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June/August 2007 www.micpa.com.my KDNPP 3809/3/2008

The Malaysian AccountantJUNE/AUGUST 2007EDITORIAL BOARDDatuk Robert Yong Kuen Loke (Chairman)Loh Lay ChoonDato’ Hj Maidin Syed AliNg Kim TuckDato’ Nordin BaharuddinSee Huey BengSam Soh Siong HoonTan Chin HockChia Kum Cheng (Co-opted)Esther Tan Choon Hwa (Co-opted)PRINCIPAL OFFICE BEARERSPresidentDato’ Nordin BaharuddinVice PresidentDato’ Ahmad Johan Mohammad RaslanPRINCIPAL OFFICERSExecutive DirectorFoo Yoke Pin (ypfoo@micpa.com.my)Technical ManagerMelissa Yeoh (melissa.tech@micpa.com.my)Training ManagerJoseph Leong (joseph.edu@micpa.com.my)Public Affairs& Communications ManagerVicky Rajaretnam (vic.pr@micpa.com.my)Assistant Operations ManagerSuzana Mohd Hulaimi (suzana@micpa.com.my)Examination OfficerLee How Lai (hl.exam@micpa.com.my)Membership Services OfficerAdzlyn binti Aladzimy(membership@micpa.com.my)Single Copy: RM7.50Subscription: 6 issuesRM43.50 per annum(including P&P within Malaysia only)The Malaysian Accountant is publishedby: The Malaysian Institute ofCertified Public Accountants (3246-U)15, Jalan Medan Tuanku50300 Kuala Lumpur, MalaysiaTel: 03-2698 9622 Fax: 03-2698 9403E-mail: micpa@micpa.com.myWebsite: www.micpa.com.myNote: The views expressed in this journal are notnecessarily those of the Institute or the Editorial Board.All right reserved; no part of this publication may betransmitted in any form or by any means, electronic,mechanical, photocopying, recording or otherwise,without prior pernission of the Institute or the EditorialBoard.Concept & DesignDigibook Sdn BhdReign Associates Sdn BhdINSTITUTE NEWS page 24PERSPECTIVEFEATURE page 5LIFESTYLE page 59FEATURESIntellectual Property Rights. The Right to Protect & Profit From It 3Internet Piracy - Copyright Infringement and Adequacy of Malaysian Law 5Basis of Recognition of Income for Property Developers 10Wither the External Audit in Corporate Governance? 15Towards Selecting and Maintaining an Effective Internal Audit Function? 18PEOPLEDato' Nordin Baharuddin} At The HelmDato’ Johan Raslan 19INSTITUTE NEWS49th MICPA Annual Dinner 24Recipient of Anugerah Presiden 2007:YM Raja Datuk Arshad Raja Tun Uda 2649th MICPA Annual General Meeting 29Extraordinary General Meeting 32Membership Update 34November 2007 Examination 36May 2007 Examination Results 3711th MICPA Accountancy Week 39ACCA-MICPA Mutual Recognition Agreement 42PROFESSIONAL NEWSMASB Update 43IASB Update 46IFAC Update 50CASE LAW HIGHLIGHTSSanjung Selamat Sdn Bhd v C L Chin & Associates 53GLOBAL INSIGHTNews from Down Under 54World News 56LIFESTYLELeaving a Legacy for the Future 59PrinterThumbprints Utd Sdn Bhd

PERSPECTIVEIt was a night of fellowship and camaraderie among fellow members of the accountingfraternity at the MICPA’s 49th Annual Dinner on June 22, 2007. Close ties were forged notonly with the business community but also with the government sector. Deputy Ministerof Finance I, YB Dato’ Dr Ng Yen Yen was the Institute’s distinguished guest of honour at thedinner.It was also a night for acknowledging individuals who made contributions in one wayor another to the Institute. This year’s Anugerah Presiden was presented to YM Raja DatukArshad Raja Tun Uda, in recognition of his exceptional contributions to society, theaccountancy profession and the Institute.The Institute also held its Annual General Meeting (AGM) and its Extraordinary GeneralMeeting (EGM) on June 23, 2007 and at the Council Meeting held following the AGM, formerVice-President, YBhg Dato’ Nordin Baharuddin was elected the 28th President of the Institutereplacing YBhg Dato’ Abdul Halim Mohyiddin. The Vice-President’s post went to YBhg Dato’Ahmad Johan Mohammad Raslan. Age differences aside, both men expressed similar viewswhere the Institute is concerned. The interviews are featured in the People section.With the accountancy profession becoming increasingly competitive, MICPA realises thatthere is an urgent need to build the CPA Malaysia as a global brand, equivalent to theChartered Accountants and Certified Public Accountants designations of the more establishedaccounting bodies in the world.To this end, on August 13, 2007, The Malaysian Institute of Certified Public Accountants(MICPA) and the Association of Chartered Certified Accountants (ACCA) signed a globalMutual Recognition Agreement (MRA). The agreement was reached on the basis ofequivalence of qualifications and sound educational review of each others’ syllabus.The MICPA, recognising the increasingly global nature of the accountancy profession isalso looking for ways and means to participate and contribute to the international accountingorganisations. But it is also important that the involvement is focused on areas that arerelevant to local needs.MICPA is also flexing its marketing muscle by organising exciting events to raise theprofile of the Institute and attract new entrants to the CPA Malaysia programme. Enhancingand promoting the CPA Malaysia qualification is priority for the MICPA. With regards to theCFiA qualification, MICPA hopes to assist graduates to achieve a professional qualificationthat meets the relevant international requirement and at the same time ensure membershipgrowth.The call for an improvement in the communication process between the Institute andmembers has yielded results as more and more members are now aware of the developmentsat the Institute as well as in the business environment.The week long 11th Accountancy Week held in August was a resounding success asaccounting students throughout the country met, interacted and fostered closer ties. Aside frompromoting accountancy as a profession, this year’s event, appropriately themed AAA-Accountants Are Assets, also commemorated the International Federation of Accountants(IFAC) 30th Anniversary celebration.The lifestyle section touches on the environment. Our busy and hectic lives leave little timefor us to remember the importance of preserving our surroundings. Neglect and disregard ishaving a bad effect on the environment and Mother Nature is not going to take mankind’scarelessness lying down. She is making her displeasure known. Read all about it inside.2 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

FEATUREIntellectualProperty RightsThe Right to Protect & Profit From ItBY LIM KIEN CHAIIntroductionCrimes do not pay. That used to be theconventional and ‘play-safe’ mindset. Themushrooming of black markets aroundthe world bears vivid testimony to the factthat this trite quote may not have a placein today’s highly competitive and globalisesocieties. Today’s mankind is always insearch of ingenious but unfortunatelyconniving ways to profit from whateverthat they can lay their hands on. To addfurther injury to the wound, this is done atthe expense of someone’s legal rights andprivileges. It is done without conscience oftransgression and injury it inflicts toethics, moralities and religion. Themindset is being repositioned from “crimesdo not pay” to “crimes pay”.Intellectual PropertyIntellectual Property (IP) allows anyone toown his or her creativity and innovation,however intangible or non-physical inform in the same way that he or she canown physical property.Intellectual property is divided into two categories:• Industrial property, which includes inventions (patents),trademarks, industrial designs and geographicindications of source; and• Copyright, which includes literary and artistic workssuch as novels, poems and plays, films, musical works,artistic works such as drawings, paintings, photographsand sculptures and architectural designs.Rights related to copyright include those of performingartists in their performances, producers of phonograms intheir recordings and those of broadcasters in their radioand television programmes.Intellectual Property RightsThe Intellectual Property Rights (IPR) is not spared either.Recent assaults on these rights heightened the issues. IPRrefers to but is not limited to five (5) distinctive butcomplementary types of proprietary rights. Traditionally,they have been classified as trademarks, copyright,patents, industrial designs and trade secrets. The advent ofe-commerce adds variations to these conventionalclassifications.At one extreme of the issue are people who believethat IP should be unprotected and unrestricted while thoseat the other end feel that Government needs to pass andwww.micpa.com.myJune/August 2007 | The Malaysian Accountant |3

FEATUREInternet Piracy- Copyright Infringementand Adequacy of Malaysian LawBY INDRAN SHANMUGANATHANIntroductionThe Internet is a worldwide system of computer networks.Using the same protocol, any one computer can getinformation from or talk to any other connected computer. Ittherefore facilitates content and information transmission,sharing and retrieval.Role of Internet Service ProvidersWith new technologies and the facilities offered by theInternet, on-line piracy has come about in many ways. Inmost instances, the Internet service providers are involved.Commercial undertakings have without theauthorisation of or any payment to copyright ownersripped and made available recorded music for download.Often times, hacking software is posted. It may be used tobreak copy protection and other technological measuresavailable and embedded in copyright protected materialsto prevent unauthorised copy and transmission. Theymake their money through banner advertising. There arealso other sites that provide links to these unauthoriseddatabases.Peer to peer (“P2P”) networks and systems allows agroup of computer users using the same networkingprogram to connect with each other and directly access filesfrom each other’s hard drives. The common softwareenables users at any time to connect directly with the harddrives of all other users logged onto the Internet. Theelectronic files of a user are therefore made available to allother users. There are various participants to a P2Pnetwork.They include (i) providers of the P2P software, (ii)intermediaries such as Internet and other service providers,(iii) uploaders and, (iv) downloaders.The role of the Internet service providers is alsoimportant for another reason. Individual items of softwareheld by uploaders are identified by reference to an Internetprotocol or IP address. The address is numeric in form andis allocated to a particular address space in such a mannerthat an individual computer or a network of individualcomputers will communicate to the Internet via thataddress. The IP address but not the identity of the up-loadermay be identified. The cross referencing between the IPaddress and the individual’s details is held by the Internetservice provider who provides with interconnectivity to theInternet. Unless the identity of the up-loader is divulged, noeffective action can be taken against the up-loader.In the case of a motion picture, sound recording,musical works, audio visual product and business software,only the person by whom the arrangements for the makingof the motion picture or recording can authorise it to beplaced or copied onto a website, or transmitted across anetwork, or performed or downloaded by a computer. Theseworks however contain much underlying works which arethemselves individually protected. Such underlyingsynchronised works would include literary and dramaticworks, musical works, artistic works, image rights and soon. The rights of the individual owners of such underlyingworks should be protected. They should continue to retaintheir respective rights to take both civil and criminal actionagainst infringers.www.micpa.com.myJune/August 2007 | The Malaysian Accountant |5

Commercial undertakings havewithout the authorisation of or anypayment to copyright owners rippedand made available recorded musicfor download.Copyright Act 1987A film is defined to mean the fixation of a sequence ofvisual images on any material so as to be capable by theuse of that material of being shown as a moving picture orof being rerecorded onto some other material. “Fixation”means the embodiment of sounds, images or both or of therepresentation thereof, in a material form sufficientlypermanent or stable to permit them to be perceived,reproduced or otherwise communicated during a period ofmore than transitory duration.“Reproduction” means the making of one or morecopies of work in any form or version and “copy” meansreproduction of a work in written form, in the form of arecording or film, or in any other form. “Infringing copy”in relation to copyright, means any reproduction of anywork eligible for copyright the making of which constitutesan infringement of the copyright in the work or, in the caseof any article imported into Malaysia without the consentof the owner of the copyright, the making of which wascarried out without the consent of the owner of thecopyright. These definitions it is submitted, are broadenough to include the down-loading of a computer file. Itis both a civil and criminal offence if done without theMalaysian copyright owner’s consent. These definitions arealso broad enough to protect the copyright of the owners ofthe underlying works that are embodied in the film orsound recording. Th only room for argument is whether thestorage of the film or sound recording and the underlyingworks in a computer or any electronic medium amounts toinfringement. It must be so. Accordingly, sections 13 and 41of the Copyright Act (“Act”) 1987 should be amended todefine an unauthorised act or an infringing copy to include“the reproduction or storage in any material orelectronic form”.It is not clear whether the word “makes” includes theact of downloading. Obviously if the downloadersubsequently burns in hard-copy form a disc of thecopyrighted work for downloading, there would an offence.But what if reproductions are made from direct connectionsto the hard drives of other users logged onto the Internetusing the same software. So as to make the act ofdownloading an offence as well, “downloading or storageof copyright protected work in a computer or on anymedium by electronic or other means that will facilitatedownloading” should be made an act controlled bycopyright. If greater protection were desired, perhaps,downloading or storage of copyrighted work itself if donewithout authorisation would be sufficient to constituteinfringement. The purpose for which the downloading orstorage is made is not relevant to found liability.The act of uploading however is presently not acriminal copyright infringement. Therefore, a person who“uploads or stores any work protected by copyright in acomputer or on any medium by electronic or other meanswhether or not for the purpose of making available the workfor subsequent downloading, distribution, dissemination orany further dealings in the work” should be guilty of anoffence. Such an offence can also form the basis for civilinfringement. If adopted in the context of civilinfringement, authorisation is required for any“distribution, dissemination or in any manner dealing inthe work via broadcasting”. “Broadcast” is defined as thetransmitting by wire or wireless means visual images,sounds or other information that is capable of beinglawfully received by members of the public or is transmittedfor presentation to members of the public. It will alsoinclude communication of the work to the public that isalready an offence.In the civil context causing an infringement to takeplace is itself an infringement. However, the act is silent onwhether authorising an infringement is itself aninfringement. To be guilty of authorising an infringement,the defendant must have expressly or implicitlysanctioned, approved or countenanced the infringement.That is pre-conditioned on the defendant having the rightto authorise infringement. It is questionable whether theuploader by offering his files for download may be said tohave authorised infringement. He does not possess theright to authorise in the sense of him having a right to givethe necessary sanction, approval or countenance toinfringe. This is still so, even if he were aware that his P2Ppeers would infringe or is indifferent as to what they mightdo. The wrong of authorising infringement is a very narrowone that is ineffective in practical terms. The term“causing” an infringement in section 36(1) of the Act,appears capable of a wider application. To “cause” must bea question of fact and circumstances. It is not conditionedupon there having to be a right “to cause” (aninfringement). Rather, it is premised on the degree ofcontrol the uploader has over the creation of and thecomputer containing the uploaded work. He controls themeans, mode and equipment by which infringement iscommitted and allows the downloader infringer access tothese. He in fact is well aware that there would beinfringement and actively encourages such infringing.However, the intent and the ingredients for causinginfringement should be adequately set out in section 36(1)of the Act. Perhaps it should be provided that “for theavoidance of doubt, a person causes another to do an act,the doing of which is controlled by copyright without the6 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

license of the owner of the copyright if he (i) controls or hasthe ability to control the means, equipments, modes andinstruments by which the infringement would be effected;(ii) has knowledge or reason to suspect that suchinfringement will take place; and (iii) intends, encourages,promotes, assists or enables the use of the means,equipments, modes and instruments to effect aninfringement and takes no reasonable steps to limit the useof such means, equipments, modes and instrumentssupplied to legitimate purposes or takes no reasonablesteps to filter or block any infringement”.The difficulty remaining is whether the wrong of“causing” an infringement can only be sustained if theprimary act of infringement is completed. This appears tobe likely so. To get away from such rigidity, the law shouldbe amended to provide that causing “an imminentinfringement” or if the causative acts make it likely that aninfringement will occur, that should suffice. A suitablyworded provision would be: “copyright is infringed by anyperson who does, or causes any other person to do, withoutthe license of the owner of the copyright, an act the doingof which is controlled by copyright under this Act”.In the context of an offence for copyright infringement,it is an offence to sell or distribute infringing copies. Thecomputer file in data format that is transmitted over thenetwork has no physical existence. It is uncertain whethersuch an infringing computer file meets the definition of itbeing an “unlawfully reproduced copy”. As mentionedearlier, by definition, “copy” must be in some materialform. Are data packets residing in a computer file inmaterial form? To remove such an uncertainty, perhaps theword “material” should be deleted from the definition of“copy”.Unauthorised distribution of the copyrighted work byway of sales is an act of infringement. Whether there issuch a distribution and sale of the infringing file isquestionable. The computer file residing in the hostcomputer is never physically moved to the downloader’scomputer. Instead the downloader creates a new file. Theremay be no monetary gain. Perhaps “transmission of thework to the public by electronic or other means which uponbeing received results in the copy of the work”.Pirated works are openly advertised for sales either inthe print media or via the Internet. Accordingly the rightto advertise copyright protected work should be an actcontrolled by copyright and advertising for sales, hire orrental of infringing copies of works should be an offence.Any reproduction made including those that aretemporary or of transient duration is covered under theright of reproduction. (Examples would be copies of worksmade in the servers and other computers that are theengines of electronic commerce and digital networks) Aperson making a temporary pirated copy is no more or noless guilty of infringement than a person making apermanent pirated copy of the work. Under emerging newbusiness models the full economic benefit can be quicklyderived by making and using a temporary copy of thework. To allow the making of temporary copies thereforegoes against the copyright owners’ exclusive legalentitlement to exploit their creations. It will alsounreasonably prejudice the legitimate commercial interestsof the copyright owners. Where the making of a temporaryor transient copy is necessary for technical reasons as in thecase of acts of caching by servic providers, any exceptionshould be on condition that the service provider does notmodify or edit the contents of the work and does notinterfere with the use of technological protection measures.There may be an exception for “the making or reproductionof temporary copies of the work if it is for technical or legalreasons and provided that there shall be no modificationor editing of the work or interference with the use of anytechnological measures by the owner”.Legal protection and remediesAdequate legal protection and effective legal remedies areprovided against the circumvention of effective technologicalmeasures that copyright owners use to restrict acts inrespect of their works which are not authorised by theauthors concerned or permitted by law. In this respect, thelaw should prohibit the business of providing circumventiontools and services. What must be suppressed is theproviding of, manufacture, importation, supply,distribution and sales of decryption devices and otherdevices and services which are intended to gain access to,or the use of copyrighted material. The factors fordetermining whether a given tool is a circumvention toolmay include those set out in the US Digital Millennium Act1998 which are (i) the way the devices and services aredesigned and/or produced; (ii) whether the way the devicesand services are marketed has any significant commercialpurpose or are the marketed for use primarily for thepurpose of circumvention; and (iii) whether themanufacturer or marketer of the devices are acting inconcert with the user who to his knowledge is using thedevices for circumvention purposes. The test has to be anobjective one.A balance must be maintained and exceptions andlimitations to the prohibitions be provided particularly inthe face of countervailing national interests such as whencopyright owners totally deny access to their works bycustomers from the non-profit sector such as educationalinstitutes, libraries and research organisations or wherelaw enforcement and national security interests or whereaccess to copyrighted material is required to achieveinteroperability of computers.Copyright owners have the exclusive right to controlretransmissions over the Internet. They must retain theabsolute right to authorise or prohibit the retransmissionswww.micpa.com.myJune/August 2007 | The Malaysian Accountant |7

encouragement would be in the form of the remedies forinfringement that would otherwise be available againstthe service provider being limited or reduced. This is theapproach adopted by the US Digital Millennium CopyrightAct 1998 and the E.U Electronic Commerce Directive (2002).To fix or impute the service providers with liability,the law must legislate against these network serviceproviders primary infringement as well as secondary orindirect infringement activities such as authorising orcausing infringement, joint liability, contributory orvicarious infringement etc. In so far as the transmission ofan electronic infringing copy of the work is concerned, it issubmitted that the network service providers are alreadyliable as primary infringers and offenders under theamendment suggested above. For instance, the serviceprovider would be regarded as an infringer in relation tothe electronic copy of the work transmitted via theirnetworks, they become aware or ought to be aware ofinfringing materials or activities on their systems and donothing to remove or cut off access to the offending material.It is not necessary that the service providers be notified of thepresence of infringing material and activities on their systems,but if notified then, the defense of lack of awareness cannotavail itself to them. They should then be imputed withnotice. It would be preferable if “ network service provideris made liable for infringement for transmitting electronicinfringing copies of work to the public if (i) it is aware orhave knowledge of or ought to be aware or have knowledgeof the electronic copy of the work that is transmittedthrough its network systems is an infringing copy; or (ii) itreceive a statutory declaration (from the copyright owneror his authorised representative?) that provides in his beliefin good faith, an act which constitutes infringement hasoccurred in the course of making available an electroniccopy of the work on the network to which the networkservice provider provides access and the grounds of hisbelief and neglects or fails within a reasonable time to takethe necessary action to remove or disable access to the workthat is infringing. This approach is entirely consonan withthe requirements of the CMA and the Code. There must besafeguards. A person who knowingly misrepresents orsuppresses relevant and essential facts just to assertinfringement must be liable in damages.Also relevant, is whether network service providersmust disclose identifying information in their possessionwith regard to an on line infringer where a request for theinformation is made by copyright owners or their legalrepresentatives. A time limitation within which to respondmust be provided. These are information and particularsthat are readily available. One significant tool for Internetanti-piracy enforcement is the availability of and access todata about Internet users and website operators afteridentification of their IP addresses in order to identifycopyright infringers. The most significant sources of thesedata are the WHOIS databases and the subscriber andtraffic data stored by the service providers. The data willassist in the real time identification of the registrant of thedomain name and the server where the related website ismaintained. Accordingly a network service provider shouldbe liable for infringement if it refuses to disclose to thecopyright owner or his authorised representatives,information relating to the identity of the infringer, hiscontact details, specified or other information anddocuments that are useful for the purpose of protecting theowner’s copyright. To ensure the integrity and accuracy ofthe data, the law must make it an offence to fraudulentlymisrepresent or suppress essential information in theregistration process. The network service providers must intheir agreement with subscribers ensure that this is speltout for otherwise the information even if provided by thewould be of little use to copyright owners.ConclusionWhether providers of file sharing software and services canbe fixed with liability for copyright infringement dependson the role they play and the degree of control they exertover the file sharing process. If the infringing files are storedon their servers (referred to at times as the site and facility)and made available for download, then their positionwould be as that of the uploader. It should not matterwhere their servers are located. They may even be locatedoutside of Malaysia but so long as they have control overthe same, they should be guilty of infringement. The lawshould provide that “a person shall be guilty of infringementif he stores or causes to be stored any recording or reproductionof an infringing work on servers or other storage or retentionfacilities or means wherever located knowing that or undercircumstances which render him likely to know that theinfringing work may at any time subsequently be reproducedor accessed or dealt with in a manner that is prejudicial to theinterest of the owner of the copyright by the public”. Suchinfringement is of course in addition to and not an alternativeto the direct infringement of having unlawfully reproducedthe copyright protected work. Substituted for the requirementfor control over the servers, is the requirement for knowledgeor presumed knowledge that there will be subsequentinfringements made from the unlawfully reproduced filethat is held in storage. Implicit in the proposed provision isthe presumption that the provider must have control overthe site and facility.This article first appeared in Shearn Delamore & Co Newsletter(Vol 6 No 1.0) March 2007 and is produced with kindpermission from Shearn Delamore Services.This article covers legal issues in a general way. Thecontents are not intended to constitute advice on any specificmatter and should not be relied upon as a substitute for detailedlegal advice on specific matters or transactions.www.micpa.com.myJune/August 2007 | The Malaysian Accountant |9

FEATUREBasis ofRecognitionof Incomefor PropertyDevelopersBY Dr ARJUNAN SUBRAMANIAMThis paper examines the basis of incomerecognition for property developers. In so,examining statutory case-law developmentsand the general guidelines issued by theInland Revenue authorities are explored.The Statutory ProvisionsThe Income Tax Act 1967 does not set out any specialsections or provisions for property developers. This factmust be borne in mind in attempting to find answers ofincome recognition for property developers. Section 36 ofthe Income Tax Act 1967 authorises the Director Generalto give directions to be published in the gazette as to thecomputation of business income in certain cases. But nosuch directions for property developers have been made.Thus, a property developer must be taxed as any othertaxpayer under the following provisions of the Income TaxAct 1967.These provisions, inter alia, are:(a) Section 3 – derived and remittance basis;(b) Section 5 – manner of computing chargeable income– determine source;(c) Section 33(1) – deduction – ‘…by deducting from thegross income of that person from that source for thatperiod all outgoings and expenses wholly andexclusively incurred… in the production of gross income’;(d)(e)(f)Section 2 – ‘stock in trade’ definition includes work inprogress;Section 43 – Business losses brought forward;Section 44 – Adjusted business loss for current year;Since there are no special rules in the Income Tax Act1967, surely the changeability to tax must proceed alongthe sections in the Income Tax Act 1967 cited above.Applying the sections the proposition is well summarisedin the case of YF Development Sdn Bhd v Ketua Pengarah HasilDalam Negeri 1 in the following terms:In the case of a housing developer, the questionof whether or not his project has been completed, orwhether or not he has sold all the units uponcompletion of the project does not arise. A housingdeveloper must be taxed just like any other trader.This means that for ascertaining his gross income fora basis period, the sales of units, works in progressand stock-in-trade must be taken into account. Inarriving at his adjusted income, all expenses whollyand exclusively incurred in the production of thatincome during the relevant period must be allowed.In arriving at his statutory income, capitalallowances allowable under Schedule 3 to the Actmust also be taken into account. However, wherelosses arise in the application of these rules, then suchlosses can be carried forward to the following year ofassessment. Unabsorbed capital allowances can alsobe carried forward and allowed against adjusted10 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

income of the same source. Thus, the assessments areto be amended in accordance with these rules, andmay require recomputation.‘Source’ and its Implicationsfor Property DevelopersHowever, notwithstanding what is said in YF Development,a developer company can have many sources of income,i.e. a business can have several sources 2 . A source is aquestion of fact 3 , but even questions of fact must be basedon evidence. An error of fact is an error of law 4 .How does the concept of a ‘source’ impact the taxposition of a developer? The case of Sarawak Properties SdnBhd v Director General of Inland Revenue 5 illustrates theimpact well. In this case the facts were:(i) There were two separate projects, i.e. there were twosources of income;(ii) The completed contract method (CCM) of accountingwas adopted;(iii) No income was recognised at the end of a financial year;(iv) Income was only recognised upon completion of theproject. No work in progress is ever shown;(v) No expenses were claimed until at the end of the project;and(vi) It is mandatory under the CCM method NOT to reportincome until the completion of a project. It is alsomandatory NOT to claim expenses until the projectsare completed.The important point to note is that the Court foundtwo projects. And no income was reported from theuncompleted TAR project.Steve Shim J as His Lordship then, put it in this way:There was, however, no income realised fromthe uncompleted TAR Centre at the time. The factsalso disclose that an amount of RM19,521,342.05 wasexpended on the shop house project whereas anexpenditure of RM30,229.843.27 was incurred for theuncompleted TAR Centre in the year ending 1985.Given the circumstances above and in the light of theauthorities cited earlier, it could well be said that theincome of RM35,914,865.48 derived from the sales ofthe shop house under the shop house project was onesource of income and the amount of RM19,521,342.05was the expenditure incurred wholly and exclusivelyin the production of that income. This income ofRM35,914,865.48 from the shop house project wasrecognised pursuant to the completed contractmethod of accountancy. It was recognised by therespondent and such recognition was accepted asproper by the Special Commissioners. On the factsand evidence before them, I agree with their finding.In my view, this is not inconsistent with provisions ofs 33(1) of the Act.The court further emphasised two separate projects thus:As I have said, the shop house project, whichwas held by the Special Commissioners to be quiteseparate from the TAR Centre project, would beregarded as a distinct source of income, which wasrecognised by the respondent pursuant to thecompleted contract method of accountancy. As theTAR Centre which would, in the circumstances, beregarded potentially as another source of income, hadyet to be completed or substantially completed at thematerial time, the income was therefore not recognised.His Lordship continued on to say:Recognition would come once the said projectwas completed or substantially completed.The importance of the conclusions reached by theCourt in Sarawak Properties is that property developers maydecide on the accounting methods to be adopted and bebound by consequences. Thus, if in Sarawak Properties adifferent accounting method was adopted whereby incomewas recognised at each accounting year with work inprogress and deductions claimed that procedure would beapplicable and accepted if consistently followed. But notethat the completed contract method is no longer acceptedby the Revenue. See Public Ruling 3/2006 (infra). So wheredoes that leave the judgement in Sarawak Properties? Thisproves that it is so important to follow the law – not whatparties accepted.Consistent Applicationof Chosen Method is ImportantA method once adopted should not be changed, withoutvalid reasons. Consistently in application was alsoemphasised in the case of Thomas Hill Ltd v Comptroller ofIncome Tax 6 , by Lord Templeman in these terms:In the present case, the company is not beingasked to abandon the completed contract method butto apply it uniformly and consistently.The facts in Thomas Hill were that the taxpayer adoptedthe completed contract method in computing profits. Bythis method:The expenses directly incurred by the company,in relation to a site which is developed are not chargedin the company’s profit and loss account year as thoseexpenses are incurred. On the other hand, noaccount is taken of the value of the work in progresswww.micpa.com.myJune/August 2007 | The Malaysian Accountant |11

year by year. Upon completion of the development,all the expenditure relating to the developmentincurred over the years from the date of acquisition ofthe site, including the cost of acquisition of the site isaggregated and deducted from the sale price ormarket value of the completed development. Thedifference between the aggregate expenditure incurredin respect of the development and the proceeds of saleor market value of the completed development,constitutes a profit which the company then includesin its profits and account for the year of completion.The Courts must be cautiousof accepting the CCMmethod on groundsthat the Inland RevenueBoard accepted that method.There is no such law.Pursuant to the completed contract method ‘no incomeof the company arises from a development until thatdevelopment is completed. Outgoings and expenses directlyattributable to that development are not deductible fromthe income of the company as they arise but are only takeninto account in arriving at the profit derived from thedevelopment and that profit constitutes part of the incomeof the company in the year of completion and not in anyprevious year.In its accounts for 1974, taxpayer altered its practiceand changed property tax as general administrativeexpenses in respect of all the development sites. Such achange was disallowed by the Revenue on grounds that:(i) consistent with the completed contract methodadopted by the taxpayer, the property tax in respect ofeach development site should be treated as costs directlyattributable to that development and should be broughtinto account on the completion of the development aspart of the total cost of the development beforearriving at the profit (or loss) for the development.The court at every stage agreed with the Revenue.Tax Treatment of BorrowingCosts in Respect of DevelopersThis paper addresses interest payable as deduction forproperty developers. The accounting treatment adoptedcould be:(i) interest may be capitalised as part of propertydevelopment; or(ii) interest may be charged to the profit and loss accountas and when ‘incurred’.Whatever accounting treatment is adopted in respectof interest, it is submitted that the essential question isdeducting interest in the accounting method adopted for therecognition of income of property developers.If the completed contract method (CCM) is adoptedthen it follows that the interest applicable to a projectcan be deducted only upon completion of that project.(This follows Sarawak Properties and Thomas Hill).But when the percentage of completion methodis consistently adopted, then the interest incurred inthe financial year qualifies for a deduction under s33(1), Income Tax Act 1967 as and when incurred. Thismust be so, even if under the percentage of completionmethod ‘interest’ is capitalised since ‘capitalised’interest retains the character of ‘interest’ 7 .Public Ruling No.3/2006dated 13 March 2006The Inland Revenue Board does not accept the completionof contract method (CCM). (See paras 6.2, 6.4 and 7.5 pp 5and of the said ‘Ruling’). Where the taxpayer adopts thecompletion of contract method, the Director General‘requires the property developer … to compute his incometax liability for a year of assessment by using thepercentage of completion method, that is, by using eitherthe method prescribed in the accounting standards or theprogressive payments basis prescribed by the DirectorGeneral. (Paragraph 6.4 of Ruling).Is this Ruling consistent with Sarawak Properties?Prima facie, it appears not consistent since the CCMmethod was adopted by the taxpayer and applied bythe court. But this method was accepted in that case bythe Inland Revenue Board. The court so found this fact:In the instant case, the established facts disclosethat the audited accounts of the appellant for the yearsending 1982, 1983, 1984 and 1985 were maintainedand drawn up for income tax purposes on the basisof the completed contract method of accountancywhich was recognised under the InternationalAccounting Standard 11 and accepted by therespondent.And if the Inland Revenue Board does not acceptthe CCM method, then the Court must rely on theprovisions of the Income Tax Act 1967. And that iswhy this paper begins with the provisions of theIncome Tax Act 1967, i.e. ‘a property developer mustbe taxed just like any other trade’.12 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

And there is a Revenue Law principle that needsto be repeated – both the Inland Revenue Board andthe taxpayer cannot choose methods of recognisingprofit or deduction but must follow the provisions inthe Income Tax Act 1967. This principle was statedin Ostime (Inspector of Taxes) v Duple Motors Bodies Ltd 8as follows:In EM Bhd v Director General of Inland Revenue 9 , thisprinciple not only was accepted in Malaysia but the Courtheld that the Inland Revenue Board must act in accordanceto the provisions of the Income Tax Act 1967:It is up to the respondent (Inland RevenueBoard) to do so in accordance with the provisions ofthe Malaysian, Income Tax Act 1967 and in compliancewith the normal accounting practice.Percentage of completion method or the progressivepayments basis.Progressive Payments FormulaThe Inland Revenue Board Ruling in paragraph 7.9.2 reads:7.9.2 The progressive payments basis providesan estimate of the gross profit of a project(or phase as the case may be) proportionateto payments received and receivable foreach accounting year. The estimated grossprofit for each year is arrived at by usingthe formula:Estimated gross profitfor a year of assessment= (a) x (c)(b)Where –(a) = the sum of payments, including deposits, receivedand receivable in the year and the figures mustreflect the actual position prevailing at thebalance sheet date.(b) = the total value of development of the project, i.e.the total anticipated sales proceeds(c) = the estimated gross profit for the project i.e. thegross profit which the developer expects to makein relation to the project or phase.Outgoings and Expenses Whollyand Exclusive Incurred – s 33(21),Income Tax Act 1967 applicationThe Inland Revenue Board Public Ruling provides:(a) Development expenditure must be adjusted to excludenon-allowable expenses.(b)(c)Expenses relating to income generating propertieswould be allowable.Interest expense incurred by a property developer:14.8.1 Interest paid on loans taken for financingthe purchase of land and developmentworks are to be capitalised or debited in theDevelopment Expenditure Account, andnot charged to the Profit and Loss Accountevery year as part of administrativeexpenses. Where funds borrowed to acquireland cannot be related to a particularparcel or parcels, the interest incurredshould be allocated to all land held duringthe year in proportion to the cost of eachparcel. Interest would be allowed as part ofthe cost of sales based on the percentage ofcompletion method.Interest expense incurred on moneyborrowed and employed in the productionof gross income of a property developer isallowable under subsection 33(1) of theIncome Tax Act 1967. To qualify for adeduction, the interest expense of a propertydeveloper must not only be incurred butmust also satisfy the test that it is incurredin the production of gross income. In otherwords, “only interest attributable to thephases or projects, whichever is applicable,which produced income would be allowed as adeduction under sub-s 33(1) of the Income TaxAct 1967”. The deductibility of the interestexpense should strictly follow the principleof percentage of completion that is deductionis based on the progress of completion ofthe phase or project.In paragraph 7.7 of the ‘Ruling’ the Inland RevenueBoard takes a position that expected loss on a developmentproject recognised in the accounts would be allowed ongrounds that the loss is a ’anticipated contingent loss’. Thisapplies to an estimated gross loss as outlined in paragraph12 of the ‘ruling’. A provision made for liquidateddamages is not allowed as per paragraph 14.5.3 of the‘Ruling’. This treatment draws the following comment:(a) if an excepted loss is not allowed, then on what basis isan expected profit taxed?(b) if an expected gross loss cannot be set off against othersources of income, then what is the basis of taxingand expected gross profit?(c) a provision made for liquidated damages can beallowed if late delivery or defects have alreadyoccurred i.e. the event which triggers the liability hasoccurred, because the legal liability to pay has arisen 10 .www.micpa.com.myJune/August 2007 | The Malaysian Accountant |13

Revision of Estimatesand Tax ComputationsThe ‘Ruling’ in paragraph 10 outlines the following:(a) no revision of past assessment is allowed where thereis a revision resulting in a reduced estimated grossprofit. Such revisions are only for current and ensuingyears of assessment.(b) where the revision is from an estimated gross profit toa loss situation, no adjustments of past years areallowed until the final amount is ascertained at theend of the project.The comment that these rulings draw are as follows:In respect of both (a) and (b) above, it is neitherlogical nor supported by any statutory authority thatpast assessments cannot be reviewed where InlandRevenue Board already accepts the revision ofestimates.Conclusions(1) The Inland Revenue Board does not accept the CCMmethod. Housing developers need then to payattention to how the transactions are presented inaccounting procedures adopted.(2) The percentage of completion method is accepted bythe Inland Revenue Board. But this does not mean theInland Revenue Board would allow all interestexpenditure incurred to date. The tax treatmentaccorded in the Public Ruling No 3/2006 to housingdevelopers as investors is not investor friendly, sincethe Inland Revenue Board in its ‘Ruling’ would notallow interest costs as and when ‘incurred’.(3) It is recommend that housing developers adopt anaccounting system, if that is allowed by accountingstandards, to claim (i) all expenses, including interestcosts in the basis period incurred, and include (ii) allsales of units in the basis period, (iii) and includework in progress. This satisfies the provisions of theIncome Tax Act 1967.Capital allowance under s 3 Income Tax Act 1967must be allowed in arriving in statutory income in the taxcomputation. And if losses arise applying of all these ruleswhich follow the provisions of the Income Tax Act 1967,then such losses can be carried forward or allowed againstother income in the current years pursuant to theprovisions of the Income Tax Act 1967.That precisely was what was decided in YF Development.The Courts must be cautious of accepting the CCM methodon grounds that the Inland Revenue Board accepted thatmethod. There is no such law. And accounting practicecannot infringe the provisions of the Income Tax Act 1967,a principle much forgotten in Sarawak Properties.This paper was written by Dr Arjunan SubramaniamBA(hons) (Mal), LLB (hons) (Lond), LLM (Lond) PhD (Mal), CLP (Mal)Advocate & Solicitor, Malaya, Adjunct Professor, University Utara andformerly Adjunct Professor of Law the Northern Territory Univesity,Darwin AustraliaSource; Malayan Law Journal [2006] 6i-cxl, November-December 2006.Produced with kind permission.1 [1996 MSTC 2526.] But see the proposals in the 2007 Budget whereeffective from year of assessment 2006, the following principles, interalia, are proposed to be gazetted under section 36, Income Tax Act, 1967:(i) The gross income from a property development or constructioncontract business for a basis period for a year of assessment shallbe determined using the percentage of completion method;(ii) Revision of estimates of gross profit from a property developmentproject or construction contract can be allowed where there is anincrease in development or construction costs due to escalatingcost of materials, a reduction in selling price or contract sum orother commercial reasons acceptable to the Director General;(iii) Expenses incurred during the defect liability or warranty periodshall be allowed against the income of the year of assessment inwhich the expenses are incurred or shall be carried forward to thefollowing years of assessment. However, the property developeror construction contractor may elect to carry back the expensesto the basis period for the year of assessment in which the projector contract is completed.(iv) On submission of the final accounts upon the completion of theproject or contracts special rules are to be enacted to compute profits.The proposal is effective from year of assessment 2006.2 River Estate Sdn Bhd v Director General of Inland Revenue [1981] 1MLH 99.3 Nathan v FC of T 25 CLR 183.4 See Mamor Sdn Bhd v Director General of Inland Revenue [1981]1 MLJ 117 and Airspace Management Services Sdn Bhd v Col (B)Harbans Singh a/l Chingar Singh [2000] 3 MLJ 714.5 [1997] 4 AMR 31816 [1984 – 1985] 1 SLR 2.7 See Perwira Habib Bank Malaysia Bhd v Pengkalan Enterprise SdnBhd [1992] 2 MLJ 35.8 [1961] 2 All ER 167.9 [1988] 1 MSTC 2085.10 See Exxon Chemical (M) Sdn Bhd v Ketua Pengarah Hasil DalamNegeri [2006] 1 MLJ 428, where it was held that an expense isincurred when there is a present liability to pay. See also RACVInsurance Pty Ltd v Federal Commissioner of Taxation [1974] 4ATR 610; 14 TC 4169 where actuarially estimated provisions forclaims in relation to accidents which occurred during the year ofincome but which occurred during the year of income but whichgave rise to claims in the following years were considered14 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

FEATUREWither the External Auditin Corporate Governance?BY HASHANAH ISMAILThis is a theoretical paper based onliterature and the corporategovernance framework in Malaysia.By reviewing the roles perceived andexpected of external audit undercorporate governance environmentresearch questions are raised as abasis for research into possiblefuture roles of the external audit.IntroductionEvery year companies go through the ritual of nominatingan auditor, calling an annual general meeting to getapproval from shareholders on the appointment of theexternal auditors so nominated, approval of the auditedaccounts and authorisation for directors to determine theaudit fees. This ritual is entrenched in the Malaysiancorporate culture as a result of the requirement of the lawunder which companies in Malaysia are incorporated, i.e.the Companies Act, 1965. That a company is required bylaw to appoint an external auditor yearly to audit itsannual accounts underlines the perceived importance ofthe external audit in the eyes of the law. Implicit in themandatory appointment of external auditors by eachcompany is the recognition by the lawmakers that externalauditors play a vital governance role to serve the interestsof the shareholders. The duties, scope, rights andresponsibilities of the external auditors are spelt out in therelevant sections on Audit and Accounts in the CompaniesAct, 1965. The attestation of the auditors as formalised inthe Auditors’ Report improves the credibility of thefinancial information attested to (Mautz and Sharaf,1961). Provided the auditors perform an audit of areasonable standard, the audited financial informationshould be useful to investors and other users for decisionmaking.Recent negative incidents of audited financialstatements however have raised concern about the qualityof audit and the quality of audited financial statements. Asa result, initiatives were taken to improve the overallfinancial reporting environment as part of a drive toproduce a good governance culture in the Malaysiancorporate scene. As a result of the corporate governanceinitiatives, will the role of the external auditor change froma conformance role discharging their statutory duties toreport on truth and fairness of accounts? It is the objectiveof this paper to examine the nature of corporategovernance environment in Malaysia and see whetherelements of the environment affect the external audit andin what ways. This paper is a theoretical paper and thefollowing section discusses corporate governance inMalaysia followed by a review of some of the literature onthe role of audit in governance. The paper concludes withresearch questions, which could be the bases for empiricalinvestigation.Corporate governance in MalaysiaIn May 1998 Price Waterhouse published the results of asurvey on corporate governance in Malaysia amongstsenior management of public listed companies. The surveyresults reported that shareholders and / or investors lookwww.micpa.com.myJune/August 2007 | The Malaysian Accountant |15

towards auditors for the assurance that the financialstatements provide a “true and fair” view of a company’sfinancial position. The financial statements are the keysource of financial information available to investors toassist them in making decisions. Respondents were alsoasked on areas requiring improvements and one of theareas identified by respondents was the need for a clearerdefinition of the role of the external auditors. In an earlierstudy by Tan, Zainal and Cheong, (1990), financial analystand government investment agencies in Malaysia rankedfuture prospects of companies as most relevant for theirdecision making compared to audited historical financialstatements. If audited accounts are less useful compared toprospective information, what are auditors for?The need for strong corporate governance is verymuch linked to a country’s need to make it an attractivecapital market to investors by convincing investors of theintegrity of such markets (Millstein, 1999). Malaysia is noexception as evidenced by its Capital Market Master Plan.Investors rely on quality information to make decisionsand quality audit can enhance the reliability of financialstatements. Sound governance by boards of directors isrecognised to influence the quality of financial informationreported, which in turn has an important impact oninvestor confidence (Levitt, 2000). Strong governanceshould reduce the adverse effects of earnings managementas well as reduce the likelihood of misstatements arisingfrom fraud or errors (Beasley, 1996). The effect of soundgovernance practices on the quality of financial reportinghas recently received attention from researches,particularly from the US (McMullen, 1996, Abbot et. al,2000). The main focus of these studies has been the relationbetween audit committees and fraudulent financialreporting, with results generally supporting a negativerelationship between an active audit committee and thelikelihood of a company being cited for fraudulentreporting.While these results provide evidence from a strongand sophisticated capital market environment, very littleresearch has been conducted in countries where capitalmarkets are less developed, like Malaysia. Good corporategovernance are equally, if not more important, forMalaysia if we are to achieve the goals of the CapitalMarket Master Plan.Koh (2002) has described the corporate governancestructure in Malaysia as comprising “core corporate laws”which prescribe the ways in which companies are regulatedto ensure that management utilised the companies’resources in a manner that safeguard the rights of thecompanies’ stakeholders. As a result of these prescriptions,many mechanisms for oversight and checks and balancesincluding a system of disclosure and reporting to ensuretransparency and greater accountability on the part of theboard of directors. The core corporate laws comprise theCompanies Act, 1965 and its subsidiary legislation, theCompanies Regulation 1966, Companies (Winding Up)Rules, 1972, The Securities Industries Act 1983, TheSecurities Commissions Act, 1993, the Malaysian Code onTakeovers and Mergers, 1987, the Guidelines on theRegulation of Acquisition of Assets, Mergers and Takeovers,the Bursa Malaysia Listing requirements and Practice Notesand the Financial Reporting Act, 1997. These regulatoryframeworks identify three important players: directors,managers and auditors of companies and goodgovernance ensure that there are mechanisms by whichcompanies are directed and controlled and themechanisms which supervise those who direct and controlcompanies.In Malaysia, management oversight includes boardstructure, composition and board subcommittees, internaland external auditors. Together they are inter-related toensure that companies produce reliable financialstatements to the capital market.At the heart of corporate governance framework inMalaysia is the Code of Corporate Governance launched in2001. PN9 of the Bursa Malaysia listing requirementsmandates each listed company to disclose in its annualreport a Statement of Corporate Governance to explainhow the company applies the principles enunciated in theCode and to state whether the company has complied withBest Practices spelt out in the Code and if not why not. Inwhat ways can these governance initiatives affect theexternal audit?The Financial Reporting Act 1997The Act brought into existence the Malaysian AccountingStandards Board which became the sole accountingstandard setting body in Malaysia. By amending theCompanies Act 1965, companies must comply withaccounting standards issued by the board and this gavelegal clout to accounting standards. By mandatingcompliance with accounting standards in the preparationof financial statements, board of directors are nowcompelled to present financial statements which wouldrelatively be free from material misstatements andtherefore present a lower audit risk to auditors. By makingsuch standards compulsory under law, this structuralchange in the reporting framework enhances the auditor’srole by bringing in co-regulation by the governmentalongside self-regulation from the profession.The CodeThe Code touches on four principles with one sectiondevoted to accountability and audit. The principle is suchthat the onus is on the board of directors to present a fairfinancial report of the company’s position and prospectsand to maintain a good internal control system and instilla good relationship with the external auditors. The16 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

auditors’ role is affirmed under the Code and is furtherenhanced because the Best Practice section further iteratesthe remit of Audit Committees to appoint, review andmonitor the work of the external auditor, therebyincreasing the independence of the external audit.In sum therefore, reforms of corporate governanceappear to be positive for external auditors and confirms theimportance of the external audit.Literature ReviewPast studies relating to audit and corporate governancemainly focus on the influence of corporate governancecharacteristics on auditing. O’ Sullivan (2000), for instance,provides evidence on how the existence of non-executivedirectors on the board enhances audit quality. Companieswith independent boards of directors and audit committeesare often perceived as having lower audit risks (Cohen andHanno, 2000) and those with higher agency risks requiremore audit effort (Gul and Tsui, (2001). Earlier studies onthe role of auditing in corporate governance in Malaysiaexamine the influence of audit quality on company financialreporting (e.g. Takiah and Hashanah (2003). Results showthat auditing does not significantly affect the strength ofcorporate governance. Similarly when examined as amoderating variable, audit quality appears to have nosignificant influence on earnings management (NorHaizah et al, 2004), Nor Hisham and Hashanah, 2004.)Hence the insignificant role of auditing in corporategovernance as shown by the research may be due to limitedscope of the external audit role or resulting from poorquality audit?A lot of effort has been taken to reform corporategovernance. These include restructuring board representation(O’Sullivan, 2000), improving the basis of auditor selection(Cohen et al 2000) but generally the role of auditing incorporate governance is not discussed as extensively (Bakerand Owsen 2001).Do auditors perform a governance role in South EastAsia? Fan and Wong (2002) examined a sample of firms inthe region where firms are described as experiencing anagency problem between controlling shareholders andminority interests. The study finds that the choice of bigfive auditors help to mitigate agency problems by charginga fee premium in response to agency problemsencountered. The study finds that overall, auditors doperform a governance role with some peculiar findings forMalaysia. Goodwin and Seow (2002) report that corporategovernance is perceived to have increased the quality ofaudit in Singapore and thereby strengthen the credibilityof the external auditor. Given the mixed findings in theliterature, it is proposed that a study be carried out inMalaysia to examine not only on whether the scope of theexternal audit should be expanded from the perspective ofvarious stakeholders in Malaysia but also what auditors seeas the impact of governance on the audit process itself.ConclusionReforms of corporate governance are meant to increase theaccountability of those in charge of the governance of listedcorporations so that the interests of shareholders and otherstakeholders are not jeopardised. The role of the externalauditor has not changed but the results of more accountableboards could reduce audit risk, increase auditor independence,increase audit quality and therefore improve the credibilityof financial reports and financial reporting process.Whether we have achieved this objective or not could bethe subject of future empirical research.ReferencesAbbot, L.J., Park, Y. and Parker, S. 2000. The effects of auditcommittee activity and independence on corporate fraud. ManagerialFinance 26(11): 55-67Beasley, M.S. 1996. An empirical analysis of the relation betweenthe board of director composition and financial statement fraud. TheAccounting Review 71(4): 443-465Cohen, J.R. and Hanno, D.M. 2000. Auditors’ consideration ofcorporate governance and management control philosophy inpreplanning and planning judgments.. Auditing: A Journal of Practiceand Theory Vol.19 (2): 133-146Goodwin, J. and Seow, J.L. 2002. The influence of corporategovernance mechanisms on the quality of financial reporting andauditing: Perceptions of auditors and directors in Singapore. Accounting& Finance 42 (3): 195-223Gul, F.A. and Tsui, J.S.L. 2001. Free cash flow, debt monitoringand audit pricing. Auditng: A Journal of Practice and Theory Vol. 20(3):71-84 Levitt, A. 2000. Renewing the covenant with investors , speechat New York University http://www.sec.gov/news/speeches/spch370.htmMalaysian Code on Corporate Governance, 2001. Malaysian Instituteof Corporate Governance Millstein, I.M. 1999. Introduction to the report andrecommendations of The Blue Ribbon Committee. Business Lawyer 54(3):1057-1066Mautz, R.K and Sharaf, H.K. 1961. The philosophy of auditing.(AAAA, Sarasota)McMullen, D.A.1996. Audit committee performance: an investigationof the consequences associated with audit committees. Auditng: AJournal of Practice and Theory 15(1):87-103O’ Sullivan, N. 2000. The impact of board composition on auditquality. British Accounting Review Vol 32: 397-414Takiah M. Iskandar and Hashanah Ismail. 2003. Corporatereporting quality, audit committee and quality of audit. Paper presentedat The 1st InternationalConference of the Asian Academy of Applied Business, 10-12 July2003, Kota KinabaluTan, L.T., Zainal, A.K. and Cheong, P.W. 1990. Information needsof users and voluntary disclosure practices of Malaysian listedcorporations. The Malaysian Accountant, April 2-6.Wallace, W.A. 1980. The economic role of the audit in free andregulated markets. Touche Ross and Co., New York.The Companies Act 1965, MDC Publishers Printers Sdn BhdThis article is contributed by Hashanah Ismail, who is a member of MICPA.www.micpa.com.myJune/August 2007 | The Malaysian Accountant |17

FEATURETowards Selecting and Maintaining anEffective Internal Audit Function?BY RAYMOND CORRAY & RYAN CHONGThe Malaysian Code of Corporate Governancerequires listed companies to state whether theyhave an internal audit function or, if not, whatalternative they have in place to provideassurance with regards to the adequacy and integrity of thesystem of controls. In fulfilling this requirement, listedcompanies have either established their own internal audit(“IA”) function or have outsourced the function toprofessional service providers. The Institute of InternalAuditors has issued The International Standard for theProfessional Practice of Internal Auditing (“Standards”)that provides guidance on the principles and frameworksfor setting up an IA function or when outsourcing.When contemplating the appropriate course of actionfor an effective internal audit function, as a first step,organisations should keep in mind the following:• Whether to have an in house function or to outsourcethe function;• The expectations of an internal audit function, i.e. to meetregulatory compliance or to be a value adding partner;• The independence and stature to be accorded to thefunction;• The investment that the organisation is willing to make;and• The availability of people resources in terms of skillsand experience.In setting up an in-house function the main challengefaced by organisations is in sourcing skilled and experiencedIA personnel and the costs involved. Due to the lack of suchpersonnel, a solution that is frequently employed is tooutsource the function. When faced with outsourcing andfor purposes of ensuring that an appropriate service provideris selected, organisation needs to bear in mind the following:• Reputation of the service provider;• Standards that the service provider adopts, for example,The Institute of Internal Auditor’s Standards;• The resources of the service provider, both in terms oftechnical and industry and operational skills;• The approach and the methodology in maximising theservice;• The ability to work with other service providers, to valueadd and respond to sudden request; and• The independence and integrity of the firm.Today, internal audit functions, apart from facing theinherent challenges associated with maintaining aprofessional function, are faced with additionalexpectations arising from corporate irregularities. Theseare casting question marks with regards to:• how internal audits function:• the standards that they employ;• the people that they have; and• ethical standards that they subscribe too.In overcoming and meeting such challenges and forpurposes of being able to respond to changing demandsand remaining relevant, continuous assessment, challengeand improvement need to be undertaken by the internalaudit function. A solution recommended by the Institute ofInternal Auditors is to undertake a Quality AssessmentReview (“QAR”).The objective of a QAR is to undertake an assessmentof the function for purposes of ensuring that the:• mission;• people;• processes; and• technology,employed within the function are relevant in meeting everchanging stakeholder expectation. The objectives behindsuch assessments are:I. To ensure that the mission of the internal auditdepartment is aligned with the overall vision andmission of the organisation;II. That people with relevant skills and experience areemployed to undertake engagements and to providevalue add; andIII. That the processes (methodology) and technologyemployed are designed to foster efficiency, effectivenessand economics of the function.With the present demand for greater governance andtransparency, an organisation cannot afford complacencyor deviations from acceptable practices. Having aneffective internal audit function is a fundamentalrequirement of a well run company and more importantlyprovides an independent framework for check and balanceand value in management.This article first appeared in BizDo, issue 18, August 2007, thenewsletter of BDO Binder. Produced with kind permission.Raymond Corray is a Director and Ryan Chong, PrincipalConsultant of BDO Governance Advisory Sdn Bhd.18 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

PEOPLEBY MALKEET KAURAt The HelmThe recent Annual General Meeting of the MICPAwitnessed the election of a new President and Vice-President. YBhg Dato’ Nordin Baharuddin waselected the 28th President while YBhg Dato’Ahmad JohanMohammad Raslan, the Vice-President of the Institute.This is indeed an interesting combination as Dato’Nordin and Dato’ Johan are two extremely remarkableleaders of the accounting profession and with these twostalwart Accountants at the helm, steering the wheel, thenext few years would be an interesting journey for the MICPA.Dato’ Nordin, the former Executive Chairman of Ernst& Young Malaysia from 1999 to 2004 and Dato’ Johan, thecurrent Executive Chairman of PricewaterhouseCoopersMalaysia, between them, possess 60 years work experiencein a vast area of their profession. Both are members of theInstitute of Chartered Accountants in England and Wales(ICAEW) and of course, the MICPA.Shortly after their election to their posts, Dato’ Nordinand Dato’ Johan spared some time from their busy schedulesto have a chat with The Malaysian Accountant and both hadinteresting views and opinions on a variety of topicstouching the Accountancy profession as well as the Institute.www.micpa.com.myJune/August 2007 | The Malaysian Accountant |19

Dato' NordinBaharuddinIt’s after five and Dato’ Nordin Baharuddin is stillhard at work, something he didn’t think he would be doingafter retiring from his prominent position as ExecutiveChairman of Ernst & Young Malaysia in 2004. “I thoughtI would be freer after retiring but now I am busier thanever,” he laughed.The simple, down-to-earth current Chairman of KUBMalaysia Berhad takes his new position and the responsibilityas the President of the MICPA somewhat seriously. “There isa lot of work to be done here,” he said, looking unperturbedwith the challenge. Dato’ Nordin, who was the former Vice-President of the Institute, seemed to have settled into hisnew role quite easily. And he pulled no punches when theconversation turned to the current scandals besetting thebusiness world relating to accounting practices.“Corporate scandals are happening all around theworld, in the U.S., Europe and even here. Crime doesn’t payand neither does the manipulation of accounts,” hestressed. It is important for the profession to redeem itselfin the eyes of the public, worldwide.He says that the MICPA can contribute by discipliningmembers who threaten to put the Institute and the professionin disrepute. He added that it is important for the regulatorsto step in and come down hard on offenders.Having being admitted into the MICPA in 1982, hetalked about the importance of injecting new blood into theInstitute. “We have to inform students and make themaware of what the CPA stands for and that it’s recognisedoverseas. Attracting more students to take up the CPAqualification is one way to ensure a continuous flow ofstudents passing the exams and becoming active membersof the Institute,” said Dato’ Nordin who also believes thatthe future leadership of the Institute should rest in the capablehands of the younger generation who have the motivation,inclination, the time and resource to do an excellent job.He agreed that there is great competition fromoverseas professional qualifications and students are undera misconception these overseas qualifications would givethem more opportunities and a higher standing.“One of our initiatives is to have an agreement withprofessional institutes overseas so that our members canalso be members of these professional institutes. By doingthis we hope that more local students are encouraged to doour examinations and be our members.”He further added, “We are the first and only professionalaccounting body in Malaysia and we would like to keepthat tradition. As the premier accounting body locally, wealso try to give support to the students in the universitiesand encourage them to become members of the Institute.”Dato’ Nordin also touched on the Institute’s otherqualification – the Certified Financial Accountant (CFiA) –which he revealed is suitable for students who are not goinginto active public practice. The qualification, he explained,would be perfect for students looking to get into financerelatedjobs like a manager of finance or maybe even CFO.“This will encourage the university students to take therequired modules so that when they leave university, theyonly need to attend the workshop and be accepted as aCFiA,” he explained.Disagreeing with the misconception that the MICPAexamination is difficult, he was blunt when talking aboutthe unsatisfactory quality of students today. He advisedstudents to be more hard-working and willing to pay theirdues during their training so that extensive workexperience can be gained.“The world,” he said, “would be at your feet and youwill have countless career options.” It would also, he added,give them an additional edge in today’s challenging globalenvironment as the training provided would give them theability to be more analytical, versatile, as well as possessmanagement capabilities.Dato’ Nordin is the first to agree that Accountancy didindeed enrich his life in many ways, and has kept himfirmly anchored on the ground, though at one point in hislife he was interested in taking to the skies as a fighter pilot;an ambition fuelled while studying at the Royal Military20 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

College. However, after completing his Upper Six, heobtained a scholarship and went on to pursue hisaccounting degree in England.Further on the MICPA, he hopes that the future wouldsee a merger between the MICPA and the MIA. “We are asmall country and it would be better to have one body. Alot can be accomplished if we have just one professionalInstitute,” he concluded.Away from the rigours of the job, Dato’ Nordin revelsin his family; two daughters in accountancy and a son whois a fitness consultant/entrepreneur. He plays golf regularlyand also takes time to do some fishing. But his ultimatepassion is to climb greater heights – literally!Dato’ Nordin loves mountaineering and has, locally,conquered the Gunung Tahan and Mount Kinabalu. Hehas also climbed Mount Kilimanjaro in Tanzania, thehighest peak in Africa and hopes to fulfil his ambition oftackling the ultimate challenge – Mount Everest. Like thesong - ‘Ain’t no mountain high enough’- certainly applies toDato’ Nordin for whom no challenge is impossible, be it amountain, his career, or even his latest position in the MICPA.TEN QUICK QUESTIONSTMA: What are your likes and dislikes?NB: I like exercising. I dislike not doing anything and smoking.TMA: What sort of music do you listen to?NB: Light and easy music.TMA: If you could, is there anything you would liketo change in your life?NB: No, I don’t think so.TMA: To you what does it mean to be a Malaysian?NB: I am proud to be a Malaysian because I think we havecaught the attention of the world by fighting for the rightsof the developing nations.TMA: How do you relax?NB: By playing golf and exercising.TMA: What are your favourite food and drink?NB: Food is ‘Nasi Padang’ and drink would be ‘Air Kelapa Muda’.TMA: Any advice to young professionals taking theMalaysian CPA examinations?NB: My advice to them is not to give up easily. It’s a worthwhileventure.TMA: Do you ever see yourself retiring?NB: When I retired from EY in 2004, I thought I would havea quieter life. Now I am busier than ever.TMA: Are you into mobile gadgets?NB: I have a Nokia Communicator. I am waiting for theE900 to be launched.TMA: Complete this sentence. Being a CPA…..NB: Is the qualification for a meaningful life, personallyand professionally.www.micpa.com.myJune/August 2007 | The Malaysian Accountant |21

Dato’ JohanRaslanHis gracious and engaging demeanour immediatelyputs one at ease. An essential quality to have when one isthe Executive Chairman of one of the biggest accountingfirms in the country – PricewaterhouseCoopers Malaysia.Coupled with his natural enthusiasm in his work and hisdynamism, it is not surprising that Dato’ Johan Raslan iswhere he is today – at the top of his profession.It is all these qualities and more that he will bring tohis new position as the Vice-President of the MICPAincluding the youth and vitality needed to take the Instituteto even greater heights.The honour accorded was an unexpected surprise forhim. “The MICPA holds a special position as a body forAccountants in the country, being a home-grown entity.MICPA is special because it is Malaysian and I don’t thinkour profession would be as strong and high quality withoutthe MICPA,” said Dato’ Johan who is also a member of theInstitute of Chartered Accountants in England and Wales.“My role as Vice-President is to give support to Dato’Nordin and to provide some continuity in the role that heplayed before as a VP,” said Dato’ Johan. He is also full ofadmiration and respect for his former counterpart.Dato’ Johan who holds a Bachelor of Science (Hons)degree in Economics and Accountancy from University ofHull, United Kingdom was admitted as a member of theMICPA in 2002 and quickly became a Council Member in2003. His view on increasing the number of students sittingfor the MICPA examinations is an interesting one.“Everyone has a different take on this. I feel thatMICPA should not ever want to be a mass factory churningout the majority of Accountants in Malaysia. Rather, itshould be the Institute of choice for those who wish to bethe elite,” he opined.He further stressed, “In that way, the employer willalways choose an MICPA over other qualifications. I amsure there are things we can do to improve the situationand attract and target the kind of students who have higheraims and abilities.”On the issue of students preferring other professionalqualifications over the MICPA because of widerinternational recognition, he added that MICPA membershave no problems procuring jobs overseas. “Internationally,because of its high standards, the MICPA has managed totranscend those apparent challenges of recognition,” saidDato' Johan.He went on to stress that there are a lot of youngMalaysians these days, who deliberately choosequalifications which are more difficult.“And the reason they do it is because they are farsightedand they know that eventually they are going to becompeting with each other. They are looking for aqualification that sets them apart. They are going to be thefuture leaders and the flag bearers of the profession,” hesaid.Further on the future of the MICPA, Dato’ Johan is ofthe opinion that the Institute must move in tandem withthe evolving world.“To remain relevant in a constantly changing world,a constantly changing country which is part of a constantlyglobalising world, where great things are happening,where climate changes are becoming a major issue, wherethe flows of people are huge, where accounting standardsand other standards are becoming global, it is importantto ensure that we ourselves change,” he highlighted.“If we as an Institute want to continue to do the samethings, we will find ourselves left behind eventually. So wehave to change as well. This is my point of view and I willcontinue to state my point of view to the MICPA,” heemphasised.Dato’ Johan feels that it is time for the MICPA to stepup the pace and play a stronger role, especially inenhancing the image of the profession. He feels that MICPAmembers who are among the premier accountants in thecountry must play a leading role in this endeavour, to takethe lead and demonstrate leadership and integrity overand above the call of duty.22 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

He stressed that the MICPA, as an organisationshould take the lead in putting forth its views on importantissues that involve the profession. “In that way, memberscan see, read and hear what the Institute is saying, take thelead from there and spur to greater heights.”He pointed out that studying to be a CPA and thesubsequent years of training teaches students a lot. “Theexams are difficult but doable. The training exposes you tomany real working issues and companies. I guess thebottom-line is that you get so much exposure. It is like thebest business school in Malaysia,” said the charismaticAccountant who credits his choice of profession to hisrenowned father, Mohammad Raslan Abdullah, one of thethree founding partners of Hanafiah Raslan Mohamad.Aside from his work, family is important to Dato’Johan. “I am incredibly fortunate to have such a lovingand supportive wife and family,” said the 47-year-oldfather, of two daughters and a son.TEN QUICK QUESTIONSTMA: What are your likes and dislikes?DJR: I really like working in KL. I love it, it’s marvellousand a varied place to work. Dislikes, I can’t think of any.TMA: What sort of music do you listen to?DJR: Very varied. I don’t normally buy CDs. I listen to theradio when driving and I have pre-programmed Light FM,Mix FM, Hitz FM, some Malay stations, one Indian and twoChinese stations. I kind off flip them around.TMA: If you could, is there anything you would liketo change in your life?DJR: I can’t think of anything. Okay, there is one thing. Ithink my father would have loved to see Malaysia progressto this stage.TMA: To you what does it mean to be a Malaysian?DJR: We are not a huge country so one person can makea difference in Malaysia. We are a very agile sort of countryand are so diverse; that’s our strength. Certainly inbusiness, we argue, discuss and challenge one another andwe come up with better answers than if we are all of thesame persuasion. Diversity makes us stronger.TMA: How do you relax?DJR: My family is my relaxation.TMA: What are your favourite food and drink?DJR: Banana leaf rice and 'Nasi Kandar' and I love verygood coffee.TMA: Any advice to young professionals taking theMalaysian CPA examinations?DJR: It’s worth it.TMA: Do you ever see yourself retiring?DJR: Absolutely yes.TMA: Are you into mobile gadgets?DJR: I am into my mobile phone and my Blackberry butthat’s it. I am not a technie person. But I am hooked onthese two.TMA: Complete this sentence. Being a CPA…..DJR: Will set you and your family up for life.www.micpa.com.myJune/August 2007 | The Malaysian Accountant |23

INSTITUTE NEWSYB Dato’ Dr Ng Yen Yen, Deputy Minister Finance Idelivering her speech at the dinnerThe Deputy Minister being escorted into the ballroom byout-going President Dato’ Abdul Halim Mohyiddin andin-coming President Dato’ Nordin BaharuddinDato’ Abdul Halim Mohyiddin and Dato’ Nordinmingling with guestsIt was that time of the year again for members toget together at the Institute’s Annual Dinner.The Annual Dinner is the most significant eventin the Institute’s calendar as it marks the close ofyet another year of activities and the beginning of a newone. It serves as an opportunity for fellowship amongmembers of the accountancy profession as well as forfostering closer links between the profession, thebusiness community and Government.The function, held on June 22, 2007 at SapphireBallroom, Mandarin Oriental Kuala Lumpur, wasgraced by YB Dato’ Dr Ng Yen Yen, Deputy Ministerof Finance I and attended by close to 500 members andinvited guests. Distinguished guests included YBhgDatuk Yusli Mohd Yusof, CEO of Bursa MalaysiaBerhad, YBhg Datuk Rafiah bt Salim, Deputy ViceChancellor of Universiti Malaya, YBhg Dato’ AhmadJohan Mohammad Raslan, Chairman of FinancialReporting Foundation, Presidents of several professional24 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

Long Service awards were presented toMs Khong Siew Ling, Cik Hariah Ismailand Cik Salmiah Aliyas by Dato’ AbdulHalim MohyiddinImmediate Past PresidentDato’ Abdul Halim Mohyiddindelivering his speechCouncil members at the dinnerbodies and Deans of Universities. Also present were PastPresidents of the Institute.The Dinner was also the occasion for the presentationof Anugerah Presiden 2007 to a member of the Institute whohas made exceptional contributions to society, the accountancyprofession and the Institute. The recipient was YM Raja DatukArshad Raja Tun Uda.The most important asset of an organisation is itspeople. Long Service Awards were presented to three Secretariatstaff of the Institute, in recognition of their loyalty, diligenceand dedicated service. The recipients were Ms Khong SiewLing, who commenced employment with MICPA in 1996and is currently the Accounts Assistant of MICPA. Thesecond recipient was Cik Salmiah Aliyas whocommenced employment with MICPA in 1997 and is theTraining Assistant in the Education & Training Department.The third recipient was Cik Hariah Ismail who also commencedemployment with the MICPA in 1997 and is the AdministrativeAssistant in the Examination Department.Aside from the awards ceremony, guests were treated toa superb performance by the sensational Donna Daniels, aworld class show host, professional singer and comedienne.Donna entertained the guests with a repertoire of songs andalso had the crowd in stitches with her antics and jokes. MrJonathan Sia of Deloitte Sports Club also rendered two FrankSinatra classics, one being a parody he wrote to the tune ofSinatra’s version of the classic anthem, New York, New York.The other was an old Sinatra favourite, Strangers in the Night.All in all, it was a pleasant and enjoyable evening.It was a time for fellowship and good foodGreat entertainment by Donna Daniels and her entouragewww.micpa.com.myJune/August 2007 | The Malaysian Accountant |25

INSTITUTE NEWSRECIPIENT OF ANUGERAH PRESIDEN 2007YM Raja DatukArshad Raja Tun UdaYM Raja Datuk Arshad Raja Tun Uda was bornon December 2, 1946. He is married to YMTengku Datin Yusni Tengku Mohd Yusof (thegirl next door during his Penang days) andthey are blessed with 4 children. He is a member of theSelangor Royal Family and in 2005 he was made a palaceofficial with the title “Engku Setia Lela Bestari”.His success in life can perhaps be attributed to thediscipline and wisdom imparted to him by his father, whowas a strict disciplinarian. His father had wanted a doctorin the family but Raja Datuk Arshad was attracted toaccountancy by the sight of articled students smartlydressed in three piece suits. He then worked on convincinghis father that perhaps accountancy and not medicine wasthe choice of a profession for him.He has had no regrets about his change of mind andhas built a distinguished career spanning a period of 30years, both in the United Kingdom and in Malaysia. Hehas accumulated extensive and broad experience inauditing, taxation, corporate finance and other relatedwork covering a range of clients in the manufacturing,financial services, utilities and government sectors.Raja Datuk Arshad qualified as a CharteredAccountant in 1971 and joined Price Waterhouse in 1972.In 1974, he was asked to manage the Melaka office of PriceWaterhouse and returned to Kuala Lumpur in 1976. Hewas admitted as a partner of the firm in 1978, where heheld various positions, including being partner in chargeof an audit group and staff partner of the firm. InSeptember 1985, Raja Datuk Arshad attended theAdvanced Management Program at the Harvard BusinessSchool in Boston and became Senior Partner on his returnto Malaysia in January 1986. In a re-organisation of thefirm in January 1990, he was elected Executive Chairmanand held the position until his retirement in June 2005.Raja Datuk Arshad was admitted as a member ofMICPA in 1972. He was elected to the MICPA Council in1980 and served for 24 years until his retirement from theCouncil in 2004. During this time he served as a memberof the Examination, Membership Affairs, Investigation andExecutive Committees of the Institute and as Chairman ofthe Government Affairs Committee. He was elected the20th President of the Institute for three terms, from 1992 to1994 and during his tenure as President, the Instituteachieved several milestones. In November 1992, the first26 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

Acceptance Speech byYM RAJA DATUKARSHAD RAJA TUNUDARaja Arshad accepting Anugerah Presiden from YB Dato’ DrNg Yen Yen, Deputy Minister of Finance I. Looking on is Dato’Abdul Halim MohyiddinMACPA Insolvency Guidance Note, IG 1 – MinimumStandards of Practice by Insolvency Practitioners wasissued, the inaugural Excellence Awards for BestAccounting Graduates were presented and the Corporatevideo, The World of a CPA was launched by the Minister ofEducation, YB Datuk Dr Sulaiman Hj Daud.Over the years, Raja Datuk Arshad has held a numberof public appointments and is currently a Member of theBoard of Directors of Khazanah National Berhad, Memberof the Malaysian Communications and MultimediaCommission (MCMC), having been appointed by theMinister of Energy, Communications and Multimedia,Malaysia. He is also a Member of the Tax Review Panel,established by the Ministry of Finance to review the varioustax legislations and to formulate the concept, legislation,process and procedures for the GST and a Member of theCapital Market Advisory Council (CMAC) established bythe Securities Commission to oversee the implementationof the 10 year Capital Market Master Plan.His international roles include being a member of theStandards Advisory Council of the InternationalAccounting Standards Board (IASB), the body responsiblefor setting international accounting standards and amember of the PwC Global IFRS Board.Apart from his active involvement in the profession,Raja Datuk Arshad is also involved in charity being theChairman of Yayasan Raja Muda Selangor. He is also anAdjunct Professor at Universiti Utara Malaysia and was amember of the Board of Trustees of the National Art Galleryfrom 1985 to 2003.Raja Datuk Arshad was conferred Panglima JasaNegara by His Majesty Yang di-Pertuan Agong and alsowas conferred the Darjah Sultan Salahuddin Abdul AzizShah (DSSA) by the Sultan of Selangor. The conferment ofthese honours speaks well of his outstanding public servicecontribution to the nation and the state.I would like to thank the MICPA, in particular to thankyou, Mr President and your colleagues on the Council forthe privilege and honour of this award and for your kindwords.In listening to your remarks, I sometimes haddifficulty in realising that some of the references were tome. In making it sound so good, Mr President Sir, youhave portrayed me with all my warts removed and myrough edges smoothed over. And the first thing I shalldo after tonight’s dinner is to pray to God to forgive mefor enjoying every minute of it.Of course some may say that I have been given thisaward because the Council members of MICPA are allmy friends. I cannot deny that they are all indeed myfriends. But I would like to stress that the most preciousthing in this world for anyone, is the esteem of one’sfriends and for that I am truly thankful.Someone once defined a ‘derivative’ as “an instrumentthat derives value from its underlying assets”. Well,Ladies and Gentlemen, I am a living example of aderivative for whatever valuable contribution I havemade has not been without the help of many talented,knowledgeable and experienced people working for meand with me. Any of my successes and achievementsthat have led to this award – I owe to so many people –from my parents, particularly my late father for the strictupbringing and not only for instilling but alsodemonstrating to me what integrity is all about, to myteachers in school, to my former bosses and mentor, tomy colleagues and friends at work and in the professionand to all of these people from my parents, teachers,mentors, colleagues, friends and family – I would like tosay a big thank you and tell them that I am acceptingthis award tonight on behalf of all of us.Ours is a much respected profession and we mustensure that it will continue to be a much respectedprofession. I have always said that the profession is thebest training ground for any field that one chooses toventure into eventually. And the fact that many of ourmembers are in leadership positions, on the managementand board of corporations spanning a wide range ofindustries, and in other organisations both in the publicand private sectors bears testimony to these statements.But then with these positions come heavy responsibilityand accountability.Over the years, a number of corporate failures havewww.micpa.com.myJune/August 2007 | The Malaysian Accountant |27

dented the image of the profession. Not so long ago, thefinancial scandals at Enron, World Com etc have notonly tarnished the profession’s reputation but alsoprovoked a rash of knee jerk reactions by the authoritiesparticularly in the USA that have led to a more restrictedworking environment. As a result, the profession hasfound it more difficult to recruit the best and thebrightest. More recently, a spate of adverse publicity onthe integrity of the published financial information ofsome domestic corporations cannot but further erodethe public confidence and trust in the profession and itsmembers. For after all our members are everywhere –from the custodian of finance to preparers of financialinformation, to those in governance positions – on theboards and audit committees, as well as those vettingthe financial information as auditors.It is therefore imperative that each and everyone ofus as individual members of the profession as well asthose governing bodies of the professions do whatever isnecessary to bring back public confidence and trust tothe profession.Firstly – as individuals we should not only possessbut be seen to possess the highest level of integrity. Wemust also be seen to exercise the highest level ofgovernance and ethical standards. We must not succumbto temptation, or be persuaded, coerced or threatened todo something that will bring disrepute to ourselves andthe profession.It is not good enough to fulfill all these conditionsand say I have done my part. We should try to preventother members of our profession tarnishing their ownand the professions’ reputation by helping to persuadeor cajole those whom we believe may be treading downthe wrong path. And if our persuasive powers do notwork, if we truly love our profession, we should lodge acomplaint with the governing body or report to theRaja Arshad with family and friendsRaja Arshad delivering his acceptance speechrelevant authorities if we find a member of our professionhas done something to bring disrepute to our profession.And members of our profession who sit on thegoverning council of corporations and other organisationsand who are in a position to investigate and mete outpunishment must not shirk in their responsibility byensuring that the guilty ones are appropriately punished.A father was once overheard to have remarked “Theworst thing that can happen to a youngster startingschool is to be caught cheating!”.“Not at all” replied a clergyman. “The worst thingthat can happen at the start of a persons’ life is to cheatand NOT GET CAUGHT”.Secondly, the governing bodies of our professionmust continue to instill the highest level of integrity,governance and ethical standards to those aspiring to bemembers of our profession. They must also, not onlyensure that the professions’ rules and regulations arerelevant and current but they must also be seen to beenforcing these rules. The public must know thatappropriate action have been taken against errantmembers. Only then we can regain their confidence andtheir trust.If we truly love the profession, it is incumbent uponeach and everyone of us to help restore the publicconfidence and trust in our profession.Mr President Sir, Thank you once again forhonouring me with the Anugerah Presiden 2007.Tonight – this award, your kind words and the spirit ofthe presentations are all so meaningful that they willalways have a special place in my memories.Thank You.28 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

INSTITUTE NEWS49th MICPAAnnual General MeetingYBhg Dato’ Abdul Halim Mohyiddin happy to hand over the President post to YBhg Dato’ Nordin BaharuddinThe Institute’s 49th Annual General Meetingcalled to order by the President, YBhg Dato’ AbdulHalim Mohyiddin, at 10:00 a.m. on June 23,2007 proceeded smoothly. At the commencementof the meeting, the President commented on the Institute’sfinancial position and provided a brief on major activitiesduring the past year.The President stated that the Institute’s financialposition improved in 2006 and experienced a surpluscompared to a deficit in 2005. Total income increased by7%, which was due to the increase in income from memberand student sources resulting from the revised rates ofannual subscriptions and fees. Total income from otheractivities including CPD, examination workshops and saleof publications had remained approximately the same asthat of the previous year. He added that the Institute wasable to rebuild its reserves due to a revision of the feespayable by members and students, which took effect fromthe financial year 2006. The Council will continue toundertake fund-raising activities to increase the Institute’sfinancial resources in order to enable the Institute to investin the key initiatives set out in the Strategic Plan.The President stressed that education and trainingare the Institute’s core functions and has set, communicatingthe value of the CPA Malaysia qualification, as one of itskey strategies. In this regard, the enhancement andpromotion of the CPA Malaysia qualification has beenhigh on the Institute’s agenda and gathered momentum.With the guidance and professional advice of a brandconsultant, one of the most obvious outputs has been theInstitute’s branding exercise, which is anchored by the overallbrand theme - Success, Achievement and Accomplishmentthat underlies the value of membership to MICPA.He added that the Institute has focused on improvingour marketing strengths with the formation of a newMarketing Department in order to be more customerorientatedand to raise the profile of the Institute to variousstakeholders. The development and delivery of new andexciting outreach activities have been planned to promoteand attract new entrants to the CPA Malaysia programmein line with our overall brand theme.The President informed members that the Secretariatresponded positively to the call from members at last years’Annual General Meeting for a more coordinated approachin our communications process and to be more visible andproactive. Considerable emphasis has been given toimproving the framework for communication between theInstitute and members. To create awareness on theInstitute’s activities, we have contributed regular articles toother professional bodies’ Journals and have produced theCPA e-Newsline, a monthly electronic newsletter designedto provide members, students and the public with quickwww.micpa.com.myJune/August 2007 | The Malaysian Accountant |29

updates on recent developments at the Institute and in thebusiness environment. It is inspiring to note that we havereceived positive feedback from members on theseinitiatives.The President stressed that the Council is consciousthat in the light of an increasingly international andcompetitive marketplace, there is an urgent need to buildCPA Malaysia as a global brand that is equivalent to theChartered Accountants and Certified Public Accountantsdesignations of the more established accounting bodies inthe world. The Institute continued to take proactive stepstowards seeking mutual recognition arrangements withthese professional bodies. The President reported that theAssociation of Chartered Certified Accountants (ACCA) hascompleted an independent review of the CPA Malaysiaqualification. MICPA and ACCA have finalised in workingout a Mutual Recognition Agreement (MRA) to set out theterms and basis upon which recognition for membership ofqualified members of each body may occur. Under theMRA, members of MICPA will be eligible to be admitted toACCA membership either:• on achieving 5 years’ relevant post qualificationprofessional experience and satisfactorily completingeither the ACCA online Professional Ethics Module(which is non-examination based) or the ACCACritical Incident Questionnaire; or• Passing ACCA’s Paper P1, The Professional Accountant.The MRA will be signed in a few weeks. The success ofthe endeavour should provide an opportunity for youngMalaysian CPAs to attain an internationally recognisedqualification and will further increase the career mobilityof Malaysian accountants across borders and enhance theopportunities of exporting professional services.The President informed members that the Instituteregistered a total of 147 new students comprisingpredominantly graduates with accounting degrees. Ascompared to previous year, there had been a significantThe AGM session in progressA member seeking clarificationdecline in new student intake of 51% due to increasecompetition from foreign accountancy bodies. After takinginto account, students who were excluded from the registerof students for non-payment of annual fees, students whoterminated their registration and students who wereadmitted as members or provisional members, a netdecrease of 8% in student population was recordedcompared to 2005. Presently, the Institute has a totalnumber of 759 registered students.At the Extraordinary General Meeting held last year,members had passed the resolution to pave the way for theadmission of a new class of members who shall be entitledto use the designation Certified Financial Accountant(CFiA). The Institute will promote the CFiA qualification tograduates undertaking the Bachelor of Accountancy degreewith the aim to expand and strengthen our membershipbase. The Education and Training Committee is in theprocess of finalising the syllabus and study materials forthe CFiA Professional Competence Programme before theprogramme is officially launched in August 2007.The Institute had undertaken a review of theAdvanced Stage Examination (ASE). The ASE has beenrestructured into four modules from the earlier threemodules. Module D, which covers accounting, financialreporting and auditing has been split into two separatemodules as the syllabus has become increasinglychallenging resulting from the changes in internationalaccounting and auditing standards. The new Module Dfocuses on advanced topics in accounting and financialreporting whilst the new Module E focuses on competence30 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

equirements for audit professionals, covering theadvanced aspects and issues relating to auditing and otherassurance engagements, the legal and professionalenvironment, and assessment and advice on corporategovernance and business controls. The new examinationstructure took effect from the November 2006 examination.The Institute continued to deliver ContinuingProfessional Development Programmes throughout theyear to help members keep abreast of current developmentsand to build on their knowledge, skills and experience. TheCouncil has also approved the issuance of the Statement onContinuing Professional Development that prescribes theContinuing Professional Development (CPD) requirementswith which members should comply for CPD reportingperiods beginning on or after January 1, 2007.The President highlighted that the profession’s successrests on its reputation for integrity, competence andobjectivity. The Institute requires that members adhere tothe Code of Professional Conduct and Ethics to ensure thatmembers uphold these professional values in all their work.The Institute has revamped the Code to be in line with therevised Code of Ethics for Professional Accountants recentlyissued by IFAC. The revised Code emphasises that auditorsneed to be constantly vigilant to identify threats toindependence and apply appropriate safeguards toeliminate such threats. The Code also provides in-depthguidance for members in business. The revised Code hasbeen approved by the Council, which will soon be issued asan exposure draft for consultation.In recognition of the increasingly global nature of theaccountancy profession, the Institute seeks opportunities toparticipate and contribute to the international accountingorganisations. The Institute’s involvement is focused onareas that are most relevant to the Malaysian environment.The Institute participates actively in the work of IFAC.Currently, two of our Council members are serving on theIFAC Board. We also maintain an active involvement in theCouncil member putting forth his viewsInternational Auditing and Assurance Standards Board(IAASB) of IFAC.In the area of international co-operation, the Institutecertainly welcomes the exchange of information betweenfellow accountancy bodies to strengthen professionalrelationship and understanding of the currentdevelopments in the accountancy profession and businessenvironment in the various countries. A delegation visitfrom the Institute of Cost & Works Accountants of Indiawas made to the Institute during the year, which certainlyserved to strengthen the friendship between the twoaccountancy bodies and open up further opportunities forclose co-operation on professional activities where theremay be mutual benefit for members.In conclusion, the president thanked all memberswho have contributed their time, energy and expertise tothe Institute’s work. He also expressed his gratitude to theCouncil members for the full support and cooperationrendered to him during his tenure as President for the past3 terms. He also called on the younger members toparticipate actively in the Institute’s activities.A group of attentive members at the AGMwww.micpa.com.myJune/August 2007 | The Malaysian Accountant |31

INSTITUTE NEWSExtraordinaryGeneral MeetingAn extraordinary general meeting of the Institutewas held immediately after the AGM toconsider, and if thought fit, pass the resolutionsto the proposed fee payable on admission as aCertified Financial Accountant (CFiA) member and annualsubscription payable by each CFiA member.The Proposed Subscriptions and FeesThe Certified Financial Accountants (CFiA) qualification isintended as an alternative professional qualification forpersons who wish to build a career in commerce, industryor the public sector. Those who wish to engage in publicpractice will be encouraged to pursue the Certified PublicAccountants (CPA) qualification.The CFiA qualification is targeted mainly atgraduates of the Bachelor of Accountancy degree by assistingthese graduates to achieve a professional qualification thatmeets the requirements of the International EducationStandards for Professional Accountants. It is crucial that inthe face of increasing globalisation and cross-border tradein professional services, the qualification of Malaysianprofessional accountants meet the global benchmarks setby the International Federation of Accountants (IFAC).The Council believes that one of the key challengesfacing the Institute is its ability to ensure continuedmembership growth and strongly feels that theintroduction of the CFiA qualification will help to expandand strengthen the Institute’s membership base.Apart from providing a range of core services for thebenefit of members and students, the Council hasundertaken a number of initiatives to enhance the valueand recognition of the CPA and CFiA qualifications. Themajor initiatives are:• The Institute will continue to embark on a moreaggressive marketing strategy to position the CPA &CFiA as the designated choice. New marketingcollaterals including publicity leaflets, corporatebrochure, posters and display panels have beenproduced for use in career fairs and exhibitions.• The Institute continued in its effort to seek mutualrecognition of the CPA qualification with overseasprofessional accountancy bodies. This initiative willfurther enhance the career mobility of MalaysianCPAs across borders and enhance opportunities ofexporting professional services.• The Institute will need to invest in the development ofthe CFiA Professional Competency Programme. Newsyllabus, assessment process and study materials willbe developed for the programme.The above initiatives involve substantial costs. Inorder to meet these costs, the Council has proposed theannual subscriptions and fees payable by CFiA members,which were tabled for members’ consideration at this meeting.ResolutionsPassing of resolutionsThe resolutions proposed by the Council were passedby members.32 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

The MICPA Council - 2007/2008Dato' Nordin Baharuddin (President)Dato' Ahmad Johan Mohammad Raslan(Vice-President)Dato' Abdul Halim Mohyiddin(Immediate Past President)Abdul Halim Md LassimAbdul Jabbar Abdul MajidAhmad Mustapha GhazaliBeh Tok KoayDatin Hajjah Fadzilah bt SaadGoh Lee Hwa (Miss)Peter Lim Thiam KeeLee Tuck HengLim Tian HuatLoh Lay Choon (Miss)Dato' Hj Maidin Syed AliMohamed Raslan Abdul RahmanNg Kim TuckKen PushpanathanNg Mi Li (Miss)Poon Yew HoeSee Huey BengSeow Yoo LinSam Soh Siong HoonSukanta K DuttTan Chin HockTan Ghee KiatDr Veerinderjeet SinghVenkatramanan ViswanathanDato' Yeo HowRobert Tan Bun PoeDatuk Robert Yong Kuen LokeChairman of Committees - 2007/2008ExecutiveAccounting & Auditing Technical CommitteeDato' Nordin BaharuddinSukanta DuttAlt Chairman: Ng Kim TuckAdministrative & Financial AffairsCommerce & IndustryDisciplinaryDato' Ahmad Johan Mohammad RaslanDato' Yeo HowAhmad Mustapha GhazaliAlt Chairman: Abdul Jabbar Abdul MajidEducation & TrainingExaminationDato' Abdul Halim MohyiddinAbdul Jabbar Abdul MajidAlt Chairman: Beh Tok KoayFinancial Statements ReviewGovernment AffairsInsolvency PracticeInvestigationKen PushpanathanDato' Ahmad Johan bin Mohammad RaslanLim Tian HuatSee Huey BengAlt Chairman: Datin Hj Fadzilah SaadMembership AffairsPublic AffairsPublic Practice CommitteeTax Practice CommitteeTan Ghee KiatDatuk Robert Yong Kuen LokeSam Soh Siong HoonBeh Tok Koaywww.micpa.com.myJune/August 2007 | The Malaysian Accountant |33

INSTITUTE NEWSAcknowledgementsThe Malaysian Institute of Certified Public Accountants wishes to express its heartfelt thanksto the following organisations and firms for supporting the Institute’s 49th Annual Dinner.Diamond SupportersAM Investment Bank GroupErnst & YoungInter-Pacific Securities Sdn BhdKPMGKUB Malaysia BerhadRCE Capital BerhadUEM World BerhadGold SupportersDKC Tax Services Sdn BhdErnst & YoungHLB Ler LumIOI Corporation BhdPricewaterhouseCoopersDeloitte KassimChanSilver SupportersAzman, Wong, Salleh & CoBDO BinderBerjaya Land BerhadBerjaya Sports TotoBursa Malaysia BerhadCIMB BankDRB-HICOM BerhadFolks DFKHeitech Padu BhdHorwath – KL OfficePetronasProjek Lebuhraya Utara Selatan (PLUS) BhdPublic Bank BerhadRussell Bedford LC & CoSime Darby BerhadTelekom Malaysia BerhadSupportersMonica Wong Mee Mee (Ms)Ng Lee & PartnersNg Mi Li (Ms)SC Tong & CoMEMBERSHIP UPDATEMICPA WELCOMES NEW MEMBERSADMISSION TO MEMBERSHIP IN JUNE 20071. Chan Su Lin (Ms)2. Fong Yee Yee (Ms)3. Heap Wei Guan4. Lee Yang Seng5. Nurlina bte Mohd Yusai (Cik)6. Suzana bte Mokhtar (Cik)ADMISSION AS PROVISIONAL MEMBER IN JUNE 20071. Chan Chooi Han (Ms)2. Chong Lee Chuin (Ms)3. Tong Sheau Shan (Ms)CESSATION OF PRACTICE1. Choo Choon Beng wef April 2007 at Choo & AssociatesCOMMENCEMENT OF PRACTICE1. Chan Hooi Lam wef June 2007 at Ernst & Young2. Chin Shoon Chong wef June 2007 at KPMG3. Kwong Hoi Meng wef April 2007 at Leslie Yap & Co4. Lee Kok Wai wef June 2007 at Horwath - KL Office5. Phuah Lai Hock wef April 2007 at DeloitteKassimChan6. Thayaparan A/L S.Sangarapillai wef April 2007 atPricewaterhouseCoopersThe following members have been excluded from the register of members for non-payment of annual subscription/practising certificate fee:NameMembership No1. Ismail b. Hj Kamat Haji 7322. Tan Boh Seng 17113. Tan Mei Ping, Wendy 351734 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

MAY 2007 EXAMINATION RESULTSCPA STUDENTSPerformance in Individual SubjectsPARTSUBJECTPASSEDFAILED%%Professional StageModule AExaminationFinancial Accounting & Taxation100.00.0Module BFinancial Reporting100.00.0Auditing & Assurance100.00.0Business Finance & Management100.00.0Advanced StageModule CExaminationAdvanced Taxation75.924.1Module DAdvanced Financial Reporting33.366.7Module EAdvanced Auditing & Assurance87.512.5Module FAdvanced Business Management87.512.5& Integrative Case StudyWinners of Subject PrizesAdvanced Taxation KHOR SEW LIN, SERENE (Miss) (2057)(Shamsir Jasani Grant Thornton Gold Medal)Advanced Auditing & Assurance TAN HOE POO (2185)(Ernst & Young Gold Medal)Advanced Business Management and CHEW LAY YEN (Miss) (2026)Integrative Case Study(Tan Sri Dato’ Jaffar bin Hussein Gold Medal)www.micpa.com.myJune/August 2007 | The Malaysian Accountant |35

INSTITUTE NEWSNOVEMBER 2007 EXAMINATIONTIME TABLEProfessional Stage ExaminationDATE MORNING AFTERNOON(9:00 a.m. – 12:00 noon) (2:00 p.m. – 5:00 p.m.)Monday (November 26) Financial Accounting and Taxation Financial ReportingTuesday (November 27) Business and Company Law Auditing and AssuranceWednesday (November 28) Management Information and Control Business Finance & ManagementAdvanced Stage ExaminationDATE TIME EXAMINATION PAPERMonday (November 26) 9:00 a.m. – 12:00 noon Advanced TaxationTuesday (November 27) 9:00 a.m. – 12:30 p.m. Advanced Financial ReportingWednesday (November 28) 9:00 a.m. – 12:30 p.m. Advanced Auditing & AssuranceThursday (November 29)Advanced Business Management& Integrative Case Study9:30 a.m. – 11:30 a.m. Part A - Integrative Case Study[8:45 a.m. – 9:30 a.m. (Reading Time)]12:30 p.m. – 2:30 p.m. Part B - Advanced BusinessManagementAdmitting ExaminationBye-Law 34(1)(f) [formerly bye-law 33(d)] Examination CandidatesDATE TIME EXAMINATION PAPERMonday (November 26) 9:00 a.m. – 12:00 noon Malaysian TaxationTuesday (November 27) 9:00 a.m. – 12:00 noon Regulatory & Financial ReportingFramework of Malaysia36 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

MAY 2007 EXAMINATION RESULTSCPA STUDENTSList of Successful CandidatesThe President and Council of The Malaysian Institute of Certified Public Accountantscongratulate successful candidates in the May 2007 Examination.The following candidates passed Module C to thesatisfaction of the Examination Committee:CANDIDATEAHLAM NABIHAH BINTI MOHD SAFIE (CIK)ANIS NADIA BINTI CHE MUSTAFAR (CIK)AZRIE HAFIZ BIN AZMICHONG SEET FEICHOOI FOONG HAR (MISS)EMIEZA BINTI ZAKARIA (CIK)GOH CHEE YONGJEGANMOGAN S/O KUPPUSAMYKHOR SEW LIN, SERENE (MISS)LAUN WAI TING (MISS)MINHA JULABIDIN BIN ISMAILMOHAMMAD RAZMAN B AHAMADMOHD FAIZAL BIN MAT NAYANMOHD IZAM BIN MISPARDIMOHD NAZRIN BIN MD HANIFNUR AMALIA BINTI RAMALI (CIK)NURSHAHRINI BINTI SHARKAWI (CIK)ONG YUN LING (MISS)SIAH WEE SEE (CIK)TAN BEE HWA (MISS)WAN NURSYARIDAH BINTI WAN JAAFAR (CIK)YAP Y'NG SZE, MELONY (MISS)CANDIDATEANG PHOOI LENG (MISS)CH'NG BEE PENGCHE WAN INTAN MAISARAH BT JAMALUDDINELHAM BINTI MOHD NAZER (CIK)INTAN IZANI BINTI IDRIS (CIK)LEE HOOI KUN (MISS)LEE YIH HONGLIEW SUI FUN (MISS)MOHD RUSDI BIN ABDUL MANABNIK HASLINA BINTI NIK MAN (CIK)NISHA NOR BINTI NOOR HASAN (CIK)NOOR FARAHUDA BINTI MOHD ROBANI (CIK)NORAIHAN BINTI MOHID (CIK)NORHAIDA BINTI YAHAYA (CIK)NORHANI AZURA BINTI MOHD ZAMRI (CIK)NORSUZIYANA BINTI KUTERI (CIK)PHANG SOON YEOWSITI FAIZAH BINTI JAMALUDDINSUZIELA BINTI ABU YAMIN (CIK)PRINCIPAL/STREAMShirley Goh/Stream ITeoh Soo Hock/Stream ILim Hun Soon, David/Stream ILee Tuck Heng/Stream IKhaw Hock Hoe, Alex/Stream INg Kim Lian/Stream ISiew Chin Kiang/Stream ILee Tuck Heng/Stream IGeorge Koshy/Stream IJohan Idris/Stream ISeow Yoo Lin/Stream IAbdullah Abu Samah/Stream IGoh Ewe Gim, Gloria/Stream ISiew Chin Kiang/Stream ITeoh Soo Hock/Stream IGoh Ewe Gim, Gloria/Stream ILee Yoke Khai, Gary/Stream IGeorge Koshy/Stream ITeoh Soo Hock/Stream IChan Kam Chiew/Stream IChoong Mei Ling/Stream IJohan Idris/Stream IThe following candidates passed Module D to thesatisfaction of the Examination Committee:PRINCIPAL/STREAMTan Soo Yan/Stream ILee Yoke Khai, Gary/Stream ISeow Yoo Lin/Stream IStream II (S)Stream II (S)Stream IILee Yoke Khai, Gary/Stream IShirley Goh/Stream ILim Saw Keng/Stream IStream II (S)Stream II (S)Stream II (S)Stream II (S)Stream II (S)Ho Yuet Mee/Stream IStream II (S)Shirley Goh/Stream IStream II (S)Stream II (S)TAN LAY CHENG (MISS)Goh Ewe Gim, Gloria/Stream ITAN SZE MEI (MISS)Ooi Lip Aun, Eric/Stream ITEH JU CHING (MISS)Datuk Tan Kim Leong/Stream IWAN ABDUL WAHID B WAN LOKMAN Abdullah Abu Samah/Stream IYEAP KOH SIN (MISS)Lee Tuck Heng/Stream IZAHRATUL NADWA BINTI DAWA @ DEWA (CIK) Hew Lee Lam Sang/Stream IZEID BIN ABDUL RAZAKYap Seng Chong/Stream IThe following candidates passed Module E to thesatisfaction of the Examination Committee:CANDIDATEPRINCIPAL/STREAMAZLYNN ARDILLABT AZIZ AL-RAHIM (CIK)Nik Rahmat Kamarulzaman/Stream ICHAN JUI CHINN (MISS)Lim Saw Keng/Stream ICHONG LI LIAN, KIMBERLY (MS)Lee Yoke Khai, Gary/Stream ICHONG WEI YEE (MISS)Choong Mei Ling/Stream IENDRAN BIN FADZILOoi Lip Aun, Eric/Stream IENG YING HUI (MISS)Lee Yoke Khai, Gary/Stream IFAM MENG FEN (MISS)George Koshy/Stream IFAZURA NUR BINTI JAAFAR (CIK) Sivadasan s/o Narayana Nair/Stream IFOO AII CHUAN (MISS)Tan Soo Yan/Stream IKOO KHAI PINGLim Foo Chew/Stream ILEE LIAN SIM (MISS)Shirley Goh/Stream ILEE YEH YONG (MISS)Datuk Tan Kim Leong/Stream ILEONG LAI PENG (MISS)Ho Yuet Mee/Stream ILIM CHUN HENGFoong Mun Kong/Stream ILIM SIN YEE @ GRACE LIMOoi Lip Aun, Eric/Stream ILIM WEI KUAN (MISS)Ooi Lip Aun, Eric/Stream ILOH WAI LI, LAUREEN (MISS)Shirley Goh/Stream ILYE KAR YEE (MISS)Datuk Tan Kim Leong/Stream IMOHD NAWAR BIN HASHIMHew Lee Lam Sang/Stream IMOHD NAZREEN FUZIB MOHD NAZZARUDDINOong Kee Leong, Stephen/Stream ING HENG CHEE (MISS)Uthaya Kumar a/l Vivekananda/Stream ING WAI SANLim Saw Keng/Stream INIK AZAH KARIMAH BINTI NIK MUSTAFA (CIK) Shirley Goh/Stream INOR NADIAH BINTI MOHD ANUAR (CIK)Yeo Eng Seng/Stream ISALINA BTE SAID (CIK)Ng Eng Kiat/Stream ISOON POH LEE (MISS)Datuk Tan Kim Leong/Stream ITAN GIM HOOShirley Goh/Stream ITAN HOE POOLee Yoke Khai, Gary/Stream ITAN RUEN YING (MISS)Goh Ewe Gim, Gloria/Stream ITAN SU LIN (MISS)Tan Soo Yan/Stream ITEE TECK LIAN (MISS)Datuk Tan Kim Leong/Stream ITIOW WEI SHENGStream IIYAP CHEANG YAMTan Soo Yan/Stream IYAP WEE THEN (MISS)Datuk Tan Kim Leong/Stream IYONG YVONNE (MISS)Lee Tuck Heng/Stream Iwww.micpa.com.myJune/August 2007 | The Malaysian Accountant |37

The following candidates passed Module F to thesatisfaction of the Examination Committee:CANDIDATEPRINCIPAL/STREAMCHEA SEE KHEE (MISS)Datuk Tan Kim Leong/Stream ICHEONG AI LING (MISS)Lee Tuck Heng/Stream ICHEW LAY YEN (MISS)Lee Tuck Heng/Stream ICHONG MOY LAN (MISS)Poon Yew Hoe/Stream IHARLINA BINTI MANSOR (CIK) Nik Rahmat Kamarulzaman/Stream ILEE SIOK KUEN (MISS)Choong Mei Ling/Stream ILEE SOO YINN (MISS)Tan Soo Yan/Stream ILIM CHEN HWEE (MISS)Datuk Tan Kim Leong/Stream ILIM CHU GUANOoi Lip Aun, Eric/Stream ILOUISA HANIM BINTI AMIR (CIK)Shirley Goh/Stream ILUI LEE PING (MISS)Datuk Narendra Kumar Jasani/Stream IMOHAMAD JAMALI BIN HARONSeow Yoo Lin/Stream IMOHD FAIZAL BIN MOHD FADILLAHLee Yoke Khai, Gary/Stream IMUNI AZUIN BT AZMI (CIK)Ooi Lip Aun, Eric/Stream IONG SOON BEELee Yoke Khai, Gary/Stream ISHAHIDA HANNANI BINTI ABDUR RAFAR (CIK) Habibah Abdul/Stream ITAN CHEW MING (MISS)Hew Lee Lam Sang/Stream IThe following candidate passed Module A to thesatisfaction of the Examination Committee:CANDIDATEFARAH WAHIDDA BINTI ZULKEFFLI (CIK)CANDIDATEHAFIZAH BINTI ABU BAKAR (CIK)PRINCIPAL/STREAMKhaw Hock Hoe, Alex/Stream IThe following candidate passed Module B to thesatisfaction of the Examination Committee:PRINCIPAL/STREAMJohan Idris/Stream IThe following candidate completed the ProfessionalStage Examination to the satisfaction of theExamination Committee:CANDIDATEHAFIZAH BINTI ABU BAKAR (CIK)CANDIDATEPRINCIPAL/STREAMJohan Idris/Stream IThe following candidates completed the AdvancedStage Examination to the satisfaction of theExamination Committee:PRINCIPAL/STREAMCHEA SEE KHEE (MISS)Datuk Tan Kim Leong/Stream ICHEONG AI LING (MISS)Lee Tuck Heng/Stream ICHEW LAY YEN (MISS)Lee Tuck Heng/Stream ICHONG MOY LAN (MISS)Poon Yew Hoe/Stream IHARLINA BINTI MANSOR (CIK) Nik Rahmat Kamarulzaman/Stream ILEE SIOK KUEN (MISS)Choong Mei Ling/Stream ILEE SOO YINN (MISS)Tan Soo Yan/Stream ILIM CHEN HWEE (MISS)Datuk Tan Kim Leong/Stream ILIM CHU GUANOoi Lip Aun, Eric/Stream ILOUISA HANIM BINTI AMIR (CIK)Shirley Goh/Stream ILUI LEE PING (MISS)Datuk Narendra Kumar Jasani/Stream IMOHAMAD JAMALI BIN HARONSeow Yoo Lin/Stream IMOHD FAIZAL BIN MOHD FADILLAHLee Yoke Khai, Gary/Stream IMUNI AZUIN BT AZMI (CIK)Ooi Lip Aun, Eric/Stream IONG SOON BEELee Yoke Khai, Gary/Stream ISHAHIDA HANNANI BINTI ABDUR RAFAR (CIK) Habibah Abdul/Stream ITAN CHEW MING (MISS)Hew Lee Lam Sang/Stream IThe following candidates passed Malaysian Taxationto the satisfaction of the Examination Committee:CANDIDATEAFFENDI BIN RASHDIKHONG SIONG SIEMUHAMMAD ARZIM BIN NAIMTENG KING HUEIMICPA Practising CertificateThe Membership Affairs Committee of the Institute in considering applications for practisingcertificates, has frequently come across cases where a member has commenced public practicebefore he is issued with a practising certificate by the Institute.The Committee would like to remind members that in accordance withbye-law 56 of the Institute’s bye-laws, a member shall be entitled to engage in publicpractice in Malaysia only if he holds a practising certificate issued by the Institute.If members need clarification on the above, kindly contact the Institute’s Membership ServicesDepartment:Cik Adzlyn / Cik RuhaizahThe Malaysian Institute of Certified Public AccountantsNo.15 Jalan Medan Tuanku, 50300 Kuala Lumpur.Tel: 03-2698 9622 Fax: 03-2698 9403 E-mail: membership@micpa.com.my38 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

INSTITUTE NEWS11th MICPA ACCOUNTANCY WEEKThe 11th MICPA Accountancy Week with thetheme AAA – Accountants Are Assets was heldfrom August 4-11, 2007. Launched in 1986,the Accountancy Week forms part of theInstitute’s programme to promote accountancy as a careerand the primacy of the CPA qualification. It also providesan opportunity for accountancy students from all over thecountry to meet, interact and establish closer relationship.This year’s Accountancy Week was held tocommemorate the International Federation of Accountants(IFAC) 30th Anniversary celebrations which will culminateinteraction amongst participants from all over the country.The events are a best tool to build self-confidence amongstthe participants. It also helps the students utilise their timein healthy activities as it challenges the youths, bothphysically and mentally.The week-long events culminated in the final roundof the AccQuiz and Accounting Students Quiz, the Sportsand Games competition and finally, the prize presentationceremony on Saturday, August 11, 2007. The prizepresentation ceremony was officiated by YBhg Dato’Nordin Baharuddin, President of the MICPA and YBhgwith the World Accountancy Week, to be held fromDecember 2 – 8, 2007. The MICPA is one of the foundingmembers of IFAC.A wide range of activities were carried out during theweek which included:• Accounting Quiz (AccQuiz) for secondary schools.The preliminary round of AccQuiz was held in KualaLumpur and Penang;• Accounting Students Quiz and Management SimulationGame for accounting students at universities andcolleges of higher education;• Career Counselling Sessions; and• Sports and Games Competition including badminton,basketball, bowling, soccer, squash, table-tennis, tugof-warand telematch.Datuk Robert Yong Kuen Loke,Chairman of the Public Affairs Committee of MICPA.The MICPA would also like to record its appreciationto all sponsors for their generous contributions and formaking the 11th MICPA Accountancy Week a huge success.We would also like to thank all judges for their “true andfair” work and to all the participants, thank you for takingpart in the Accountancy Week events. We hope to see youagain in 2009.The Sports and Games Competition was organised bythe Accounting Club of Universiti Malaya while theManagement Simulation Game was organised by theAccounting Club of Universiti Kebangsaan Malaysia. Theywere the people who worked really hard and MICPA wouldlike to commend them on their initiatives to ensure thesuccess of the events.It is MICPA’s aim to organise the Accountancy Weekevents in a relaxed atmosphere whilst at the same time tomaintain competitiveness, sportsmanship and foster closerwww.micpa.com.myJune/August 2007 | The Malaysian Accountant |39

AccQuiz for Secondary Schools(Prizes sponsored by Sime Darby Berhad)Champion1st Runner Up2nd Runner UpSMK Taman Bukit Maluri- Lim Li Jin- Mok Fan Wai- Ravind MuniandySMK Methodist (ACS) Klang- Lee Ya Chin- Ng Su Yun- Tan Li PengSMK (L) Methodist Pulau Pinang- Gan Zhi Xiong- Khoo Kean Pin- Lim Yik FongIndividual Highest Score (Preliminary Round)Lim Li Jin, SMK Taman Bukit MaluriAccounting Students Quiz(Prizes sponsored by KPMG)Champion1st Runner Up2nd Runner UpUniversiti Utara Malaysia- Thiruventhiran Narayanasamy- Chee Ling Wei- Yeap Bee HarUniversiti Malaya- Cheow See Kiang- Tan Chun Hun- Goh Sin PeiTunku Abdul Rahman College- Chia Yee Choon- Stephanie Wong Meng Meng- Tee Hooi YeeIndividual Highest Score (Preliminary Round)Thiruventhiran Narayasamy, Universiti Utara MalaysiaManagement Simulation Game(Prizes sponsored by IOI Corporation Bhd)ChampionTeam1st Runner UpTeam2nd Runner UpTeamUniversiti Malaya- Lee Hin Weng- Lee Wai Yee- Ng Lai Jyn- Chong Sit MoiTunku Abdul Rahman College- Quah Jun Loong- Leow Yun Wan- Ng Wan Ling- Tang Khai ShingUniversiti Malaya- Wong Kah Hooi- Lee Yik Howe- Tham Siew Ping- Yap Wei LeongDebate(Prizes sponsored by MICPA)ChampionTeamRunner UpTeamUniversiti Tunku Abdul Rahman- Lim Hsien Hui- Loo Huai Cheng- Loh Wan YingUniversiti Tunku Abdul Rahman- Chew Hui Li- Fan Weiqi- Ng Kiat HwaBest Speaker Chew Hui Li, UTARBadminton(Prizes sponsored by Sekhar & Tan)ChampionTunku Abdul Rahman College- Lai Yon Shih- Yeoh Ya QiRunner UpTunku Abdul Rahman College- Aaron Loh Ka Boon- Sem Seou Ling40 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

Basketball(Prizes sponsored by Berjaya Sports Toto Berhad)ChampionTeamRunner UpTeamUniversiti Malaya- Chaw Poh Guan- Lau Char Lok- Ng Weng Sum- Tan Chee KeanBowling(Prizes sponsored by BDO Binder)ChampionTeamRunner UpTeamTunku Abdul Rahman College- Koy Han Lian- Soh Khay Wah- Yong Chen ChuanUniversiti Putra Malaysia- Muhammad Hafizuddin Halim- Mohd Lutfi bin Ahmad Hajazi- Asmairi bin Mohamed- Nurul Amalina Che Hashim- Norhuda bt SakimanUniversiti Tenaga National- Mohamad Haffiz b Yusuf @ Yusof- Afiq Luthfullah bin Ibrahim- Emmy Farina bt Malek- Mohd Muzamil b Azmi- Sarah Shahida bt AwangSoccer(Prizes sponsored by Ernst & Young)ChampionTeamRunner UpTeamUniversiti Tenaga National- Aifaa Zaffan Bagauddin b Abdul Aziz- Abdul Samad b Mohd Zin- Ahmad Rusydi b Mohd Yusof- Mohd Faiz b Mohd Azmi- Mohd Farrisalyusrimanb Mohd Othman- Muhammad Nafeez b Mohd Najeeb- Muhammad Roni b RismanUniversiti Malaya- Mohd Hazwan Mohd Azani- Joepeter Tukau- Mohd Daniel Zainol Abidin- Mohd Ikram Yahaya- Mohd Zhafir Hilman Hassin- Suharto Yusuf- Wan Zulhairi Wan ZulkifliSquash (Men’s Singles)(Prizes sponsored by IOI Corporation Bhd)ChampionRunner UpUniversiti Tenaga National- Joshua SamMICPA Member- Ching Hoy SengSquash (Ladies Single)(Prizes sponsored by IOI Corporation Bhd)Table-Tennis (Men’s Singles)(Prizes sponsored by Deloitte KassimChan)ChampionRunner UpTunku Abdul Rahman College- Lee Wai KitUniversiti Malaya- Chew Boon LeongTable-Tennis (Ladies Singles)(Prizes sponsored by Deloitte KassimChan)ChampionRunner UpUniversiti Malaya- Lee Yoke PackUniversiti Malaya- Ong Chieo TiTele Match(Prizes sponsored by Azman Wong Salleh & Co)ChampionTeamRunner UpTeamUniversiti Malaya- Yong Kin Siong- Goh Huay Zhen- Lee Pei Hwa- Teng Lai Yee- Wong Pooi SanUniversiti Kebangsaan Malaysia- Mohd Firdaus Md Saed- Mohd Syairazi Razali- Muhaszlin Mohamed- Munirah Abdul Razak- Nur Dalila JamaludinTug of War(Prizes sponsored by PricewaterhouseCoopers)ChampionTeamRunner UpTeamUniversiti Tenaga National- Muhammad Azri Zakaria- Ahmad Hitzi Azni- Amir Muhd Firdaus Shafie- Fadzliy Ridzwan Mohd Hilmi- Goh Seng Thai- H’ng Hock Seng- Mohd Hilmi Izwan b Mohd Najib- Mohd Syazwan Kamarulzaman- Muhammad Alauddin Faisal- Saiful Asyraf b KamaludinTunku Abdul Rahman College- Ang Yik Siang- Chang Ngee Chuang- Chong Nyiorp Linng Tommy- Goh Seng Thai- Kon Tak Pow- Lim Toh Prince- Looi Mun Wah- Lua Jin Yuek- Nah Kien Fu- Tham Wen HsiangChampionRunner UpMICPA Members- Yap Siew YenUniversiti Tenaga National- Hafizah bt Jamaludinwww.micpa.com.myJune/August 2007 | The Malaysian Accountant |41

INSTITUTE NEWSACCA-MICPA MUTUALRECOGNITION AGREEMENTOn August 13, 2007 two leading professionalaccountancy bodies, the Association of Chartered CertifiedAccountants (ACCA) and The Malaysian Institute of CertifiedPublic Accountants (MICPA) signed a global MutualRecognition Agreement (MRA). The MRA has been reachedon the basis of equivalence of qualifications and soundeducational review of each others’ syllabus.This MRA will provide great opportunities for sharing ofprofessional knowledge, expertise and resources, all of whichwill help advance the reputation of both bodies. It provides aroute for qualified members of either body tobecome a memberof the other body,and to enjoy the benefits bothbodies can offer.The signing adds anothermilestone in the Institute'scontinued efforts in seekingmutual recognition agreementswith premier accountancybodies. The event was witnessedby En Othman Sahar, DeputyAccountant-General (Corporate).In recognition of theincreasingly global nature of theaccountancy profession and business, the Council is consciousof the need to enhance the standing and recognition status ofthe CPA Malaysia qualification not only at the national levelbut also at the international level. Strong and meaningfulinternational alliances are a very positive development for theprofession as a whole and for the CPA Malaysia designationin particular.Both bodies share common and strong interests in theadvancement of the profession of accountancy, especially inrelation to the maintenance and strengthening of professionaland educational standards, and theagreement provides a greaterplatform for collaboration andallows both bodies to share bestpractices in education and training.For further information, pleaserefer to the FAQs in the MICPAwebsite www.micpa.com.my oryou may call Pn Adzlyn Aladzimy,Membership Services Officer onTel: 603-2698 9622 or E-mail:membership@micpa.com.my42 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

PROFESSIONAL NEWSMASB UpdateMASB issues 10 revised accountingstandards and new accountingframeworkThe Malaysian Accounting Standards Board on June 15, 2007announced the issuance of the Framework for the Preparationand Presentation of Financial Statements and 10 revisedFinancial Reporting Standards (FRSs). The revised FRSs andthe framework are virtually identical to the InternationalFinancial Reporting Standards (IFRSs) and IASB’s accountingframework respectively and took effect from July 1, 2007.In a statement issued, MASB Executive Director Dr. NordinMohd Zain said, “Prior to 2005, MASB made improvementsto certain international standards by adding explanation,guidance and examples for clarity before the standardswere issued for application in Malaysia. This was done tobroaden the content of the standards to cover domestic andregulatory issues and to provide guidance to the localconstituents for topics not addressed in the IFRSs.However, in line with the policy of convergence withIFRSs and based on experience in implementing FRSs, theBoard decided to make FRSs issued prior to 2005 the sameas the respective IFRSs. The Board considered this to benecessary in order to enjoy the full benefit of convergence.”The revised FRSs are Cash Flow Statements, ConstructionContracts, Income Taxes, Revenue, Employee Benefits, Accountingfor Government Grants and Disclosure of Government Assistance,Accounting and Reporting by Retirement Benefit Plans, FinancialReporting in Hyperinflationary Economies, Interim FinancialReporting and Provisions, Contingent Liabilities and ContingentAssets. The proposed revisions, contained in MASB ED 55Proposed Amendments to Financial Reporting Standards, wereexposed to the public for comments in March 2007. Generally, therevisions were removal of local guidance and editorial matters.Prior to the finalisation of MASB ED 55, the Board helda dialogue with preparers, accounting firms, professionalaccountancy bodies, regulators and other interestedorganisations to solicit views on whether or not the FRSs shouldbe revised. There was general consensus among delegatesto align the 10 FRSs with IFRSs. However, the additionalguidance removed should be made available to readers inother forms or through professional bodies.Dr. Nordin added that, “Currently, there are only twoFRSs which have not been realigned to IFRSs. This isbecause the Board is in the process of reviewing IFRS 8Operating Segments and the revised IAS 23 Borrowing Costs,which will replace FRS 1142004 and FRS 1232004 once they arefinalised. The Board plans to issue these two documents asexposure drafts for public comments in the near future.”In another development, MASB has also issued theFramework for the Preparation and Presentation of FinancialStatements. Dr Nordin explains, “The framework sets out theconcepts that underlie the preparation and presentation offinancial statements for external users. It is not an FRS anddoes not deal with any accounting measurement or disclosureissue. The purpose of the framework is to provide support topreparers and users of financial statements so as to enhancetheir understanding of the information presented. Thepurpose of the framework amongst others is to assist MASB indeveloping FRSs, facilitate preparers in applying FRSs and indealing with topics not addressed in FRSs and help users ininterpreting information contained in financial statements.”The revised FRSs and the framework are available fromMASB website (http://www.masb.org.my) or can be purchasedin booklet form from MASB office.Notes:The 10 revised Financial Reporting Standards (FRSs) are:(a) FRS 107 - Cash Flow Statements(b) FRS 111 - Construction Contracts(c) FRS 112 - Income Taxes(d) FRS 118 - Revenue(e) FRS 119 - Employee Benefits(f) FRS 120 - Accounting for Government Grants and Disclosure ofGovernment Assistance(g) FRS 126 - Accounting and Reporting by Retirement Benefit Plans(h) FRS 129 - Financial Reporting in Hyperinflationary Economies(i)(j)FRS 134 - Interim Financial ReportingFRS 137 - Provisions, Contingent Liabilities and Contingent AssetsFRS 1142004 Segment Reporting and FRS 1232004 Borrowing Costs are notincluded in the list of amendments as the Board is in the process of reviewingIFRS 8 Operating Segments and the revised IAS 23 Borrowing Costs, whichwill replace FRS 1142004 and FRS 1232004 respectively once they are finalised.The Board plans to issue IFRS 8 and the revised IAS 23 for public commentsin the near future.FRS 1292004 Financial Reporting in Hyperinflationary Economies isnot included in the list of amendments as that Standard is alreadyidentical to IAS 29 Financial Reporting in Hyperinflationary Economies.BackgroundWhen the MASB was set up in 1997, the Board subscribed tothe policy of “harmonisation with International AccountingStandards (IASs)”. Harmonisation involved using IASs as abasis in the development of accounting standards forMalaysia. The Board would carry out detailed examinationof accounting standards and practices in other jurisdictionsbut recognised the IASs were the most appropriate basis forall MASB Standards. Up until December 31, 2004, all MASBStandards, apart from locally developed standards arewww.micpa.com.myJune/August 2007 | The Malaysian Accountant |43

consistent in all material respect with IASs. For locallydeveloped standards, the principles underlying the recognition,measurement and disclosure requirements of those standardsare consistent, with other relevant standards issued by theInternational Accounting Standards Committee (IASC).IASC was reconstituted on April 1, 2001 with the birthof the International Accounting Standards Board (IASB),which took over the standard-setting responsibilities. TheIASB has since committed to developing, in the publicinterest, a single set of high quality, understandable andenforceable global accounting standards that requiretransparent and comparable information in general purposefinancial statements. In addition, the IASB co-operates withnational accounting standard-setters to achieve convergencein accounting standards around the world.To move closer to world convergence of accountingstandards, the MASB recognises the need to converge withInternational Financial Reporting Standards (IFRSs). As afirst step, it has renamed MASB Standards to FRSs with effectJanuary 1, 2005. In addition to the name change, MASB alsore-numbered the Standards to correspond to those of the IASs.Purpose of revising the 10 FRSsPrior to 2005, the MASB made improvements to a number ofinternational standards by adding explanation, guidanceand examples or by amending certain provisions to suit localcircumstances. The MASB considered this to be necessary tobroaden the content of the Standards to cover domestic,regulatory or other issues as well as to provide guidance forthe local constituents on topics not addressed in the IASs.In line with the policy of convergence with IFRSs andbased on experience in implementing FRSs equivalent to IFRSs,the MASB has decided to align its accounting standardsissued prior to 2005 (FRSs with a subscript ‘2004’) with therespective IASs, both in terms of form and contents. In orderto achieve this objective, the MASB removed all the remainingdifferences between FRSs and IASs to eventually result inFRSs being virtually identical to IASs / IFRSs.The subscript ‘2004’ has been removed from the 10revised Standards.approved accounting standard;3. assist auditors in forming an opinion as to whetherfinancial statements conform with MASB approvedaccounting standards;4. assist users of financial statements in interpreting theinformation contained in financial statements prepared inconformity with MASB approved accounting standards; and5. provide those who are interested in the work of MASBwith information about its approach to the formulationof MASB approved accounting standards.The Framework is not an MASB approved accountingstandard and hence does not define standards for any particularmeasurement or disclosure issue. Nothing in the Frameworkoverrides any specific MASB approved accounting standard.The Framework is concerned with general purpose financialstatements including consolidated financial statements. Suchfinancial statements are prepared and presented at leastannually and are directed toward the common informationneeds of a wide range of users. Some of these users may require,and have the power to obtain, information in addition to thatcontained in the financial statements. Many users, however,have to rely on the financial statements as their major sourceof financial information and such financial statementsshould, therefore, be prepared and presented with theirneeds in view. Special purpose financial reports, for example,prospectuses and computations prepared for taxationpurposes are outside the scope of the Framework. Nevertheless,the Framework may be applied in the preparation of suchspecial purpose reports where their requirements permit.The Framework applies to the financial statements of allcommercial, industrial and business reporting entities asspecified in the Financial Reporting Act 1997. A reportingentity is an entity for which there are users who rely on thefinancial statements as their major source of financialinformation about the entity.For enquiries, please contact: Dr Nordin Mohd Zain,Executive Director, Malaysian Accounting StandardsBoard, Suites 5.01-5.03, 5th Floor, No. 338, Jalan TuankuAbdul Rahman, 50100 Kuala Lumpur. Tel: 03-2715 9199,Fax: 03-2715 9212, Email: nordin@masb.org.my(Source: MASB Press Release/ June 15, 2007)Framework for the Preparation andPresentation of Financial StatementsThe Framework sets out the concepts that underlie thepreparation and presentation of financial statements forexternal users. The purpose of the Framework is to:1. assist the MASB in the development of future MASBapproved accounting standards and in its review ofexisting MASB approved accounting standards;2. assist preparers of financial statements in applyingMASB approved accounting standards and in dealingwith topics that have yet to form the subject of an MASB2 new proposed Standards for greatertransparencyThe MASB on July 2, 2007 released ED 56 Financial Instruments:Disclosures (ED 56) and ED 57 Operating Segments (ED 57)seeking greater transparency in ways companies managetheir resources as well as their exposure to risks arisingfrom their involvement in financial instruments.ED 56 and ED 57 are virtually identical with IFRS 7Financial Instruments: Disclosures (IFRS 7) and IFRS 8Operating Segments (IFRS 8) respectively.IFRS 7 and IFRS 8 were issued by the International44 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

Accounting Standard Board (IASB) in August 2005 andNovember 2006 respectively. IFRS 7 replaced IAS 30Disclosures in the Financial Statements of Banks andSimilar Financial Institutions and some requirements inIAS 32 Financial Instruments: Disclosure and Presentation.IFRS 8 replaced IAS 14 Segment Reporting (IAS 14).MASB executive director Dr Nordin Mohd Zain sayswith the proposed disclosures, investors and other users offinancial statements will be able to make informedjudgement about the risks and returns in an entity.Financial instruments disclosures standard applies notonly to financial institutions but also other entities that holdfinancial instruments. The degree of disclosures depends onhow broadly the entity uses financial instruments. Amongstothers, the Standard proposes disclosure of sensitivityanalysis for each type of market risks to which the entity isexposed and disclosures of how an entity manages risksarising from financial instruments. With these disclosures,users are informed about the extent of financial risksinvolved in the entity’s undertakings.Simultaneously with the issuance of ED 56, there is a proposedlimited amendment to FRS 101 Presentation of FinancialStatements dealing with capital disclosures. The capital disclosureis important as it helps users to assess an entity’s policiesand processes for managing capital. Users will be able to assessthe entity’s risk profile as well as entity’s ability to withstandunexpected adverse events and ability to pay dividends.Another proposed Standard issued by MASB is onoperating segments which requires management to reporthow it has used its resources to manage the entity. TheStandard enables users of financial statements to see anentity through the eyes of management by requiringdisclosure of information in the format and structure usedby management. At present the Standard requirescompanies to disclose information based on products andservices, and on geographical areas. The Standard, whenfinalized, is expected to reduce cost of reporting segmentinformation as it uses information that is readily availableand generated for management’s use.These proposed Standards are available on MASBwebsite at http://www.masb.org.my.Notes:Background of IFRS 7IFRS 7 introduces new requirements to improve theinformation on financial instruments that is given inentities’ financial statements. It replaces IAS 30 Disclosuresin the Financial Statements of Banks and Similar FinancialInstitutions and some of the requirements in IAS 32Financial Instruments: Disclosure and Presentation.Simultaneous to the issuance of IFRS 7, IAS 1 Presentationof Financial Statements is amended to introduce requirementsfor disclosures about an entity’s capital.IFRS 7 requires disclosures about the significance offinancial instruments for an entity’s financial position andperformance. These disclosures incorporate many of therequirements previously in IAS 32 (whose title has beenshortened to reflect the change). The IFRS also requiresinformation about the extent to which the entity is exposedto risks arising from financial instruments, and a descriptionof management’s objectives, policies and processes formanaging those risks. Together, these disclosures providean overview of the entity’s use of financial instruments andthe exposures to risks they create.In developing the proposals in IFRS 7, the IASB workedwith an expert advisory group, the Financial ActivitiesAdvisory Committee. The Committee’s members haveexperience and expertise in banks, finance companies andinsurance companies and include auditors, preparers andregulators. Their role was to provide input from the perspectiveof preparers and auditors of financial statements of entitiesthat have large exposures to financial instruments and toassist the IASB in developing an IFRS and ImplementationGuidance for risk disclosures arising from financialinstruments and for other related disclosures.Background of IFRS 8IFRS 8 arises from the IASB’s comparison of InternationalAccounting Standard (IAS) 14 Segment Reporting with the USstandard SFAS 131 Disclosures about Segments of an Enterpriseand Related Information. IFRS 8 replaces IAS 14 and alignssegment reporting with the requirements of SFAS 131.The IFRS requires an entity to adopt the ‘managementapproach’ to reporting on the financial performance of itsoperating segments. Generally, the information to bereported would be what management uses internally forevaluating segment performance and deciding how toallocate resources to operating segments. Such informationmay be different from what is used to prepare the incomestatement and balance sheet. The IFRS therefore requiresexplanations of the basis on which the segmentinformation is prepared and reconciliations to the amountsrecognised in the income statement and balance sheet.The IASB believes that adopting the managementapproach will improve financial reporting. First, it allowsusers of financial statements to review the operations throughthe eyes of management. Secondly, because the informationis already used internally by management, there are few costsfor preparers and the information is available on a timely basis.This means that interim reporting of segment informationcan be extended beyond the current requirements.As part of its deliberations leading to IFRS 8, the IASBconsidered comments by a coalition of over 300 nongovernmentalorganisations (NGOs) known as the PublishWhat You Pay campaign, which asked for the scope of the IFRSto be extended to require additional disclosure on a countryby-countrybasis. Because the IFRS was developed as a shorttermconvergence project, the IASB decided that countryby-countrydisclosure should not be addressed in the IFRS.Instead, the matter will be raised with international bodiesthat are engaged with similar issues.(Source: www.masb.org.my)www.micpa.com.myJune/August 2007 | The Malaysian Accountant |45

IASB UpdateIASB welcomes US SEC proposal toallow IFRSs without reconciliationThe International Accounting Standards Board (IASB)welcomes the decision of the US Securities and ExchangeCommission (SEC) to propose allowing non-US companies tofile financial results according to International FinancialReporting Standards (IFRSs) as approved by the IASB.The change would permit non-US companies to access UScapital markets without reconciliation with US GenerallyAccepted Accounting Principles (GAAP) by 2009. The SECemphasised that this proposal applies only to thosecompanies filing financial statements according to full IFRSs.The SEC’s decision reflects the increasing acceptance of IFRSsas a widely used and high quality financial reportinglanguage. It also proves the significant progress that has beenmade in the convergence process between the IASB and the USFinancial Accounting Standards Board (FASB).Sir David Tweedie, IASB chairman, commented on theimportance of the SEC decision: The SEC’s proposal shows itsrecognition of the tangible benefits of a single set of financialreporting standards used in the world’s integrating capitalmarkets and the relevance of the continuing IASB-FASBconvergence process to the economies of the US and the restof the world. If approved, the rule will eventually reducesignificantly the barriers to capital flows between countriesusing full IFRSs and the United States.“We appreciate the SEC’s continued support of our work.Our ultimate aim at the IASB is to have a single set ofaccounting standards used worldwide. The SEC’s proposal isan important step in achieving that goal, but much workremains to be done,” he said.(Source: www.iasb.org)IFRIC UPDATEIFRIC issues guidance on customerloyalty programmesThe International Financial Reporting InterpretationsCommittee (IFRIC)* issued an Interpretation, IFRIC 13Customer Loyalty Programmes.The Interpretation addresses accounting by entities thatgrant loyalty award credits (such as ‘points’ or travel miles)to customers who buy other goods or services. Specifically, itexplains how such entities should account for theirobligations to provide free or discounted goods or services(‘awards’) to customers who redeem award credits.The Interpretation requires entities to allocate some ofthe proceeds of the initial sale to the award credits andrecognise these proceeds as revenue only when they havefulfilled their obligations. They may fulfil their obligationsby supplying awards themselves or engaging (and paying)a third party to do so.The effect of the Interpretation will be to ensure thatobligations to supply customer loyalty awards are measuredthe same way, whether the award credits are sold separatelyor granted to customers as part of a larger sale.Introducing IFRIC 13, Robert Garnett, IFRIC Chairmanand IASB member, said: “Until now, international standardshave lacked clear guidance for award credits granted ‘free’with other goods or services. The Interpretation willstandardise practice in a way that reflects our view thatloyalty awards are separate goods or services for whichcustomers are implicitly paying.”(Source: www.iasb.org)IFRIC publishes proposed guidanceon real estate salesThe IFRIC released for public comment a draft Interpretation,IFRIC D21 Real Estate Sales. The proposals were open for publiccomment until October 5, 2007.The proposed Interpretation aims to standardiseaccounting practice among real estate developers for sales ofunits, such as apartments or houses, ‘off plan’, i.e. beforeconstruction is complete.At present, real estate developers interpret InternationalFinancial Reporting Standards (IFRSs) differently and recordrevenue for the sale of the units at different times. Somerecord revenue only when they have handed over thecompleted unit to the buyer, while others record revenueearlier, as construction progresses, by reference to the stageof completion of the development.IFRIC D21 proposes that revenue should be recorded asconstruction progresses only if the developer is providingconstruction services, rather than selling goods (completedreal estate units). It proposes features that indicate that theseller is providing construction services. In many countries,these features tend currently not to be present, in typical offplan sale agreements.IFRIC D21 Real Estate Sales is available for eIFRSsubscribers from today and will be freely available on theIASB Website.(Source: www.iasb.org)46 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

IFRIC issues interpretation on IAS19—Defined Benefit Assets andMinimum Funding RequirementsThe IFRIC issued an Interpretation, IFRIC 14 IAS 19 -TheLimit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction.IFRIC 14 provides general guidance on how to assess thelimit in IAS 19 Employee Benefits on the amount of thesurplus that can be recognised as an asset. It also explainshow the pensions’ asset or liability may be affected whenthere is a statutory or contractual minimum fundingrequirement. The Interpretation will standardise practiceand ensure that entities recognise an asset in relation to asurplus on a consistent basis.No additional liability need be recognised by theemployer under IFRIC 14 unless the contributions that arepayable under the minimum funding requirement cannotbe returned to the company. IFRIC 14 is likely to have themost impact in countries that have a minimum fundingrequirement and where there are restrictions on acompany’s ability to get refunds or reduce contributions.The Interpretation is mandatory for annual periodsbeginning on or after January 1, 2008. Earlier applicationis permitted. For further information on IFRIC 14, pleasevisit the project Webpage on www.iasb.org.(Source: www.iasb.org)IFRIC publishes proposed guidanceon hedges of a net investment in aforeign operationThe IFRIC released for public comment a draft Interpretation,IFRIC D22 Hedges of a Net Investment in a Foreign Operation. Theproposal is open for public comment until October 19, 2007.IFRIC D22 clarifies two issues that have arisen on twoaccounting standards—IAS 21 The Effects of Changes in ForeignExchange Rates and IAS 39 Financial Instruments: Recognitionand Measurement —about the accounting for hedging foreigncurrency risk within a company and its foreign operations.The IFRIC proposal clarifies what qualifies as a risk in thehedge of a net investment in a foreign operation and wherewithin a group the instrument that offsets that risk may be held.In some companies the currency that is used to presentfinancial statements (the presentation currency) differs fromthe currency that the company or its foreign subsidiaries usedaily and in which they generate net cash flows (theoperating, or functional, currency). At present, somecompanies use hedge accounting when ‘translating’ thatfunctional currency into the presentation currency. TheIFRIC takes the view that this mere translation of currencyfor presentational use does not represent a hedgeable economicrisk. Consequently, it proposes not to allow the use of hedgeaccounting when translating a functional currency into apresentation currency. The IFRIC concluded that the hedgedrisk is the foreign currency exposure arising between thefunctional currency of the foreign operation and the functionalcurrency of any parent entity within the group structure.Clarification was needed on whether a company could accountfor a hedged foreign currency risk only in the immediateparent entity, only in the main parent entity, or in those orany intermediate parent entity of the foreign subsidiary.IFRIC D22 also considers which individual entity withina group structure can hold a hedging instrument. The IFRICproposes that the hedging instrument can be held by anysubsidiary or parent entity within a group regardless of theentity’s functional currency. To assess how effective thehedging instrument is in offsetting the risk from the foreignoperation, the company must calculate the change in valueof the hedging instrument in the functional currency of theparent hedging its risk and not the functional currency of thesubsidiary holding the instrument.The IFRIC recognises the difficulty that entities wouldface in preparing adequate documentation from the inceptionof the hedge relationship. It therefore proposes that, ifconfirmed, the guidance should be applied prospectively, i.e.for all future transactions.(Source: www.iasb.org)How IFRIC 14 (an interpretation ofIAS 19) addresses the defined benefitpension assets and their minimumfunding requirementsOn July 5, 2007 the IFRIC issued an Interpretation, IFRIC 14IAS 19 -The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction.Since the release of the Interpretation the IFRIC hasobserved several press articles and statements by marketcommentators providing an inaccurate assessment of theeffect of IFRIC 14.Whether and how IFRIC 14 applies to a particular entitywill depend on the exact terms of the pension plan and theregulatory requirements in the relevant jurisdiction, andshould be determined by reference to IFRIC 14 itself.The Interpretation does not change the rules on fundingThe Interpretation clarifies how entities should account forthe effect of any statutory or contractual fundingrequirements. It cannot change those requirements as theyare set by regulators and pension fund trustees, and it is formanagement to decide how it satisfies those requirements.The Interpretation does not affect an entity's abilityto get a refundThe Interpretation provides guidance on how to account forwww.micpa.com.myJune/August 2007 | The Malaysian Accountant |47

any restrictions that may be in place. It does not affect anentity’s ability to get a refund. An employer’s ability to get arefund is determined by the statutory requirements in thejurisdiction in question and the scheme rules.An additional liability is recognised only if twoconditions exist at the same timeAn additional liability is recognised only if both of thefollowing conditions exist:• If the entity has a statutory or contractual obligation topay additional amounts to the plan and• If the entity’s ability to recover those amounts in thefuture by refund or otherwise is restricted.In that case, the recognition of an additional liability reflectsthe economic reality.The Interpretation clarifies when a surplus in a pensionplan can be recognisedIFRIC 14 provides a clearer interpretation of the availabilityof a surplus than the original standard, IAS 19 EmployeeBenefits. Under IAS 19 some have argued that a surplus isnot available to a plan sponsor unless it is immediatelyrealisable at the balance sheet date. IFRIC 14 states that theemployer only needs to have an unconditional right to usethe surplus at some point during the life of the plan or on itswind up in order for a surplus to be recognised.The Interpretation ensures that the accounting forsurpluses is consistent and transparentThe Interpretation will ensure that any economic consequencesof making contributions required by legislation or the termsof the plan will be treated in a transparent and consistentmanner by all entities.* The IFRIC is the interpretative arm of the InternationalAccounting Standards Board (IASB).(Source: www.iasb.org)Convergence of accounting inemerging and transition economiesThe Symposium on International Convergence of Accountingin Emerging Markets and Transition Economies, jointlyhosted by International Accounting Standards Board (IASB)and China Accounting Standards Committee (CASC), washeld in Beijing on July 10-11, 2007. The participants presentat the Symposium (hereinafter referred to as “the participants”),which include representatives from the World Bank, theUNCTAD, EU?seventeen emerging markets, transition economiesand developed market economies, discussed strategies takenby emerging markets and transition economies to adopt orconverge with International Financial Reporting Standards(IFRSs) and the challenges encountered during the process.Building upon and strengthening cooperation with emergingmarkets and transition economies in the development,implementation and training of accounting standards willpromote emerging markets and transition economies toparticipate in international convergence and is beneficial toa single global high-quality set of financial reporting standardsto meet the objective needs of economic globalisation.The participants discussed the efforts made by emergingmarkets and transition economies in the internationalconvergence of accounting, and called for mutual understandingand common actions in the following aspects:1. Emerging markets and transition economies should buildup a clear concept about international convergence ofaccounting, and take active action to develop a plan onconvergence with IFRSs. The international convergence ofaccounting is the irreversible trend and direction ofdevelopment. The participants support internationalconvergence of accounting and the IASB in its efforts tobuild a global high-quality accounting standards system.The IASB encourages countries to participate in theinternational convergence process by developing a planto adopt the complete set of IFRSs. However, the IASBrecognises that there are specific conditions in eachjurisdiction. Convergence is a process and should be atwo-way interaction between national accountingstandards setters and the IASB. The participants sharedexperiences on the international convergence of accountingin their own countries at the Symposium, and took notethat China’s developments of accounting standards andits achievements towards international convergence haveaccumulated valuable and significant experience foremerging markets and transition economies.2. The IASB should continue to create a favourable environmentfor emerging markets and transition economies to participatein the development of IFRSs thus achieve the internationalconvergence of accounting. The International AccountingStandards Committee Foundation (IASCF) Constitutioncharges the IASB to consider the needs of emerging marketsand transition economies in its standard-setting and otheractivities. Accordingly, opinions from different parties,including emerging markets and transition economies,and their actual situations need to be taken into sufficientconsiderations during the standard-setting of the IASB.The IASB participates in several outreach activities,including sponsoring regional meetings, at which it seeksto learn the views of its constituents. Emerging markets andtransition economies are also represented on the IASCFTrustees and Standards Advisory Council (SAC). Emergingmarkets and transition economies are important participantsin the global capital market and users of IFRSs, thus theywill play an important role in IFRSs setting. Therefore, theparticipants proposed to set up a Forum on International48 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

Convergence of Accounting in Emerging Markets andTransition Economies to establish a regular exchangemechanism to improve and implement the varioussuggestions raised in the Beijing Initiative. The Forum canbe convened annually by the IASB, CASC, other emergingmarkets and transition economies?and accountingorganisations that are willing to host the Forum. The minutesof discussions at the Forum will be offered to the IASB. Theparticipants unanimously agreed to try to gain support tothe Forum from their local agencies and supervisorydepartments. All the emerging markets and transitioneconomies are welcome to participate in this Forum.3. Emerging markets and transition economies should takemore positive actions to participate in the internationalconvergence of accounting and development of IFRSs. Allemerging markets and transition economies shouldstrengthen communication and exchange with the IASB,as well as that among one another. Such cooperation canbe conducted in various forms ranging from the experienceof adopting IFRSs or formulating standards and models ofpersonnel education and training. As joint hosts of thisconference, the IASB and CASC will continue to supportemerging markets and transition economies to takepositive actions in international convergence. The CASCinformed the participants that it will work together withthe IASB through IASCF’s education department toconsider the establishment of an education trainingprogram on international convergence targeted atemerging markets and transition economies. The CASCwill utilise project funds of Asia-Pacific Finance andDevelopment Centre (AFDC) to train human resourcesfrom emerging markets and transition economies in thefield of international convergence of accounting.(Source: www.iasb.org)India announces convergence with IFRSsfor public interest entities from 2011The Council of the Institute of Chartered Accountants ofIndia, at its 269th meeting being held these days at New Delhi,has decided to fully converge with International FinancialReporting Standards (IFRSs) issued by the InternationalAccounting Standards Board from the accounting periodscommencing on or after April 1, 2011. Like in other countriessuch as Australia, New Zealand and countries in the EuropeanUnion, the IFRSs will be adopted for the listed entities andother public interest entities such as banks, insurance companiesand large-sized entities. The decision is an importantmilestone in achieving full convergence with IFRSs as India willjoin 102 countries which presently require or permit use ofIFRSs in preparation of financial statements in their countries.By 2011, the number is expected to reach 150.With a view to ensure smooth transition to the IFRSs fromApril 1, 2011, the Institute of Chartered Accountants of Indiawill take up the matter of convergence with IFRSs with theNational Advisory Committee on Accounting Standardsestablished by the Ministry of Corporate Affairs, Governmentof India, and various regulators such as the Reserve Bank ofIndia, the Insurance Regulatory and Development Authorityand the Securities and Exchange Board of India. The Instituteof Chartered Accountants of India would formulate its workplanto ensure that the IFRSs are effectively adopted fromApril 1, 2011. The Institute will also conduct IFRS-specific trainingprogrammes for its members and others concerned to preparethem to implement IFRSs. The Institute will also take up thoseareas in certain IFRSs where it feels that some changes inIFRSs may be required keeping in view the Indian conditions.(Source: www.iasb.org)The ASBJ and the IASB announce TokyoAgreement on achieving convergence ofaccounting standards by 2011Ikuo Nishikawa, Chairman of the Accounting StandardsBoard of Japan (ASBJ), and Sir David Tweedie, Chairman ofthe International Accounting Standards Board (IASB), jointlyannounced an agreement (known as the Tokyo Agreement)to accelerate convergence between Japanese GAAP andInternational Financial Reporting Standards (IFRSs), aprocess that was started in March 2005.As part of the agreement the two boards will seek toeliminate by 2008 major differences between Japanese GAAPand IFRSs (as defined by the July 2005 CESR assessment ofequivalence), with the remaining differences being removedon or before June 30, 2011. Whilst the target date of 2011 doesnot apply to any major new IFRSs now being developed thatwill become effective after 2011, both boards will work closelyto ensure the acceptance of the international approach inJapan when new standards become effective.Commenting on the agreement, Mr Ikuo Nishikawa said:“We have reaffirmed our commitment to convergence andare pleased to have an opportunity to increase the significantinvolvement of the ASBJ and Japan more generally in theinternational standard-setting process. It is expected that thisagreement will enable Japanese companies to publishfinancial statements prepared under Japanese accountingstandards without any remedies continuously in the EU andother capital markets using IFRSs.”Sir David Tweedie said: “We are delighted that the ASBJ,representing the interests of the second largest economy inthe world, has agreed to accelerate convergence betweenJapanese GAAP and IFRSs and look forward to its activeparticipation in shaping the future direction of internationalfinancial reporting standards.”(Source: www.iasb.org)www.micpa.com.myJune/August 2007 | The Malaysian Accountant |49

IFAC UpdateIFAC Seeks Proposals to DevelopPractice Management Guide forSmall and Medium Accounting FirmsThe International Federation of Accountants (IFAC) isrequesting proposals for the development of a practicemanagement guide for use by small and mediumaccounting practices (SMPs). The purpose of the guide willbe to assist SMPs in managing their practices in anefficient, profitable and professional manner. It is intendedthat the guide will cover a range of topics, such as strategicplanning, management structure, client relationships,managing finances and risk, partnership issues,networking, and succession planning.“The development of this practice management guideis part of the SMP Committee’s plan to provide a series ofexplanatory guides aimed at helping SMPs to complyefficiently with international standards and to deliver highquality, cost-effective services,” states Sylvie Voghel, Chairof the IFAC SMP Committee.The guide will be made available to all IFAC memberbodies at no charge for end use by practitioners, inparticular, those managing the practice.The specifications for the Request for Proposal:Development of a Practice Management Guide for Use by Smalland Medium Practices are available on the IFAC website athttp://web.ifac.org/download/Practice_Management_Guide_RFP.pdf. The deadline for submitting proposals is12:00 pm (EDT), Friday, October 19, 2007. Submissions canbe emailed to Paul Thompson, Senior Technical Managerof the SMP Committee, at paulthompson@ifac.org.(Source: www.ifac.org)New IFAC Paper Focuses on InternalControl from a Risk-BasedPerspective and the Role ofAccountants in BusinessOne of the best defences against business failure and animportant driver of business performance is strong internalcontrol. This is true for organisations globally. Recognisingthis, the Professional Accountants in Business (PAIB)Committee of the International Federation of Accountants(IFAC) has released a new publication on Internal Controlfrom a Risk-Based Perspective. This information paperfeatures interviews conducted by Robert Bruce, a leadingfinancial journalist, with 10 senior-level professionalaccountants in business on their experiences and views onestablishing effective internal control systems.The interviews help to demonstrate the importance ofa risk-based approach to internal control in helping anorganisation manage its overall risk. They also shed lighton the nature of risk in organisations, how to establish aninternal control system focused on driving performanceand supporting the delivery of strategic objectives, andsuccess stories that can help organisations in consideringimprovements to their approach."The flood of rules and requirements that resultedfrom past corporate failures, and the often time-consumingand costly compliance efforts, make us easily forget thatthe right kind of internal controls - focused on the real risksof an organisation - actually can save time, money andensure creation and maintenance of value," emphasizesEdward Chow, Chair of the PAIB Committee. "Theseinterviews will help professional accountants in businessand their organisations to benchmark their ownorganisations' internal control efforts and philosophy."This interview-based information paper is part of alarger PAIB Committee project on internal control. In 2006,the committee published an overview paper, InternalControls - A Review of Current Developments, which reviewedcurrent developments and some of the latest thinking inthe area of internal control. These two publications formthe groundwork for the development of principles-basedgood practice guidance on internal control, which the PAIBCommittee plans to issue in 2008.Internal Control from a Risk-Based Perspective can bedownloaded free-of-charge from the IFAC online bookstoreat http://www.ifac.org/store. A range of other publicationson topics of interest to professional accountants in businessis also available from the IFAC bookstore.(Source: www.ifac.org)IAASB Clarifies its Quality Controland Auditor Reporting Standards;Makes Further Progress on ClarifyingOther Auditing StandardsTo enhance the quality and consistency of audits, theInternational Auditing and Assurance Standards Board(IAASB), an independent standard-setting board under theauspices of the International Federation of Accountants(IFAC), is continuing to advance its project to clarify itsinternational standards. At its July 2007 meeting inWarsaw, Poland, the IAASB approved exposure drafts ofnine proposed standards, including each of its international50 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

quality control and auditor reporting standards. Thesehave all been redrafted in accordance with the IAASB'snew drafting conventions designed to improve the clarityof its pronouncements.Further information about each exposure draft andthe changes proposed therein is provided in theexplanatory memorandum at the beginning of the exposuredrafts. The exposure drafts may be viewed by going tohttp://www.ifac.org/EDs.Quality Control Exposure DraftsThe IAASB has issued proposed International Standard onQuality Control (ISQC) 1 (Redrafted), Quality Control forFirms that Perform Audits and Reviews of Financial Statements,and Other Assurance and Related Services Engagements, alongwith proposed International Standard on Auditing (ISA)220 (Redrafted), Quality Control for an Audit of FinancialStatements."Together, these standards deal with importantquality control considerations at both the firm andengagement levels. The standards are closely linked, andtherefore, implementing clarity revisions at the same timemakes sense to ensure consistency between them," explainsJohn Kellas, IAASB Chairman.Auditor Reporting Exposure DraftsThe IAASB has also addressed the clarification of its auditorreporting standards. The proposed clarified auditorreporting standards comprise:• ISA 700 (Redrafted), The Independent Auditor's Report onGeneral Purpose Financial Statements;• ISA 705 (Revised and Redrafted), Modifications to theOpinion in the Independent Auditor's Report;• ISA 706 (Revised and Redrafted), Emphasis of MatterParagraphs and Other Matter(s) Paragraphs in theIndependent Auditor's Report;• ISA 800 (Revised and Redrafted), Special Considerations- Audits of Special Purpose Financial Statements and SpecificElements, Accounts or Items of a Financial Statement; and• ISA 805 (Revised and Redrafted), Engagements to Reporton Summary Financial Statements.Proposed ISA 700 (Redrafted) redrafts a standard thatwas revised in 2004. The other reporting standards havebeen fully revised to update them and make themconsistent with ISA 700. Those revisions were completedand approved by the IAASB in 2006, and the standards arenow being issued for comment only on their redrafting intothe new clarity conventions.Other Proposed StandardsIn addition, the IAASB has issued exposure drafts ofproposed ISA 510 (Redrafted), Initial Audit Engagements -Opening Balances, and proposed ISA 530 (Redrafted), AuditSampling.Progress of the Clarity ProjectAll of the proposed standards have been drafted inaccordance with the IAASB's new drafting conventions.These conventions include the specification of an objectivewithin each standard and separate section forrequirements and application and other material.The IAASB has now approved five final ISAs draftedin accordance with the new conventions and, including theeight just released, 23 exposure drafts of ISAs. The IAASBexpects to issue a further seven exposure drafts this year,and to complete all 35 ISAs as final standards by the endof 2008.Further information on the Clarity project may beobtained from http://www.ifac.org/IAASB/downloads/IAASB_Clarity_Status_Report.pdf.How to CommentRecognising the number of exposure drafts being issued,the IAASB has staggered the deadlines for comments:• Comments on the exposure drafts of proposed ISA 510(Redrafted) and ISA 530 (Redrafted) are requested byOctober 31, 2007.• Comments on the exposure drafts of proposed ISA 700(Redrafted), ISA 705 (Revised and Redrafted), ISA 706(Revised and Redrafted), ISA 800 (Revised and Redrafted)and ISA 805 (Revised and Redrafted) are requested byNovember 30, 2007.• Comments on the exposure drafts of proposed ISQC 1(Redrafted) and ISA 220 (Redrafted) are requested byDecember 31, 2007.Comments should be submitted by email toEDComments@ifac.org. They may also be faxed to IAASBED Comments, at +1-212-286-9570 or mailed to IAASB EDComments at 545 Fifth Avenue, 14th Floor, New York, NY10017, USA. All comments will be considered a matter ofpublic record and will ultimately be posted on the IFACwebsite.(Source: www.ifac.org)IFAC's International Ethics StandardsBoard for Accountants InvitesComments on Proposed StrategicPlanThe International Ethics Standards Board for Accountants(IESBA), an independent standard-setting board within theInternational Federation of Accountants (IFAC), is seekingcomment from IFAC member bodies, regulators, nationalethical standard setters, accountants in professionalpractice and accountants in business and other interestedparties on an exposure draft of its Strategic and OperationalPlan for the period 2008-2009.The objective of the IESBA is to serve the publicwww.micpa.com.myJune/August 2007 | The Malaysian Accountant |51

interest by setting high quality ethical standards forprofessional accountants and by facilitating theconvergence of international and national ethicalstandards, thereby enhancing the quality and consistencyof services provided by professional accountants. Inconsidering which new projects and activities should beundertaken, the IESBA conducted a survey of interestedparties, including accountants in public practice (fromlarge and small firms), accountants in business, regulators,IFAC members and associates, ethical standard setters andacademics, to solicit views on matters that the IESBA shouldconsider in the next few years to achieve its objective."In addition to suggestions for specific projects, therewas a strong message from the approximately 120 surveyrespondents that the IESBA should place more emphasis onour convergence objective," states Richard George, IESBAChair. "The IESBA, therefore, plans to hold four regionalforums, starting in late 2008, with the objective of gaininga better understanding of the steps necessary to facilitateconvergence of international and national ethical standardsand achieve greater global acceptance of the Code."(Source: www.ifac.org)IFAC Seeks Comments on ProposedPreface to New ManagementAccounting Guidance and ReleasesGuidance on Developing Codes ofConductProfessional accountants in business worldwide will getadded assistance from the International Federation ofAccountants (IFAC) in the form of new internationalprinciples-based good practice guidance. A newly releasedexposure draft (ED), Preface to IFAC's InternationalManagement Accounting Statements and International GoodPractice Guidance, developed by IFAC's ProfessionalAccountants in Business (PAIB) Committee, sets out theobjective, scope and due process of two new types ofguidance: International Management AccountingStatements and International Good Practice Guidance. ThePAIB Committee seeks input on the approach torepresenting good practice to professional accountants inbusiness and the proposed document types.Together with the draft Preface, the PAIB Committeehas released new guidance on developing codes of conductand has issued an exposure draft of the first InternationalManagement Accounting Statement.The International Management Accounting Statementsand International Good Practice Guidance establishfundamental principles and provide supporting applicationguidance to reflect good practice. In addition, the newguidance signposts other sources of information, such asthose developed by national professional accountancybodies. The guidance documents may also serve as aleadership tool that professional accountants can use inpromoting sound financial and management accountingpractices within their organisations."The release of the proposed Preface represents thestart of a significant work program for the committee," saysEdward Chow, Chair of the PAIB Committee. "The newpronouncements will contribute to better decisions inorganisations and enhance the level of support to andcompetence within the global community of professionalaccountants in business. I encourage professionalaccountants in business to use these pronouncements topromote good practices in the organisations in which theywork."New Guidance on Developing Codes of ConductThe PAIB Committee has released the first InternationalGood Practice Guidance, Defining and Developing an EffectiveCode of Conduct for Organisations. This guidance will assistprofessional accountants and their organisations indeveloping and implementing a code of conduct within avalues-based culture. It can be downloaded free-of-chargefrom the IFAC online bookstore at http://www.ifac.org/store.The PAIB Committee welcomes further feedback on thisdocument during the exposure period for the Preface.Exposure Draft on Project Appraisal UsingDiscounted Cash FlowIn addition to the above, the PAIB Committee has alsoissued an ED of a proposed International ManagementAccounting Statement, entitled Project Appraisal UsingDiscounted Cash Flow. The proposed InternationalManagement Accounting Statement aims to supportprofessional accountants in business in applying andpromoting the use of discounted cash flow and net presentvalue to evaluate investments. It sets an internationalbenchmark for using discounted cash flow in projectappraisal and provides principles that reflect widelyaccepted good practice, supported by guidance to facilitatetheir application. The ED asks for feedback on both thecontent and approach.Looking AheadOver the next year, the PAIB Committee plans to developproposed principles-based pronouncements on internalcontrol from a risk management perspective, using costinformation effectively, and enterprise governance. ThePAIB Committee is also using the proposed InternationalManagement Accounting Statement on Project AppraisalUsing Discounted Cash Flow to solicit feedback on futuretopic selections to support this document.(Source: www.ifac.org)52 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

CASE LAW HIGHLIGHTSSANJUNG SELAMAT SDN BHDv C L CHIN & ASSOCIATESHIGH COURT (KUALA LUMPUR)– CIVIL NO D4–22–67 OF 2005ABDUL WAHAB PATAIL J24 MAY 2005Companies & Corporations – Directors – Authority – Directorssupposedly authorised and who signed the resolution hadbeen rejected by the registrar of companies as directors –Whether they were persons actually occupying the position ofdirector – Whether the position takes precedence over theadministrative refusal of the registrar of companies to registerthem as directors – Companies Act 1965 s 4Enclosure 25 is the defendant C L Chin & Associatesapplication to challenge to plaintiff solicitors to act for theplaintiff on the grounds that the two directors whosupposedly authorised and signed the resolutionauthorising Lim & Hoh have been rejected by the registrarof companies as directors. Enclosure 17 is intendedintervener’s application. The plaintiff objected to theapplication on the grounds only commercial rights areinvolved, not legal rights. There were no sales and purchaseagreement with interveners, and their right is only under adeed of guarantee – where deal or arrangement and powerof attorney were given only as security. The plaintiffsubmitted their only right was to sue the plaintiff formoney.Held, dismissing the application with costs:(1) Enclosure 17 is allowed for the reason that it is unsafeto reject the application at this stage unless the issueof those rights of the proposed intervener is lookedinto. That could without inconvenience be disposedoff more safely together with the plaintiff’s application.Since it is apparent that the proposed intervener hassome interest, there can be no objection to theproposed intervener being heard in the plaintiff’sapplication.(2) Section 4 of the Companies Act 1965 withconsiderable foresight set out that the term director‘includes any person occupying the position of adirector’ for the reason that a company cannot haveno director. In this case the previous directors are saidto have all resigned. The persons actually occupyingthe position of director carry the responsibilitiesincluding the fiduciary duties of a de jure orundisputed director, and must account to thecompany. These duties and responsibilities as defacto directors occupying the position of a directormust take precedence over the administrative refusalof the registrar of companies to register them asdirectors. The function of registration is for publicnotification and does not affect their appointment asdirectors, the authority of which emanates from theshareholder’s resolutions. This conclusion isconsistent with s 107 of the Companies Act 1965 thatthe directors remain valid notwithstanding anysubsequent finding that they are not valid directors.The nature of the applications in this case are primafacie in the interest of the plaintiff company. There isnothing shown at this point that those orders are tothe detriment of the plaintiff company. For thesereasons the application at encl 25 was dismissed withcosts.Source: Malayan Law Journal [2007] 1 MLJProduced with kind permissionwww.micpa.com.myJune/August 2007 | The Malaysian Accountant |53

GLOBAL INSIGHTNEWSfrom Down UnderA O FERRERS, AUSTRALIAN CORRESPONDENTMMany will know that much of theAustralian continent is in the grip of severedrought, the tropical north being anexception. However, in the last few dayseastern New South Wales has been inundated withexceptional rain worsened by gales, causing severeflooding. This has destroyed crops, drowned livestock,ruined businesses and damaged or destroyed homes.Emergency Services staff from Queensland and Victoria hasjoined their New South Wales colleagues to repair some ofthe worst damage. Some are saying that full recovery maytake years rather than months. There will be mammothinsurance claims. After a respite of a few days, more heavyrain is falling today as I write. Sydney itself has been onthe fringes of the deluge.Our financial year ends on June 30, 2007. After thatwe begin to prepare and file our tax returns. Mr Tax in hismedia release of June 12, 2007 says that he is here to helptaxpayers:“The Tax Office has assured people affectedby the floods that they do not need to worryabout their tax at this time. [Mr Tax] said thisis a very difficult time for residents of thecentral coast and Hunter region, especiallythose who have suffered damage to their homeor business.“We understand that people have otherpriorities to sort out now and it may be sometime before they are able to focus on taxmatters.”A hotline has been set up for taxpayers to call andanother for their tax agents to make arrangements thatsuit individual circumstances.The Tax Office is offering help in a number of ways,including• Fast tracking refunds for those impacted by the flood• Giving extra time to pay debts without interest charges• Helping reconstruct tax records where documents hasbeen destroyed• Offering personal visits from field officers to helpreconcile lost records.DroughtThe federal government has been making droughtfinancial assistance available to farmers and ruralbusinesses in a number of forms. Some of these requiredetailed information, which some people find baffling toassemble. To assist, CPA Australia has put together aninformation kit, which is available not only on the Internetbut also from regional and rural branches of the ANZ Bankfree of charge. The kit is designed to help farmers andbusinesses suffering exceptional circumstances to apply forfinancial support during one of Australia’s worst droughtsin history. The bank is committed to helping theircustomers work out strategies to manage the financialburden caused by the drought.Peter Docherty, Director of Public Practice, says thatthe kit describes the types of relief offered by governmentand clarifies the application process. It specifies theeligibility criteria for each type of relief and directsapplicants to government websites for further information.It also tells those unaware of entitlements what they maybe able to get and how to go about it. Of course, this iswhere accountants can be of inestimable assistance.Mr Docherty has commented: “CPAs are alreadyhelping their clients with the application process fordrought relief which requires financial and budgetinginformation. An accountant can help make sense ofcomplex information and ensure that it is translated intothe format required for the form.“We encourage farmers and small businesses who areaffected to apply for drought relief. The drought has beenand continues to be a problem. Farmers and businessesmust be aware of the help available.”The CPA Australia media release gives two examplesof success in which CPAs were instrumental in making theapplication. One concerned a farm machinerymanufacturing business. It received $83,000 as an interestrate subsidy.In the second a farmer with a cropping and grazingfarm received $100,000 as an interest rate subsidy. Thesefunds will put the farmer in a position of being able to payloan interest commitments if the season does not break orif a break occurs, to pay interest and finance the sowing ofthe next crop. The CPA concerned is working with thefarmer on action plans for recovery after rain or,alternatively, survival if there is no rain. If detailed plansare required, the CPA will look at helping the client access54 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

the Professional Advice and Planning Grant to pay for thiswork.Accountants can and do take the hard work out of thevarious processes of applications for relief, which allows theclient to get on with his business. The accountant canmonitor progress of the application as well and resolve anyissues quickly for the client which may arise.With the kit in hand, ANZ branches and countryCPAs are spreading the word about the government helpavailable.EthicsBy a media release of June 13, 2007 the National Instituteof Accountants announced that it had joined with its fellowprofessional bodies, CPA Australia and the Institute ofChartered Accountants, in forming the AccountingProfessional and Ethical Standards Board. This Board isindependently constituted charged with the responsibilityto set the code of ethics and professional standards bywhich their members are required to abide.While each of the founding members has its own codeand standards, the Board will mean that the three bodieswill work together to ensure consistency throughout theprofession of accountancy. All three are now replacingtheir present standards and code with the equivalent Boardstandards.The National Institute of accountants’, Greg Dennis,had this to say: “With the NIA now an equal member of theBoard, the result is a clearly defined and transparentdevelopment process for standards nationally and the NIAis very pleased to play its part to ensure the Australianaccounting profession remains one of the most ethical andprofessional in the world.“[There] is an ongoing process that requires carefulconsideration of the exposure drafts issued by the Board. Tothis end, we will be relying on the input of our members toassess the impact of any proposed changes. These will becommunicated to the Board and worked through on a caseby-casebasis.”The Institute of Chartered Accountants in May held aNSW Business Forum at which the topic of ethics wasfeatured. David Gonski of Investec Bank was a leadingspeaker.The media release recorded that he said that havinggood business ethics was not a gimmick. Rather, goodethics made good business sense and in today’s corporateenvironment, businesses cannot afford to ignore theirobligations.“We ought to take responsibility for social,community and environmental issues.”He also pointed out that it is important for businessto display ethical behaviour to attract and retain staff,increase profits, attract investors and government fundingand to enhance its reputation within the corporate world.“In an age of near full employment, attracting andretaining good staff can be tough. Staff wants to be proudof where they work and the standing of a company canstand or fall on its ethical reputation… [Customers] wanta product that not only serves its purpose but is producedby an environmentally responsible company… If you wantto get and retain monies, ethics are essential.“The days are long gone where business was powerfulenough to get government to act whenever it demanded it.Government is transparent and the ethical standards of abusiness are now a key factor in the procurement of grantsand influence.”He also sounded a warning pointing out that ethicscame from prosperity. But if prosperity ends, then there isa risk ethics may be forgone. In his words, “it may be oneof the first things to fall in an economic drought”.Dear Readers,If you have any article, which inyour view, is suitable for inclusion inour columns, please send the article tothe Editorial Board at the address belowor via e-mail.We will be happy to review thearticle for publication in this journal.Kindly contact:Public Affairs &Communications ManagerThe Malaysian Institute ofCertified Public Accountants15 Jalan Medan Tuanku50300 Kuala LumpurE-mail: vic.pr@micpa.com.mywww.micpa.com.myJune/August 2007 | The Malaysian Accountant |55

GLOBAL INSIGHTWORLDNEWSUNITED KINGDOMUNITED STATESSRI LANKAAUSTRALIAAustraliaThe Australian Accounting Standards Board (AASB) hasissued a revised AASB 123 Borrowing Costs. The revisedStandard has been adopted as a result of the IASB’srevisions to IAS 23 Borrowing Costs in March of this year.The Standard is applicable to reporting periods beginningon or after January 1, 2009, with early adoption permitted.Professor David Boymal, Chairman of the AASB,commented that: “The major change to the Standardinvolves the removal of the option of recognisingborrowing costs immediately as an expense, to the extentthat they are directly attributable to the acquisition,construction or production of a qualifying asset. Theremoval of the option to expense borrowing costsattributable to qualifying assets is aimed at converging, inthe short-term, IASB Standards and US generally acceptedaccounting principles.”The Revised Standard also has a narrowed scope andits requirements do not apply to borrowing costs directlyattributable to the acquisition, construction or productionof:• a qualifying asset measured at fair value, for examplea biological asset; or• inventories that are manufactured or otherwiseproduced, in large quantities on a repetitive basis.AASB 123 applies to each entity that is required toprepare financial reports in accordance with Part 2M.3 ofthe Corporations Act 2001 and is a reporting entity, generalpurpose financial reports of each reporting entity andfinancial reports that are, or are held out to be, generalpurpose financial reports.Amending Standard AASB 2007-6 has also beenreleased which makes amendments to a number ofStandards that are a consequence of the changes made toAASB 123.(Source: www.accountingeducation.com)Sri LankaThe Board of the Institute of Chartered Accountants of SriLanka (ICASL) has approved a policy that Sri LankanFinancial Reporting Standards will be fully compliant withInternational Financial Reporting Standards by 2011,meaning that a company that asserts compliance with SriLankan standards could also assert compliance with IFRSs.56 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

The policy was announced by Yohan Perera, President ofthe ICASL, at an international conference on 'Fair Value –A Paradigm Shift' sponsored by the South Asian Federationof Accountants in Colombo, Sri Lanka, on August 25, 2007.Currently, Sri Lanka has adopted many, but not all,of the latest IFRSs. Mr Perera also announced that Sri Lankaexpects to adopt IAS 32 and IAS 39 in September 2007, tobe effective in 2009.(Source: www.IASPlus.com)United KingdomThe International Valuation Standards Committee (IVSC)is consulting on the determination of fair value ofintangible assets for the purpose of reporting underInternational Financial Reporting Standards.It has released a discussion paper that aims to helpthe future development of improved and more robustguidance on the valuation of intangible assets for financialreporting within the overall IVS framework.The paper can be accessed at: http://ivsc.org/ivsc/intangibleassets.pdfIVSC chairman Joseph Vella said: 'As the InternationalFinancial Reporting Standards (IFRS) require increasing useof fair values for a greater range of assets and liabilities infinancial accounts, a clear gap in guidance is emerging.'He added: 'The discussion paper was developed by ateam of experts and addresses one of the key areas in whichthe IASB requires fair value guidance - that of measuringthe fair value of intangible assets, such as brands, licences,patents, know-how, customer contracts and customerrelationships. Without guidance in this area, there is a dangerthat valuation practitioners may take different approachesand have different interpretations of IFRS requirements.'The consultation is open for comment from interestedparties until October 31, 2007.(www.accountancymagazine.com)United KingdomA number of barriers remain in the expansion of theIslamic finance industry, including a lack of qualified Islamicbankers, weaknesses in financial reporting and transparency,and the issue of regulatory capital according to a KPMGsurvey conducted by the Economic Intelligence Unit (‘EIU’).The EIU conducted interviews with a number ofleading figures on behalf of KPMG and the report entitled“Growth and Diversification in Islamic Finance” soughttheir views on the current and future development ofIslamic finance. Included in the survey are case studies onHSBC Amanah and Unicorn Investment Bank which detailtheir experiences in this area.Respondents highlighted the following generic issuesthat the Islamic finance industry faces: Lack of youngqualified Islamic bankers across all regions; while trainingis available and specific countries such as Malaysia aremaking huge investments in this area, respondentsobserved that high turnover remains a problem. Lack ofdevelopment in Islamic finance regulations: many Muslimcountries have not put the legislation in place covering theauthorisation of Islamic banks, or the issuance of Islamicfinance products. Nor have they considered putting it onthe agenda. The quality and transparency of financialreporting on Islamic finance differs from one jurisdiction toanother.Measuring the performance of Islamic financialproducts can be difficult. However, with the introduction ofBasel II and the requirement that banks allocate risk byrating, there is greater likelihood of the ratings of Islamicfinancial products and instruments growing in importanceover the next few years. Respondents felt that a tailor-maderating agency would be the solution, as the major westernones have been slow to develop rating methods and specificcriteria for Islamic financial products.On a positive note, the report also highlights theareas where product and market diversification arebeginning to take hold in what, undoubtedly, remains arelatively young industry which has experienced a periodof rapid expansion to the point where it has an estimatedUS$500 billion* under management. One respondent feltthat takaful (insurance) is potentially the most lucrativeare for development, because it remains under-developed,especially in conservative Gulf Co-Operation Councilcountries.Paul Furneaux, Financial Services Partner with KPMGin the UK explains: “Respondents were aware that theywould have to be more creative in product innovation inareas such as derivatives, swaps and options, butrecognised that the market is currently at the bottom of asteep learning curve. The role of Islamic scholars will becrucial in helping to determine the level of sophisticationof the products themselves.”A number of key areas for potential development arehighlighted including:• The issuance and trading of asset-backed securities or‘sukuk’ where there is significant potential for thegrowth in Europe and the U.S. However, severalrespondents felt there had not yet been enoughissuances in the market to stimulate the growth insecondary marketing trading as a growth area.• Project infrastructure financing which will include thedevelopment of markets in the West• Structured finance derivatives• Private equity and retail banking which goes beyondIslamic mortgages.www.micpa.com.myJune/August 2007 | The Malaysian Accountant |57

But respondents also reported that there was also aneed for the market to consolidate and refine itself, as wellas consider innovation and new product development.Respondents acknowledge that while Islamic financecontinues to be a male-dominated industry, several womenhave excelled in the sector, and have had a huge financialimpact in Islamic countries. They suggested that the role ofwomen in the sector will undoubtedly become stronger, asthey can help tackle the human resources bottleneck thatcurrently exists. For this to happen, however, many Muslimcountries would have to introduce legislation guaranteeinggender equality and equal opportunities in the workplace.For the future, convergence is the theme that unitesmany respondents and the point at which the ‘tippingpoint’ may be reached between Islamic finance and theglobal financial system to allow it to move from being aniche player into the mainstream. But there is also an issuearound Muslim countries addressing their Islamic financialarchitecture by deciding which model they would prefer tofollow – either a ‘dual’ banking system or the ‘Islamisation’of the banking system. Many bankers interviewed for thesurvey felt that adherence to the former model would bepreferable.Paul Furneaux, Financial Services Partner with KPMGin the UK concludes: “Overall the future is bright for theIslamic finance market. As respondents commented, evenif the oil price goes down, their collective view was that thiswould not have a material effect on its continueddevelopment.”(Source: http://www.kpmg.co.uk)Watchdog calls for betterdocumentation and accuracyTop accountancy firms are not giving a good enoughexplanation as to how they reach their key audit judgments,watchdog the Audit Inspection Unit (AIU) warned.In its third annual report, the AIU criticised firms fornot doing enough to document the rationale behind theimportant decisions they take during an audit and saidthey jeopardised audit quality as a result.AIU director Andrew Jones said: 'We're not talkingabout more documentation, but quality of documentationand accuracy.'He called for firms to give a clear message to theirpartners and staff on the importance of good quality auditdocumentation and the need for ongoing improvement.In the year to March 31, 2007, the AIU reviewed 103audits of companies that primarily had a December 31,2005 year-end. This was the first financial yearInternational Financial Reporting Standards (IFRS) wasapplied to the accounts of full listed companies and itcoincided with the implementation of InternationalStandards on Auditing (ISAs) and the adoption of theAuditing Practices Board's Ethical Standards.Overall the AIU found the quality of auditing in theUK to be 'fundamentally sound' and said firms hadresponded well to the implementation of IFRS. It did,however, identify a number of issues relating to theapplication of the audit risk and fraud ISAs (UK andIreland).During 2006/07 the AIU undertook 'full scope'inspections of the Big Four firms, Grant Thornton, BDOStoy Hayward, Baker Tilly, PKF and Robson Rhodes (due tomerge with Grant Thornton next month) . It also visitedseven smaller firms.The AIU's report was welcomed by mid-tier firm BakerTilly. Audit head Nigel Tristem said: 'The Big Four and MidFour continuously seek to improve audit quality to enhancefurther the excellent reputation of the profession and,although minor findings were highlighted, I remainconfident that the bar for audit quality will continue to beraised by all firms.'(Source: www.accountancymagazine.com)United StatesThe American Institute of Certified Public Accountants'(AICPA) Accounting Standards Executive Committee(AcSEC) has issued Statement of Position (SOP) 07-1,Clarification of the Scope of the Audit and AccountingGuide Investment Companies and Accounting by ParentCompanies and Equity Method Investors for Investments inInvestment Companies. The SOP is effective for fiscal yearsbeginning on or after December 15, 2007, with earlierapplication encouraged.AcSEC issued the SOP to provide guidance fordetermining whether an entity is within the scope of theAICPA Audit and Accounting Guide InvestmentCompanies (the Guide). For those entities that areinvestment companies under the SOP, it also addresseswhether the specialized industry accounting principles ofthe Guide (referred to as investment company accounting)should be retained by a parent company in consolidationor by an investor that has the ability to exercise significantinfluence over the investment company and applies theequity method of accounting to its investment in the entity(referred to as an equity method investor). In addition, theSOP includes certain disclosure requirements for parentcompanies and equity method investors in investmentcompanies that retain investment company accounting inthe parent company's consolidated financial statements orthe financial statements of an equity method investor.(Source: www.aicap.org)58 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

LIFESTYLELeaving a Legacyfor the FutureBY KAVALYN KREERMost of us are so preoccupied with our busyand hectic schedules that we forget the mostimportant force of nature that makes ourlives on this planet worthwhile. That force isMother Nature!Due to severe neglect and disregard, a lot of damagehas been done to our surroundings, so much so it has hadadverse effects on the environment worldwide. Countlessdisasters around the world today are the result of thisneglect. Indeed, Mother Nature is striking back with avengeance!Though there are organisations around the worldendeavouring to create an awareness of preserving andprotecting the environment, it is imperative that weourselves as individuals realise the perils of ignoring thecalls for safeguarding the environment. If Mother Natureis not appeased, future generations of mankind will sufferworse consequences.Malaysia is geographically-blessed and relatively freefrom natural disasters. In fact, Mother Nature has endowedher with lush primary rainforests teeming with a variety offlora and fauna, high peak mountains, tropical islandparadise with countless marine life beneath the clearturquoise waters, and of course, the endless white sandybeaches.Interestingly, Malaysia’s rainforest is far older than itscounterparts in the equator belt namely the Amazon andCongo forests. Some 60% of the country is covered byrainforest and this vast greenery houses an eco-systemwhich is truly remarkable.The preserved greenery contributes in balancing theecology. There are some 8,000 species of flowers, 2000species of trees, 800 varieties of Orchids, 200 types of palm,150 species of ginger plants with rare flowers.There is also an endless array of rare species of faunacomprising the Sun Bear, Monitor Lizard, Orang-utan,Sumatran Rhinoceros, Clouded Leopard, Malaysian Tiger,elephants, tapirs, and gibbons. The tropical climate anddiversified ecology lures the birds to take shelter in the vastgreenery. Mangrove trees at the seafront protect the dryland from the encroachment by the sea and are thebreeding ground for prawns and fishes.Indeed we have the world’s largest flower, Rafflesiaand the smallest pygmy squirrel in our rainforest.It is disconcerting when these important facts arecompletely disregarded and ignored in the name ofeconomic development. Continuous and indiscriminatedeforestation and pollution in all forms will contribute inultimately destroying the fragile eco-system. Precautionarymeasures for pollution control must be taken to preservethe environment so everyone can have a chance to enjoy it.Global warming is another environmental issue thatshould be of paramount concern to all world citizensbecause global warming is a reality that cannot be ignoredany longer. Humans have increased the amount of carbondioxide in the atmosphere by more than a third since theindustrial revolution. Changes this large have historicallytaken thousands of years, but are now happening over thecourse of decades.So what is global warming?It means that the planet is heating up and it iswarming up fast. Glaciers are melting, sea levels are risingand we, the human race are responsible by releasing heat-www.micpa.com.myJune/August 2007 | The Malaysian Accountant |59

trapping gases that are so essentially in our fast-pacedmodern lives. This is called greenhouse gases (GHGs) andtheir levels are so much higher now than in the last650,000 years.The “greenhouse effect” is the warming that happenswhen certain gases in Earth's atmosphere trap heat. Thesegases let in light but keep heat from escaping, like the glasswalls of a greenhouse.Essentially, the sunlight shines onto the Earth’ssurface, where it is absorbed and then radiates back intothe atmosphere as heat. In the atmosphere, “greenhouse”gases trap some of this heat, and the rest escapes intospace. The more greenhouse gases are in the atmosphere,the more heat gets trapped.Throughout the history of the planet, the level ofgreenhouse gases have fluctuated but remained fairlyconstant. It was the same for the average temperatureglobally until recently. Through the burning of fossil fuelsand other GHG emissions, humans are enhancing thegreenhouse effect and warming Earth.The consequences are critical. Global warming iscausing changes to the Earth’s climate. In the last decadeor so, weather patterns have changed drastically and as theEarth spins each day, the new heat swirls with it, pickingup moisture over the oceans, rising in some places andultimately changing the rhythms of climate that all livingthings are used to. Some areas are cool, some warm, someexperience change in amount of rain fall and snow. Theclimate is changing differently in different areas.It is a daunting task that humans today are facedwith; that is, how to slow down the warming process.Climate changes, as we know it, are already set intomotion. Here, in this part of the world, the El Nino effect ispart of the climatic changes that have occurred in ourweather patterns. Weather patterns here have gonecompletely out of sync with the mercury rising graduallyyear after year and unpredictable inclement-weatherduring dry months.Interestingly, according to the IntergovernmentalPanel on Climate Change, eleven of the twelve hottestyears since thermometer readings became availableoccurred between 1995 and 2006.The first step you can take towards preserving theenvironment is to become an eco-minded citizen. Yourdaily habits and decisions, unknowingly, contribute toglobal warming and can affect society as a whole.Make it a habit to use environmentally-friendlyproducts in your daily lives. This shows that you arecommitted to making a change and eventually, withenough voices, this may give manufacturers ofenvironmentally unfriendly products a reason to putMother Nature first instead of their profit margins.As individuals, there are ways you can contribute tothe preservation of the environment. Buy organic stuff. Inthe United States, clothes are also made of eco-friendlyproducts i.e. organic clothes. Take your own bag when youshop. Some billions of plastic bags are manufacturedaround the world each year and an equal number isthrown away. Imagine the amount of petroleum used toproduce these items that are eventually discarded in a veryenvironmentally unfriendly manner. So the next time yougo shopping, take your own organic cotton grocery bag.You could also opt for recyclable plastics.Try not to purchase conventional toxic householdproducts instead opt for products that do not contain toxicchemicals. The latter when they find their way into ourdrains will eventually find their way into our waterwaysand can harm wildlife.When many of us were young weren’t we often toldby our parents not to leave the lights on indiscriminately?That was sound advice. Nowadays, we can opt for energysaver lights. They may cost more but they use less energyand they last for years; they also generate less heat. Byusing less energy, your electricity bill will be considerablylower. In Europe there are plans to stop production ofincandescent bulbs and only have energy saver bulbsbefore the end of the decade.Other simple things, that we can implement on adaily basis is to conserve water; turn off the tap while youbrush your teeth and while soaping in the shower.Ultimately, the best thing you can do for MotherNature is to ‘go green’ everywhere including your homeand workplace. It is not as difficult as it may appear.The United Nations General Assembly, in its efforts topreserve the environment, in 1972, established the WorldEnvironment Day which is commemorated annually on 5June. This auspicious day is celebrated in hopes of creatingan awareness of the environment through appropriatechannels and action.In the end, all said and done, whether, we want to ornot, we have to start thinking about the consequences ofangering Mother Nature. We need to ensure that byconserving the environment, we leave a lasting legacy forthe future generations.This article was written by Kavalyn Kreer, who writes lifestylearticles for publication on the web and print.60 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

Scaling greater heightsBecoming a CPA distinguishes you as the leadingbusiness professional. It opens doors to a world ofcareer opportunities. It enables you to advance yourcareer to wider planes and helps you realise theultimate potentials in yourself.The world today needs more than just accountants.It demands for a league of highly skilled businessprofessionals with sound technical knowledge totake charge of the financial forte of organisations,and provide innovative ideas and solutions to avariety of business problems.The CPA qualification will adequately prepare youfor this new world of business.To find out how you can train to become a CPA, callus at 03 2698 9622 or email your enquiries tomicpa@micpa.com.my.www.micpa.com.my