OVERVIEW OF FINANCIALREPORTING ENVIRONMENT• Statutory Requirements – Companies Act 1965 – Securities Industry Act 1983 – Securities Commissions Act 1992 – Anti Money Laundering Act 2001 – Banking and Financial Institution Act 1989 – Financial Reporting Act 1997
OVERVIEW (cont’d)• Regulatory Requirements – KLSE Listing and Disclosure Requirements – MASB – Corporate Governance and Disclosure
Financial Reporting System Companies OVERSIGHT Securities CommissionAuditors Annual Reports BNM Professional Bodies Users Others
THE COMPANIES ACT 1965• Companies incorporated under the Act are legally enforceable• This is the principal legislation governing the formation and operation of companies in Malaysia• It repealed (abolished) earlier ordinances and provide formal rules on accounting and requirement for true and fair view reporting
THE COMPANIES ACT 1965• Act is seen as the absolute disclosure requirements in absence of an accepted accounting framework• S 167 - Every company must keep proper accounting and other records to sufficiently explain the transactions and financial position of the company and to enable true and fair profit and loss accounts and balance sheets and related documents to be prepared from time to time• 9th Schedule sets out the disclosure requirement
THE COMPANIES ACT 1965• S174 Powers and duties of auditors as to reports on accounts• AGM – 1st - not later than 18 months after the date of incorporation, directors are responsible to present at its AGM, an audited profit a loss account, balance sheet and directors’ report S169(1) – Subsequent AGM - must be held once in every calendar year and at intervals of not more than 15 months from the last AGM
THE COMPANIES ACT 1965• S166A w.e.f. 1.9.1998, comply with approved accounting standards in accordance with S27 of FRA 1997 – S166A(3) directors are to ensure that accounts are made out in accordance with applicable approved accounting standards – S166A(4) & (5) disclose by way of a note if compliance would not give a true and fair view of the results of the business and the state of affairs of the company or group (true and fair view over-ride of approved accounting standards) – S166A(6) Conflict or inconsistency arises between approved accounting standards and 9th Schedule, applicable approved accounting standard shall prevail
Securities Industry Act 1983Amended with effect from 1 April 1998,broadening the definition of insidertrading; increase the range of sanctions,including civil sanctions, to deter insidertrading and market manipulation;require additional disclosure fromdirectors and chief executive officers(CEOs)
GUIDELINES OF SECURITIES COMMISSION (SC)• SC, a self-fund statutory body empowered to regulate all matters relating to securities e.g. issue, offer or listing of securities in Malaysia• Its mission is to promote and maintain efficient, secure and transparent securities and futures market as well as facilitating the orderly development of an innovative and competitive capital market• It has statutory power to enforce compliance with its regulations
GUIDELINES OF SC• Guidelines on Corporate Disclosure Policy – Requires public companies to maintain high standards of disclosure – A public company is obliged to fully disclose to the public the information necessary to make informed investment decisions – If public company is listed, it should release information, which are expected to have a material effect on market activity in, and prices of, its listed securities.
GUIDELINES OF SC• Post-Listing Obligations – Requirements on submissions of reports by listed public companies • Annual reporting • Interim & periodic financial reporting • Related party transactions and reporting• Accounting Standards and valuation / Revaluation of Asset – High standards of disclosure is to be maintained and public companies are required to comply with the statutory and regulatory framework of accounting
Anti Money Laundering Act (AMLT) 2001• Money laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities or unlawful activity as listed in Schedule 2
AMLT• Among serious offences as listed are: – Companies Act: • Invitation to public by private companies; • Invitation to public to lend or deposit with a corporation; and • Inducing persons to invest money – Copyright Act: • Infringement of copyright – Securities Industry Act: • No licenses; Etc. …………..
Banking and Financial Institution Act 1989BNM issues guidelines on financialreporting practices for banking andfinancial institutions established underthe Banking and Finance Act 1989(BAFIA) departure from AS in the notesto the accounts
BAFIA• The objectives of the Act are to provide new laws – For the licensing and regulation of the institutions carrying on banking, finance company, merchant banking, discount house and money broking business – For the regulation of institutions carrying on certain other financial businesses and – For the matters incidental thereto or connected therewith
Financial Reporting Act 1997• 2 bodies (FRF & MASB) were formed to be responsible for setting accounting standards – S 27 requires compliance with approved accounting standards where financial statements are required to be prepared or lodged under any law administered by the Securities Commission, the Central Bank or the Company Commission of Malaysia (formally known as Registrar of Companies) – S166A (amendment to companies Act to cater this change) – FRA provides the enforcement authority to the standards issued by MASB
FRF• to provide its views to the Board on any matters which the Board seeks to undertake or implement in relation to the board’s functions;• to review the performance of the Board;• to be responsible for all financing arrangements for the operations of the Board, including approving the budget of the Board; and• to perform such other functions as the minister may prescribe by order published in the gazette.
KLSE LISTING & DISCLOSURE REQUIREMENTS• KLSE, a private sector body (self- regulatory body), incorporated to regulate companies listed on its Exchange• Does not have legal power to enforce compliance but has power to delist, suspend or publicly reprimand errant listed companies for any non-compliance with its regulations
KLSE LISTING & DISCLOSURE REQUIREMENTS• Submission of Reports – Annual reporting • Printed annual report should be issued to company’s shareholders within a period not exceeding 6 months from the close of the financial year of the company • Notwithstanding the above, the annual audited accounts together the auditor’s and directors’ reports shall, in any case, be given to Exchange for public release, within a period not exceeding 4 months from the close of the financial year of the company • The annual audited accounts should be prepared in accordance with the accordance with the accounting standards and pronouncements of the MASB and the 9th Schedule of the Companies Act 1965
KLSE LISTING & DISCLOSURE REQUIREMENTS – Interim reporting • W.e.f. 31 July 1999, public listed companies are required to file a quarterly report (B/S, I/S & explanatory notes) as soon as figures are available and in any event not later than 2 months after the end of each quarter of a financial year• Additional Disclosures – Listed company is to disclose material contracts involving directors’ interest, statements on details of substantial shareholding, details on properties held, etc.
KLSE LISTING & DISCLOSURE REQUIREMENTS• To promote greater transparency and accountability by enhancing disclosure, due diligence and corporate governance• To support the full implementation of the Disclosure-Based Regulation which focus on quality of disclosure by issuers, as investors determine the investment merits of securities based on the information disclosed• To ensure a transparent and informed market as well as promoting responsible conduct among market participants
MASB (functions)• to issue AS as approved accounting standards - FRS;• to review, revise or adopt as approved accounting standards existing AS• to issue statements of principles (SOP) for financial reporting• to sponsor or undertake development of possible accounting standards• to develop a conceptual framework for the purpose of evaluating proposed AS
Functions of MASB (cont’d)• to conduct such public consultations as may be necessary in order to determine the contents of accounting concepts, principles and standards;• to make such changes to the form and content of proposed accounting standards as it considers necessary; and• to perform such other functions as the minister may prescribe by order published in the gazette.
Corporate Governance & Disclosure• Statement of Corporate Governance – A narrative statement to be included in the annual report of public listed companies in Malaysia – Disclose adequate information to enable informed assessment of the application of principles and code of best practice by management – Companies are required to disclose the statement of extent of Compliance with Best Practice as well as reasons for departure from best Practice if any
CG & Disclosure• Statement of Internal Control – It is the duty of BoD to provide this statement in discharging their responsibilities – Directors are to disclose information on extent to which a sound internal control for shareholder protection and safe guard company assets is maintained – Information on directors undertaking is also to be disclosed together with their review on matters relating to internal control, management information system and extent of compliance with regulatory framework