership of these in- than 51 percent of the shares. Thisstitutions was in turn concentrated in the domination is not illegal since the KLSEhands of a few individuals and families listing rules require no more than a pub-through interlocking directorates. He lic float of 25 percent of the total sharesconcludes that the Berle and Means issued. Therefore, the listed companies(1931) thesis of management control still remain as private companiesrather than ownership control could not (Salleh, 1989). They are public andbe applied to Malaysia without strong listed only in names. Many of the listedcorrective and empirical analysis. companies were labelled by chairman of the Malaysian Institute of Economic Re-A decade later, the situation remained search (MIER), Datuk Dr. Kamal Salih,the same. Chandra (1989, p. 84) notes as “private-owned public com-that in 1983 a large proportion of the top pany” (NST, 21 August 1991). Most797 stock-owners were Chinese and one shares were still held by insiders - fam-percent of them accounted for 32.23 per- ily members, friends, clan members andcent of the value of shares whereas the others known personally to the compa-bottom 50 percent accounted for only nies founders. It appeared that business1.92 percent (see also Hui, 1983 and entities favoured so much the 51 percentMehmet, 1986, Chapter Five). In the late share or majority control because the1980s, after many facets of the NEP founders of the family-owned companieswere amended, a study done by the (who converted their companies to pub-KLSE also found similar results: 87.5 lic limited companies) were afraid thatpercent of the paid up capital of 225 Ma- they would lose personal control overlaysian incorporated companies as at 31 their companies without the majorityDecember, 1987 was held by 8.1 percent share (PM Speech, 27 May 1994).of shareholders who held more than
  • 29. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 137That this was the case when it concerned and a well-equipped MASB. In fact, itthe listed companies should not perhaps might very well hurt their interests ifbe surprising at all. For after all, the gov- there were to exist strong and respectedernment appears to have led the way accounting function in the country ablehere. That is, when the NEP had come to to play the required role in confrontingits unofficial end in mid-1980s and cases of corruption, nepotism and pa-where a significant proportion of the tron-clientelism that had been present ineconomy had been transferred - under the country for many decades but par-the privatisation exercise - from the gov- ticularly in the few years prior to theernment to the private sector needing onset of the Asian Financial Crisis.what was proclaimed to be a strong ac-counting profession, the reality was that In particular, for the MIA to be troubledmuch of the private sector was still in by the MACPA in one rivalry episodethe hands of those associated closely after another was a welcome sight forwith the government sector (see Gomez, these parties. Not surprisingly, they had1997; Jomo, 1995). This section of the hardly made any serious move to im-private sector may even be considered as prove the situation. The fact that the au-an "extension" of the government sector thorities appeared to stay on the sidelinewhose reigning politicians and political on this issue of MIA-MACPA rivalryparties had in fact been for many years was duly noted by a journalist for thedeeply involved in the business sector business magazine Malaysian Business.(see Gomez, 1994, 1990; Leigh, 1992; Pauline Almeida, commenting that peo-Leong, 1988, Chapter Six; and Gale, ple were questioning the governments1985). There was merely a superficial stance on the problems that arose be-rearrangement of ownership (Craig, tween the leaders of the two accounting1988). As for the so-called privatised bodies, wrote (Malaysian Business, 16entities of the former government-held Aug. 1988, p. 19):companies that were listed at the KLSE,the percentage of their shares offered for As yet, there have been no officialsale had not reached above thirty percent statements that openly indicate theof the total shares: MAS, 30 percent; taking of sides. That the GovernmentMISC, 17 percent; STM, 23.9 percent; would like to see unity has beenand TNB, 22.8 percent. Therefore, made clear both a year ago by fi-through partial divestment of equity of nance minister ... and more recentlygovernment-owned entities, the govern- by deputy finance minister. But thement was still, at least in the case of situation is still shrouded in specula-those companies above, their major tion. Lokes [deputy finance minister]shareholder. careful words that no one accoun- tancy body recognised by the Ac-All in all, in the Malaysian context, it countants Act is superior or inferiormay be surmised that those who should to the other sheds little light.be able to make a difference in the ac-counting arena had failed to do the nec- Nearly a decade later, Editorial of theessary because it was not within their same journal mentioned under the head-interest to have a fully enforced Compa- ing "A Profession Divided" the rivalrynies Act, a strong and respected MIA problems of the MIA-MACPA and
  • 30. 138 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148made suggestion as to the role that the national body of accountants. This he"authorities" should play in this matter said was especially evident in dialogues,(Malaysian Business, 1 Aug. 1996). The representations and meetings when rec-Editorial began with the remark that "[i]t ognition had been persistently accordedis a real shame that the accountancy pro- to the MIAs component body (MACPAfession in the country is divided" and of course!30). He said that the MIAended with the following: "The authori- should be viewed as the “sole” mediumties on their part, must make it clear they for communication and discussion forrecognise only one national accountancy the accounting profession. He urged thebody. There can be no compromise on government departments and agencies tothis." recognise MIAs position as the national accounting body.That the MIA was to be weak was per-haps the intention all along by some par- As perhaps to be expected, the debilitat-ties. This came by not only through hav- ing state of accounting involving theing the MIA to face the MACPA on its Companies Act, MIA and MASBown in one episode of rivalry after an- seemed to mirror that in the public sec-other, but also when it concerned the tor. From the then deputy accountant-idea of getting the MIA to play an im- general (Akauntan Nasional, Jan. 1990,portant role over national issues. In the p. 19), he noted that the government op-MIA 1989 Annual Report (p. 7), it was eration had been indifferent towards ac-stated: “The Institute is being ap- counting as a tool for effectiveness andproached and consulted on various mat- efficiency. From Tan Sri Ahmad Noor-ters affecting the profession and the din, the following was his remark oneconomy of the country, albeit not to the what took place over value for moneyextent the Institute would like it to be.”Later, in 1993, Tony Seah, an MIA 30council member and a chartered ac- This is not surprising, for there existed over the years close bond between the MACPA and various govern-countant mentioned that one of the prob- ment departments and agencies. In the MACPA 1983lems faced by the nations accounting Annual Report (p. 24) this was mentioned by the presi-profession was the lack of support from dent: “I am happy to say that our Association continues to have close rapport with Bank Negara [Central Bank]the government (Seah, 1993, p. 7). It of Malaysia, Ministry of Finance, Registrar of Compa-appeared that the MIA had been left out nies, Director General of Inland Revenue, Director General of Insurance, Association of Banks and Financein the promulgation and implementation Companies, Kuala Lumpur Stock Exchange, Auditor-of government policies which affected General, Accountant-General, and Department of Coop-the nations accountants and the public. eratives in matters where the Association could make meaningful contributions. On behalf of our membersIn the same year, the MIA president was and Council I would like to express the Associationsalso quoted to say (NST, 5 May 1993): deep appreciation to these authorities for the confidence“Our regulatory role has been under- they have shown in us.” Similar remarks may also be found in numerous other MACPA Annual Reports (seemined by the lack of cooperation and for example the MACPA 1985 Annual Report, p. 18;understanding from certain Government the MACPA 1989 Annual Report, p. 29; and the MACPA 1990 Annual Report, pp. 23-24.). In the firstdepartments and agencies.” In that news half of 1990s with the stepping down of Tun Daimreport he also said that although the Zainuddin as the finance minister, it appears that theMIA was appointed by Parliament to MACPA had been working harder to establish a much closer relationship with the government (see therepresent all accountants in the country, MACPA 1992 Annual Report, p. 24; MACPA 1994it did not receive due recognition as the Annual Report, p. 19, p. 25).
  • 31. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 139audits in government operations when discreet minority. In politics, hardhe was holding the post of auditor- choices require courage and oftengeneral (Ahmad-Noordin, 1986, p. 47): pose uncertain risks - which is why politicians will try to postpone them We have accordingly amended or until their hands are forced. The in- rather we had the Audit Act stinct of self-preservation will usually amended to ensure that the Auditor- urge politicians to control the damage General has the necessary power done by disclosures of corruption, within the law to carry out this value rather than attempt to root it out. for money audit as I mentioned just (Emphasis added.) now. What seem to be the constraint when I was there was that as value With the presence of a total of six nause- for money or performance audit ating reasons (in italic), as disclosed by penetrates into the activities of gov- the Editorial, there was no question as to ernments, there is a natural tendency why corruption in the country could be for the authorities having the power considered to have gone unhampered, to approve the staff for the Audit and as disclosed by the Anti-Corruption Office to make it difficult for the Agency (ACA), it had been on the rise Audit Office to get the necessary over the last 20 years and stiffer punish- skills and manpower to carry out ment was needed (New Sunday Times, 8 this work. June 1997). Thus, it appears that what happened in the accounting arena in theIt is a fact that for accounting to reach its years following the 1985-86 economicpotential requires transparency in con- recession, was deliberate and intended toduct, and a situation in which those mak- deflect attention from creating a "cultureing decisions can be held accountable. of accountability" or full public disclo-All these requirements did not fit the sure, because interested parties do notMalaysian environment as succinctly want to face the unnecessarydescribed in mid-1997 by the Editorial "complication" of explaining themselvesto the NST (7 June 1997): to anyone in their pursuit of gaining eco- nomic ascendancy – just like what ap- At the pace of its economic growth, parently took place earlier during the Malaysia too will feel the vice of cor- NEP era. ruption sooner or later. Like others before it, this country will also try to A well-known accounting scholar Bel- look the other way, and do as much kaoui (1974, as reported by Samuels and as it can to avoid rocking the eco- Piper, 1985, p. 141) has said that a class nomic boat. Like their Asian peers, elite in many developing countries is politicians will trust to the moral su- interested in maintaining secrecy. Thus, periority of a few good men to keep the financial reporting system is pur- the others in line. And there is al- posely made to be weak so that it is easy ways the argument against washing for this elite to maintain secrecy for their dirty linen in public, the stubborn own gain. Notwithstanding their rheto- loyalty of politicians to their compa- ric, it may safely be said that they have triots, and an equally obstinate belief little interest in seeing changes in the that corruption is confined to an in- status quo. As Rohwer (1995, p. 281) in
  • 32. 140 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148his acclaimed work on the rising of East a difference had however acted indiffer-Asian nations has also succinctly noted, ently."... elites do not normally reform them-selves or do things to threaten their own All in all, the pressure for change com-position". On the state of accounting ing from the economic recession wasstandards applied in these countries in related directly to the emergence of aparticular, he states (p. 292): "For the “modern” system of accounting – butmost part, regulation and disclosure not for its effective and appropriate ad-standards are not at rich-world levels; ministration in the Malaysian social en-even when they look good on paper, the vironment. It created a perceived needstandards are not forced with the same for "structural" (as oppose to in-depth)zeal that they are in the West." That the changes to the accounting system.elites are around leads to the picture that Therefore, the changes that took place inthey would make it certain for account- the accounting arena have appeared toing to operate in congruence with their fail to bring it any closer to its potentialexpectations and objectives. And if in the nation’s economy. Accounting inchanges were to take place, they would Malaysia was less than desirable in thebe mobilised in the pursuit of their years following the 1985-86 economicvested interests. Armstrong (1985, recession – just like what happened prior1987), Hopper et al. (1987), Lehman and to it when the NEP was in full swing.Tinker (1987), Loft (1986), Miller andOLeary (1987) have all stressed this The debilitating state of accounting dur-very point. ing the post-NEP era seems to have been intended all along by a class elite in the society. It may also be deduced that toConclusions this party the presence of appropriate accounting practices and strong and re-The period of ten years or so following spectful accounting bodies may be a hin-the 1985-86 economic recession saw the drance to their continuing efforts to stayestablishment of the MASB and major fully in power and thus able to amassamendments made to the Companies Act wealth uninterrupted.1965. However, the former was devoidof enforcement power for its accounting Thus, it may be concluded that as longstandards, while the latter over company as very little actually changes in theauditor’s reporting duty to ROC is per- manner that political and economichaps nothing more than “scoff law”, for power are distributed among membersit was not enforced by the authorities. of Malaysian society, the so-calledTheir presence had certainly not assisted change from a predominantly command-by a revived MIA that had failed to economic system in the 1970s to a moreshow much teeth in the accounting regu- capital-market economic system in thelatory field and which had busied itself late 1980s and beyond would not reallywith promotional activities and rivalry make much difference in the manner thatwith the MACPA. In the face of ac- accounting is practised and developed incounting function failing to arrive to its the country. In short, based upon whatpotential, those with the power to make had taken place in the period of ten years following the 1985-86 economic reces-
  • 33. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 141sion, on the face of the distinctive social, counting like the country itself was at aeconomic and political attributes sup- crossroads. While it is not the purpose ofported by those elites in the government, a study that applies the format of a casecorporate, financial and accounting sec- study to arrive at generalised statements,tors, the occurrence of intrusive event the work does suggest that comparativeshall not be able to make a big differ- studies looking at the "overt" structuralence to the pre-existing arrangement in forms of accounting practice across na-accounting which emerged in the early tions in an attempt to identify similari-1970s with the launching of the NEP. ties and dissimilarities do not provide a valid picture of accounting in action.The so-called changes occurring in the Rather, only on the basis of detailedaccounting system would be mere knowledge of the accounting process isephemeral than real, structural rather it possible to come out with a set of reli-than in-depth. The fundamental charac- able clustering of accounting practicester of accounting in Malaysian society from around the world. A similar con-would still be intact. It provides the im- clusion applies to the success of stan-age of corporate governance for the con- dardisation efforts in accounting at thesumption of foreigners, but in actual ef- international level, as long as these ef-fect is hardly to provide more reliable forts are based on superficial enquiryfinancial reports. It is a mere tool among into the operation of accounting in prac-so many others to entice those from tice.overseas to invest in the country. Bymid-1997, many of the structural or ex-plicit elements of the accounting func- Referencestion were similar to those found in othernations. On the other hand, the inner Abu-Hassan, K. (1986) Public Account-perspective to say the least was much ing and the Accounting Profes-more complicated - and in turns perplex- sion in Malaysia, paper pre-ing. It may thus be understood that basi- sented at the Universiti Utaracally accounting in Malaysia is a form of Malaysias Professional Lecturecultural importation that has little rele- Series, October, Universiti Utaravance. As a result, there is superficial Malaysia, Jitra.imitation of western developed coun- Act No. 94, Accountants Act, 1967 andtries practices. This leads to the percep- Accountant Rules 1972 (As attion that accounting does not matter 14th July 1984), Kuala Lumpur:much in Malaysia - whether or not it is Malaysian Law Publishers Sdn.around and how effective is its function- Bhd.ing would not matter much to many par- Act No. 125, Companies Act and Com-ties. panies Regulation (All Amend- ments up to March 1995), 15thAt the onset of the Asian Financial Cri- ed., Kuala Lumpur: MDC Pub-sis in 1997, accounting in Malaysia was lishers Printers Sdn. Bhd.fraught with the uncertainty of a nation Act No. 498, Securities Commissionthat was looking to the future with much Act, 1993 (Up to 10 Apr. 1993),hope and expectations but whose ties Kuala Lumpur: Internatonal Lawwith the past were still very strong. Ac- Book Services.
  • 34. 142 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148Act No. 558, Financial Reporting Act Accounting Association Confer- 1997, Kuala Lumpur: Percetakan ence, 17-19 September, Penang, Nasional Malaysia Berhad. Malaysia.Ahmad-Noordin, Z. (1986) Value for Berle, A, Jr. & Means, G.C. (1932) The Money Audits - The Practical Modern Corporation and Private Aspect, in Proceedings for the Property, Macmillan. MIA and MACPA jointly organ- Central Bank (1987) The Role of Exter- ised 5th ASEAN Federation of nal Auditors in the Supervision Accountants Conference, 4-6 of Financial Institutions in Ma- November, Kuala Lumpur. laysia, SEACEN, Kuala Lum-Ansari, S.L. & Bell, J. (1991) pur. "Symbolism, Collectivism, and Chandra, M. (1989) Challenges and Rationality in Organizational Choices in Malaysian Politics Controls", Accounting, Auditing and Society, Aliran, Penang. and Accountability Journal, Vol. Chee, T.S. (1983) Malays and Moderni- 4 No. 2, pp. 4-27. zation: A Sociological Interpre-Argyris, C. & Schon, D.A. (1974) Or- tation, National Singapore Uni- ganizational Learning: A Theory versity Press. of Action Perspective, Addison- Choo, K.E. (1991) Trust Me Approach Wesley. of Professional Accountants vsArmstrong, P. (1985) “Changing Man- Show Me Attitude of the Public agement Control Strategies: The Towards Professional Ethics, Role of Competition Between paper presented at the MIA and Accountancy and Other Organ- MACPA jointly organised 7th izational Professions”, Account- National Accountants Confer- ing, Organizations and Society, ence, 18-19 September, Kuala Vol. 10 No. 2, pp. 129-48. Lumpur.________ (1987) “The Rise of Account- Cooper, A. G. (1980) Problems with the ing Controls in British Capitalist Implementation of International Enterprises”, Accounting, Or- Accounting Standards 1 – 10, ganizations and Society, Vol. 12 paper presented at the MACPA No. 5, pp. 415-36. organised seminar Make Interna-Azham, M.A. (2001a) Early Years of the tional Accounting Standards Accounting Development in Ma- Your Business, 8 March, Kuala laysia: A Case of External Influ- Lumpur. ence, paper presented at the sec- Cooper, D. & Sherer, M.J. (1984) "The ond Accounting History Interna- Value of Corporate Accounting tional Conference, 8-10 August, Reports: Arguments for a Politi- Osaka, Japan. cal Economy of Accounting",__________ (2001b) The New Economic Accounting, Organizations and Policy and the Accounting Pro- Society, Vol. 9 No. 3/4, pp. 207- fession in Malaysia: A Case of A 232. Misfit? paper presented at Covaleski, M.A. & Dirsmith, M.W. School of Accountancy, Univer- (1990), "Dialectic Tension, Dou- siti Utara Malaysia organised ble Reflexivity and the Everyday The Second Asian Academic Accounting Researcher on Using
  • 35. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 143 Qualitative Methods", Account- Management Ethics, 13-14 ing, Organizations and Society, March, Kuala Lumpur. Vol. 15 No. 6, pp. 543-573. Helinna, L.C.S. & Wishart, D. A. (1989)Craig, J. (1988) "Privatisation in Malay- "Commercial Law", in Krishnan, sia: Present Trends and Futute A. (Ed) Survey of Malaysian Prospects", in Cook, P. and C. Law, Malayan Law Journal Sdn. Kirkpatrick, C. (Eds) Privatisa- Bhd. tion in Less Developed Coun- Hopper, T. & Powell, A. (1985) tries, Harvester Wheatsheaf, "Making Sense of Research into London. the Organizational and SocialDye, T.R. (1986) Whos Running Amer- Aspects of Management Ac- ica? 4th ed., Prentice-Hall. counting: A Review of its Un-Freidland, J. (1989) "A Call to Ac- derlying Assumptions [1]", Jour- count", Far Eastern Economic nal of Management Studies, Sep- Review, 9 November, pp. 70- tember, Vol. 22 No. 5, pp. 429- 75. 465.Gale, B. (1985) Politics and Business: A Hopper, T.M., Storey, J. & Willmott, H. Study of Multi-Purpose Holdings (1987) "Accounting for Account- Berhad, Eastern Universities ing Towards the Development of Press, Petaling Jaya. a Dialectical View", Accounting,Gomez, E.T. (1990), Politics in Busi- Organizations and Society, Vol. ness: UMNO"s Corporate In- 12 No. 5, pp. 437-456. vestments, Petaling Jaya, Forum Hopwood, A.G. (1983) "On Trying to Enterprise. Study Accounting in the Con-________ (1994) Political Business: texts in Which it Operates", Ac- Corporate Involvement of Ma- counting, Organizations and So- laysian Political Parties, Centre ciety, Vol. 8 No. 2/3, pp. 287- for South-East Asian Studies, 305. James Cook University, Towns- Hui, L.M. (1981) Ownership and Con- ville, Queensland. trol of the One Hundred Largest________ (1997) "The Economics and Corporations in Malaysia, Ox- Politics of Privatization in Ma- ford University Press, Kuala laysia", Journal of the Asia Pa- Lumpur. cific Economy, Vol. 2 No. 2, pp. _________ (1983) "The Ownership and 178-200. Control of Large Corporations inGupta, S.S. (1987) The Accountancy Malaysia: The Role of Chinese Profession: Today and Tomor- Businessmen" in Lim, L.Y.C. row, paper presented at the 21st and Gosling, L.A.P. (Eds) The Anniversary of the Faculty of Chinese in Southeast Asia: Eth- Economics and Administration, nicity and Economic Activity, Universiti Malaya, Dec. 15th- Vol. I, Maruzen Asia, Singapore. 16th. Humphrey, C. & Scapens, R.W. (1992)Hanifah, N. (1990) Ethical Standards in Theories and Case Studies of the Accounting Profession, paper Organizational Accounting presented at the UUM and Petro- Practices: Limitation or Libera- nas jointly organised Seminar on tion (Or A Case of Accounting
  • 36. 144 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 Theory Not Becoming What is and Investment Opportunities Was Not), Working Paper 92/4, and Challenges Towards 2020, University of Manchester, Eng- KLSE and MSC Sdn. Bhd., land. Kuala Lumpur.Ismail, M.S. (1994) "The Role of Public Lehman, C. & Tinker, A. (1987) "The Sector in the Malaysian Econ- Real Cultural Significance of omy", in National Institute of Accounts", Accounting, Organi- Public Administration Malaysia zations and Society, Vol. 12 No. (Ed) Malaysian Development 5, pp. 503-522. Experience: Changes and Chal- Leigh, M. (1992) "Politics, Bureaucracy, lenges, INTAN, Kuala Lumpur. and Business in Malaysia: Re-Jaafar, H. (1992) "Keynote Address" aligning the Eternal Triangle", in delivered at the International MacIntyre, A.J. and Jayasuriya, Conference on Debt Securities: K. (Eds) The Dynamics of Eco- The Emerging Funding and In- nomic Policy Reform in South- vestment Options in the Malay- East Asia and the South-West sian Capital Market, 20 July, Pacific, Oxford University Press, Kuala Lumpur. Singapore.Jomo, K.S. (ed.) (1995) Privatizing Ma- Leong, H.K. (1988) Indegenizing the laysia: Rents, Rhetoric, Realities, State: The New Economic Policy Westview Press, Oxford. and the Bumiputera State in Pen-Kaplan, R.S. (1983) "Measuring Manu- insular Malaysia, unpublished facturing Performance: A New Phd Thesis, Ohio State Univer- Challenge for Managerial Ac- sity. counting Research", Accounting Ling, S.M. (1977) "The Managerial Review, October, pp. 686-705. Revolution in Malaysia", Malay-________ (1984) "The Evolution of sian Management Review, Vol. Management Accounting", Ac- 12 No. 1, pp. 40-47. counting Review, July, pp. 390- _________ (1982) Ownership and Con- 418. trol of Malaysian Manufacturing________ (1986) "The Role for Empiri- Corporations, UMCB Publica- cal Research in Management tions, Kuala Lumpur. Accounting", Accounting, Or- Loft, A. (1986) "Towards a Critical Un- ganizations and Society, Vol. 11 derstanding of Accounting: The No. 4/5, pp. 429-452. Case of Cost Accounting in theKoon, T.Y. (1994) Employee Fraud in U.K., 1914-1925", Accounting, Malaysia: A Case Study, unpub- Organizations and Society, Vol. lished PhD Thesis, University of 11 No. 2, pp. 137-169. London. MACPA Annual Reports: 1995, 1994,Kuala Lumpur Stock Exchange (1988) 1992,1990, 1989,1985, 1983. Fact Book, KLSE, Kuala Lum- Megat, A.R. (1980) "The Accountancy pur. Profession in Malaysia - SomeKuala Lumpur Stock Exchange and Ma- Current Issues", paper presented laysian Strategic Consultancy at the New Approaches and Tech- Sdn. Bhd. (Eds) (1992), Malay- nologies in Management seminar, sia The Rising Star: Business Universiti Kebangsaan Malaysia,
  • 37. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 145 22 June. Park, CA.Mehmet, O. (1986) Development in Ma- Peng, O.C. (1987) "Monitoring Stan- laysia: Poverty, Wealth and Trus- dards", paper presented at the teeship, Croom Helm, London. MIA and MACPA jointly organ-MIA Council (1994) "Submission by the ised 3rd National Accountants Council of the Malaysian Insti- Conference, 10-11 September, tute of Accountants on Guide- Kuala Lumpur. lines for Minimum Audit Fees - ________ (1989) "Auditors Report - An Overview", Akauntan Na- Where Lies its Values?" paper sional, April, pp. 28-30. presented at the MIA andMIA Report and Accounts from the first MACPA jointly organised 5th one covering two decades, 1967- National Accountants Confer- 1987 to the one for 1996. ence, 31 July-1 August, KualaMiles, M.B. & Huberman, A.M. (1994) Lumpur. Qualitative Data Analysis: An Ram, G.S. (1985) "Criminal Law and Expanded Sourcebook, 2nd ed., Commercial Crimes", paper pre- Sage, London. sented at the HRM Fighting Fi-Miller, P. & OLeary, T. (1987) nancial Fraud, 21-22 January, "Accounting and the Construction Kuala Lumpur. of the Governable Person", Ac- Rohwer, J. (1995) Asia Rising: How counting, Organizations and So- Historys Biggest Middle Class ciety, Vol. 12 No. 3, pp. 235-265. Will Change the World, Butter-Mohd.-Ariff, Y. (1993) "Securities worth-Heinemann Asia, Singa- Commission: Regulator of the pore. Capital Market”, paper presented Ryan, B., Scapens, R.W. & Theobald, at the 9th National Accountants M. (1992) Research Method and Conference, 20-21 July, Kuala Methodology in Finance and Ac- Lumpur. counting, Academic Press, Lon-Mohd.-Salleh, M. (1993) "The Malay- don. sian Capital Market: New Rules Salleh, M. (1989) "The Equity Structure of the Game", Capital Markets of Listed Companies", paper pre- Review, pp. 1-21. sented at the Persatuan SainsMohd.-Saufi, A. (1986) "The Role of Sosial Malaysia and Institut Pen- HICOM in Malaysias Push To- gajian Tinggi, Universiti Malaya wards Becoming an Industrialised jointly organised New Economic Nation", Kajian Ekonomi Malay- Policy and Its Future seminar, sia, June, pp. 60-67. 24-26 July, Universiti Malaya.Nawawi, M.A. (1979) Speech delivered Samuels, J.M. & Piper, A.G. (1985) In- at the MACPA 21st Anniversary ternational Accounting: A Sur- seminar, 29 September, Kuala vey, Croom Helm, London. Lumpur. Scapens, R.W. (1990) "ResearchingParliamentary Debates (Vol. II, no. 8, Management Accounting Prac- Col. 1558 and dated 9 Aug. 1965) tice: The Role of Case StudyPatton, M.Q. (1990) Qualitative Methods", British Accounting Evaluation and Research Meth- Review, Vol. 22, pp. 259-281. ods, 2nd ed., Sage, Newbury Seah, T. (1993) "Challenges and Prob-
  • 38. 146 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 lems Faced by the Accounting Listed Corporations", The Ma- Profession", paper presented on laysian Accountant, April, pp. 2- the occasion of MIAs practising 5. members Dialogue with the ________, Zainal, A.K. & Wah, C.P. MIAs Public Practice Commit- (1989) "Information Needs of tee, 12 November, Awana Golf Users and Voluntary Disclosure and Country Club. Practices of Malaysian ListedSecurities Commission Annual Report: Corporations", paper presented 1995. at the International AccountingShaari, I (1990) "Tabling of Accounts at Seminar on Accounting Trends, the AGM - Keeping the Dead- Issues and Challenges, 22-24 line", Akauntan Nasional, Octo- August, Universiti Pertanian Ma- ber, pp. 13-15. laysia.Smith, C., Whipp, R. & Willmott, H. Walton, P. (1986) "The Export of British (1988), "Case Study Research in Accounting Legislation to Com- Accounting: Methodological monwealth Countries", Account- Breakthrough or Ideological ing and Business Research, Au- Weapon", Advances in Public tumn, pp. 353-357. Interest Accounting, Vol. 2, pp. Yan, L.S. (1994) "The Malaysian Econ- 95-120. omy, 1957-91: An Overview", inSyed, H.A. (1965) "A Note on Malay National Institute of Public Ad- Society and Culture", in Alisja- ministration Malaysia (ed.) Ma- hbana, S.T., X.S.T. Nayagam, laysian Development Experi- X.S.T. and Gungwu, W. (Eds) ence: Changes and Challenges, The Cultural Problems of Ma- INTAN, Kuala Lumpur. laysia in the Context of South- Yin, R.K. (1994) Case Study Research: east Asia, The Malaysian Society Design and Methods, 2nd ed., of Orientalists, Kuala Lumpur. Sage, London._______ (1981) The Malays: Their Zainal-Aznam, Y. (1994) "Growth and Problems and Future, Heine- Equity in Malaysia", in National mann Asia, Kuala Lumpur. Institute of Public Administra-Tay, J.S.W. (1994), "Malaysia", in tion Malaysia (Ed) Malaysian Cooke, T.E. and Parker, R.H. Development Experience: (Eds) Financial Reporting in the Changes and Challenges, IN- West Pacific Rim, Routledge, TAN, Kuala Lumpur. London.The Fifth Malaysian Plan ( 1986-1990) Professional and Popular JournalsTinker, A.M. (1980) "Towards a Politi- and Newspapers cal Economy of Accounting: An Empirical Illustration of the Akauntan Nasional Cambridge Controversies", Ac- Berita Minggu counting, Organizations and So- Business Times ciety, Vol. 5 No. 1, pp. 147-160. Far Eastern Economic ReviewTong, T.L. & Ann, C.T. (1996) "Non- Malaysian Business Disclosure in the Abridged Profit Mingguan Malaysia and Loss Accounts of Malaysian New Straits Times
  • 39. A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 147New Sunday Times The Sunday MailThe Malaysian Accountant Utusan MalaysiaThe Star
  • 40. 148 A. M. Ali / Issues in Social and Environmental Accounting 1 (2007) 109-148 Appendix 1 List of ParticipantsNo. Name Post1. Tan Sri Datuk Haji Former Auditor-General Ahmad Noordin2. Ali Tan Sri Abdul Kadir Managing Partner of Ernst & Young and Vice- President of the MACPA3. Puan Armi Zainuddin Director of Co-operative College of Malaysia4. Dr. Barjoyai Badai Former accounting professor, tax specialist, top company executive, newspaper columnist5. Cheah Foo Seong Technical Director of MAICSA6. John Dixon Partner of an audit firm7. Ching Neng Shyan Partner of an audit firm8 Fred Weatherly Partner of an audit firm and former MACPA president9. Abu Hassan Kendut Managing Partner of Coopers & Lybrand Malaysia and former MACPA president10. Venki Sankar Partner of an audit firm and a member of the MACPA11. Ismail Abu Bakar Deputy Director of South East Asian Central Bank Research and Training Centre (SEACEN) Kuala Lumpur12. Tan Sri Dato Dr. Jaafar Previously Central Bank Governor, Managing Partner Hussein of Price Waterhouse Malaysia, MACPA president and presently Chairman of Malaysia Mining Corporation Bhd.13. Peter Jenkins Executive Director of Malaysian International Chamber of Commerce and Industry (MICCI)14. Johari Low Han Hing Director of a number of companies including a few listed ones and a former auditor15. Tuan Haji Ahmad Kamal Senior Partner of HRM and a long time council Abdullah Al-Yafii member of MACPA16. Lee Leok Soon Director of Operation of the MIA17. Josephine Edward Technical Manager of the MIA18. Tay Beng Wah Former President of the Malaysian branch of the CACA and MIA council member19. Soon Kwai Choi MIA Vice-President and President of Confederation of Asia-Pacific Accountants (CAPA)20. Oh Chong Peng Senior Partner of Coopers & Lybrand Malaysia and former MACPA president21. Neoh Chin Wah Partner of an audit firm and MIA council member22. Dato C. Rajandram CEO of Rating Agency Malaysia (RAM)23. Ramli Ali Registrar of Companies24. Dr. Md. Razali Mohd. Executive Chairman of a group of companies Abdullah25. Abdul Samad Alias Deputy Country Managing Partner of Arthur Andersen and MACPA council member26. Dr. Shireen Mardziah Manager for Corporate Services of Arab-Malaysian Hashim Merchant Bank27. Tony Seah Partner of an audit firm and MIA council member28. Haji Abd. Rahman Deputy Auditor-General Mohamad29. Yeoh Kee Pan Partner of IBDO and MACPA council member30. Yip Jian Lee Executive Director of the Institute of Bankers Malaysia31. Yue Sau Him General Manager – Management Audit at Multi-Purpose Holding Berhad and MIA council member and president of the ASEAN Federation of Accountants (AFA)
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