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: email@example.com
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.
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
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
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.
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-
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).
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.
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-
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
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
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
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".
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
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-
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
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
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
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
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-