Pricing Convertible Securities - The Malaysian Institute Of Certified ...

March-April 2012 www.micpa.com.my PP 3809/03/2013 (031857)Pricing ConvertibleSecuritiesIntegrated Reporting Part 2 -The South AfricanExperience and Beyond

The Malaysian AccountantFEATURE P.3FEATURE P.12PERSPECTIVE 2FEATURE• Malaysian Tax Updates 3• Integrated Reporting Part 2 - The South African 11Experience and Beyond• Pricing Convertible Securities 16INSTITUTE NEWS• MICPA 53rd Anniversary Commemorative Lecture 19• 54th MICPA Annual General Meeting Announcement 20• MICPA Activities 20• Membership Update 21• Disciplinary 21• Continuing Professional Development (CPD) Programme 22• Revised MICPA Programme Examination Results 23PROFESSIONAL NEWS• MASB Update 25• Securities Commission Malaysia 27• IASB Update 28• IFAC Update 28CASE LAW HIGHLIGHT OR ARTICLE• It’s Not Business As Usual With Competition Act 31GLOBAL INSIGHT• News from Down Under 33• World News 34LISFESTYLE• Smoothie Benefits 36CONTENTSEDITORIAL BOARDDatuk RobertYong Kuen Loke (Chairman)TanTheng Hooi (Alternate Chairman)Abdul Halim Md LassimDato’ Hj Maidin Syed AliLoh Lay ChoonNg KimTuckDato’ Syed Faisal AlbarTan Chin HockYongYoon Shing, GaryChia Kum Cheng (Co-opted)Ahmad FarisYahaya (Co-opted)PRINCIPAL OFFICE BEARERSPresidentDato’ Seri Johan RaslanVice PresidentKen PushpanathanPRINCIPAL OFFICERSExecutive DirectorFooYoke Pin (ypfoo@micpa.com.my)Education &Training, ManagerVictor Liew (victor.edu@micpa.com.my)Membership Services ManagerLee How Lai (membership@micpa.com.my)Head, ExaminationLai Hui Chean (lhc.exam@micpa.com.my)Technical Manager (Tax)Cheong Li Wei (clw.tech@micpa.com.my)Technical Manager (Audit)Chow Hsiao Mei (chm.tech@micpa.com.my)Marketing ManagerEileen Grace Lee (eileen.mktg@micpa.com.my)Public Affairs & Communications ManagerVicky Rajaretnam (vic.pr@micpa.com.my)Single Copy: RM8.00Subscription: 6 issuesRM46.00 per annum(including P&P within Malaysia only)The Malaysian Accountant is published by:The Malaysian Institute ofCertified Public Accountants (3246-U)15, Jalan MedanTuanku50300 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 not necessarilythose of the Institute or the Editorial Board. All right reserved; nopart of this publication may be transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording orotherwise, without prior pernission of the Institute or theEditorial Board.Concept & DesignDigibook Sdn BhdReign Associates Sdn BhdPrinterThumbprints Utd Sdn BhdLot 24, Jalan RP3, Rawang Perdana Industrial Estate,48000 Rawang, Selangor D.E. Malaysia.Tel: +603-6092 9809Fax: +603-6092 6976M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

2 PERSPECTIVEThe Malaysian AccountantThe lead feature in this issue of the journal focuses on the key tax developments that have takenplace from the period of September 2011 to February 2012.These key developments concentrate mainly on the enactment of the Finance Act 2011, thegazetting of several proposals as announced in the recent Budget, the issuance of several PublicRulings, updates on double tax agreements and the Trans-Pacific Partnership Agreement as wellas administrative guidelines and tax filing programme for 2012 issued by the Inland Revenue Board(IRB).One of the interesting aspects’ to note is that several contentious proposals in the 2012 Budgethave not been enacted in the Finance Act 2011. The majority of Public Rulings that were issuedconcerned personal taxation in relation to tax treatment of gratuity on retirement, compensationreceived for loss of employment and taxation of foreign nationals working in Malaysia includingthose working for operational headquarters, regional offices, international procurement centresand regional distribution centres. Read more on these tax updates inside.More on integrated reporting. In the October 2011 issue, the journal had reported on the pressureto change the landscape for corporate reporting. However, the recent financial crisis and thefinancial scandals have underscored the need for a different form of reporting.It was found that simply reporting on CSR and sustainability issues is not enough. Now there is ademand for reporting that not only discloses non-financial information but also one that allowsinvestors to identify the link between non-financial and financial information. This method ofreporting is called Integrated Reporting. Read more about it inside.What does one know about convertible securities? Convertible securities are traded widely inglobal debt markets. The most common convertible securities are convertible bonds andconvertible preferred stocks. The Convertible Bond (CB) is an equity-linked instrument that givesthe holder of the bond the right to convert the bond into a predetermined number of common stockin the future. It is attractive to investors as it provides downside protection of a straight bond withcoupons and principal payback at maturity plus the upside return of equities.Being a hybrid of a bond and equity, the price behaviour of a CB is rather unique but not very clearcut.The article inside describes the features of the CB and its pricing behaviour and illustrates twocommon pricing methods in the market.We all know that being healthy is one of the most important things’ in our lives. We would do almostanything to ensure good health and go to great lengths to look for ways to improve our general wellbeing. One way to do it is to drink healthy green smoothies. Read more about the benefits of greensmoothies in the lifestyle section.M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant FEATURE 3MALAYSIANUPDATESBy Thang Mee LeeSet out below is a summary of the key tax developments(excluding case law developments) that have taken placeduring the period from September 2011 to February 2012.The key developments centre on the enactment of the Finance Act2011, the gazetting of several proposals as announced in therecent Budget, the issuance of several Public Rulings, updates ondouble tax agreements and the Trans-Pacific PartnershipAgreement as well as administrative guidelines and tax filingprogramme for 2012 issued by the Inland Revenue Board (IRB).An interesting aspect to note is that several “contentious”proposals in the 2012 Budget have not been enacted in theFinance Act 2011 (as outlined below). The majority of PublicRulings issued concern personal taxation in relation to taxtreatment of gratuity on retirement, compensation received for lossof employment and taxation of foreign nationals working inMalaysia including those working for operational headquarters,regional offices, international procurement centres and regionaldistribution centres.Malaysia has successfully negotiated its first bilateral freetrade agreement (“FTA”) with a Latin American country i.e. Chile,which has come into force in February 2012. The other FTAs,which Malaysia is currently negotiating, are with Turkey andAustralia respectively. The tenth round of negotiation amongstmembers of the Trans-Pacific Partnership (“TPP”) was held inKuala Lumpur in December 2011 (the eleventh round ofnegotiations was subsequently held in Melbourne in March 2012).The TPP accounts for a third of Malaysia’s global trade andtogether with the FTAs concluded by Malaysia, this would increaseMalaysia’s share of global trade covered under the preferentialtreatment to above 70%.The tax filing programme for 2012 released by the IRBrecently provides for extension of time (or grace period) for the filingof tax returns by e-filing (i.e. 15 days) and by post (i.e. 3 days).These grace periods are also applicable for payment of balance oftax under Section 103(1). However, there will not be any extensionof time for filing of tax returns by hand.Gazette OrdersIncome TaxFinance Act 2012The Finance Act 2012 was gazetted on February 9, 2012 toenact the Budget 2012 proposals. However, the followingproposals as announced in the Finance (No. 2) Bill 2011 were notenacted:-• Section 80(1B) – Power of access of the DG to be extended tocover access to computerised data stored on a computer orotherwise, including passwords, encryption codes, etc.• Section 81(2) – Power of the DG to disregard information wheresuch information is furnished after the time-frame imposed bythe DG and hence such information cannot be used to disputeany assessment made or in any proceedings before theSpecial Commissioners or courts• Section 106 – Discretion of the DG to remit the whole or anypart of the interest on judgment debt awarded by the court tothe Government in any civil proceedings• Section 107D – Power of the DG to direct a person to pay taxby instalments in cases where the person does not file a returnwithin the stipulated dateline and where the DG has reason tobelieve that the person has made an incorrect return or hasprovided incorrect information• Section 54A – amendment to reduce income tax exemptionfrom 100% to 70% for Malaysian shipping companies carryingw w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

4 FEATUREThe Malaysian Accountanton a business of transporting passengers or cargo by sea on aMalaysian ship or of letting out on charter a Malaysian ship ona voyage or time charter. It should be noted that the Ministry ofFinance (MOF), in its letter to the Malaysia Shipowner’sAssociation (MASA), have proposed that the implementationof the proposal be deferred until the year of assessment 2013,pending a study to be conducted by MASA on tax and othercurrent issues that are impeding the growth of the shippingindustry.Income Tax (Deduction for Expenditure on Issuance ofIslamic Securities) Rules 2011The Rules, which shall have effect from the years ofassessment 2012 to 2015, provide that a deduction (againstadjusted income) of an amount equal to the expenditure incurredby a company for the issuance of Islamic securities approved bythe Securities Commission or Labuan Financial Services Authority,as the case may be. The Rules apply to Islamic securities pursuantto the principle of Wakalah, which comprises a combination of debtand asset.Income Tax (Exemption) (No. 10) Order 2011The Order, which shall have effect from the years ofassessment 2012 to 2014, exempts the following personsresident in Malaysia for a basis period for a year of assessment fromthe payment of income tax in respect of statutory income derivedfrom the regulated activity of dealing in securities under the CapitalMarkets and Services Act 2007(“Act”) relating to a business ofdealing in sukuk:i. a holder of a Capital Markets Services License for the activity ofdealing in securities;ii. a person specified to be a registered person under Schedule 4(paragraph 76(1)(a)) of that Act; andiii. a registered person under subsection 76(2) of that Act, wheresuch dealing is carried on through the proprietary account ofsuch personIncome Tax (Exemption) (No. 11) Order 2011The Order, which shall have effect from the years ofassessment 2012 to, exempts the persons specified in theSchedule to the Order who are resident in Malaysia for a basisperiod for a year of assessment from the payment of income tax inrespect of statutory income derived from the regulated activity ofdealing in securities and advising on corporate finance under theCapital Markets and Services Act 2007 (“Act”) relating to thearranging, underwriting and distributing of sukuk. The Orderapplies to non-ringgit sukuk that originates from Malaysia andissued or guaranteed by the Government of Malaysia or approvedby the Securities Commission.This Order is applicable to the following person who carries on theregulated activity of dealing in securities and advising on corporatefinance:-i. a holder of a Capital Markets Services License granted underSection 61 of the Act;ii. a person specified to be a registered person under Schedule 4of that Act; oriii. a registered person under subsection 76(2) of that Act,The Order is also applicable to a person specified under Schedule3 of that Act who is carrying on the regulated activity of advising oncorporate finance, which is solely incidental to the carrying on of hisbusiness or the practice of his profession.Income Tax (Exemption) Order 2012The Order, which shall have effect from January 1, 2010 untilDecember 31, 2014, exempts a qualifying company in the basisperiod for a year of assessment from the payment of income tax inrespect of statutory income derived from a qualifying project,which is equivalent to the amount of allowance of 100% ofqualifying capital expenditure incurred for 5 years.Qualifying company means a company incorporated underthe Companies Act, 1965, a tax resident and who undertakes aqualifying project (i.e. any new private healthcare facilities businessor any project for the expansion, modernisation or refurbishment ofexisting private healthcare facilities business.Income Tax (Prescription of Activity Excluded From theDefinition of “Manufacturing”) Rules 2012The Rules, which are deemed to have effect from the year ofassessment 2009, excludes certain activities from the definition of“manufacturing” for reinvestment allowance purposes underparagraph 9 of Schedule 7A to the Income Tax Act 1967 (“ITA”).M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant FEATURE 5Real Property Gains TaxReal Property Gains Tax (Exemption) Order 2011With effect from January 1, 2012, RPGT rates have been revisedas follows:-RateDisposal made within 2 years after 10%date of acquisitionDisposal made in the 3rd, 4th or 5th year 5%after date of acquisitionDisposal made after 5 years from 0%the date of acquisitionThe revised rates are applicable to chargeable gain arising from thedisposal of chargeable assets on or after January 1, 2012 andapply to companies, individuals, partnerships, bodies of personsand corporation sole.Stamp DutyStamp Duty (Exemption) (No. 3) Order 2011The Order, which comes into operation on January 1, 2012,grants stamp duty exemption for any loan agreement executedbetween a purchaser andi. a bank, financial institution, insurance company or cooperativesociety;ii. an employer under an employee housing loan scheme; oriii. PR1MA Corporation Malaysiarelating to the purchase of a residential property from PR1MACorporation Malaysia.The Sale and Purchase Agreement must be executed on orafter January 1, 2012 but not later than December 31, 2016. Theexemption is given once to an individual Malaysian citizen who iseligible to purchase residential property costing not more thanRM300,000 under the Perumahan Rakyat 1Malaysia programme.Stamp Duty (Exemption) (No. 4) Order 2011The Order, which comes into operation on January 1, 2012,grants stamp duty exemption for the instrument of agreement fora loan or financing pursuant to a micro financing scheme approvedby the National Small and Medium Enterprise DevelopmentCouncil, for an amount not exceeding RM50,000 between aborrower and a participating bank or financial institution. Theinstrument of agreement must be executed on or after January 1,2012 in order to qualify for the exemption.Stamp Duty (Exemption) (No. 5) Order 2011The Order, which comes into operation on January 1, 2012,grants stamp duty exemption for all loan or financing instruments(executed on or after January 1, 2012) in relation to the ProfessionalService Fund for an amount not exceeding RM50,000 between aborrower and Bank Simpanan Nasional.Public RulingsPublic Ruling 8/2011 (PR8/2011) - Foreign NationalsWorking In Malaysia - Tax TreatmentThe PR explains the tax treatment of employment income derivedby foreign nationals exercising employment in Malaysia. The PR,which is effective from the year of assessment 2011, states thefollowing:• A foreign national working in Malaysia is liable to tax underMalaysian domestic law in respect of his employment incomederived from Malaysia.• Subsection 13(2) of the ITA provides that employment incomeis deemed derived from Malaysia when the employment isexercised in Malaysia. Since the phrase exercisingemployment is not defined in the ITA, it is generally understoodto mean that an employee is exercising his employment at theplace where he is physically present when performing theactivities for which he is deriving employment income.• If the income arises for any period during which the employeeperforms duties outside Malaysia and if these duties areincidental to the exercise of his employment in Malaysia, thensuch income is also subject to tax (for further details, refer toPublic Ruling No.1/2011 – Taxation of Malaysian EmployeesSeconded Overseas).• The tax rates applicable to foreign nationals would depend ontheir residence status, which is determined by the physicalpresence of the foreign national in Malaysia in the calendar yearconcerned. Resident individuals are eligible to claim personalreliefs and are taxed at scale rates whereas non-residentindividuals are not entitled to any personal reliefs and are taxedat a flat rate of 26%.• Pursuant to Paragraph 21, Schedule 6 of the ITA, the incomeof a non-resident individual from an employment exercised byhim in Malaysia will be exempt from tax under the followingscenarios:- Where the employee has exercised his employment inMalaysia for a period or periods which together do notexceed 60 days in a basis year for a year of assessment;- Where the employee exercised his employment in Malaysiafor a continuous period (not exceeding 60 days) whichoverlaps the basis years for two successive years ofw w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

6 FEATUREThe Malaysian Accountantassessment; or- Where the employee exercised his employment in Malaysiafor a continuous period (not exceeding 60 days), whichoverlaps the basis years for two successive years ofassessment and for a period or periods, which togetherwith that continuous period do not exceed 60 days.• Foreign nationals exercising employment in Malaysia mayenjoy tax treaty relief subject to the fulfilment of conditionsstipulated in the Dependent Personal Service Article of therelevant Double Taxation Agreements (DTA).• Bilateral credit is allowed against Malaysian tax only to a personwho is charged to Malaysian tax for a year of assessment andwho is a resident for the basis year for that year of assessment.Bilateral credit under Section 132 of the ITA is applicable wherethe employment income is taxed both in Malaysia as well as aforeign country and where Malaysia has a DTA with that foreigncountry.• In the absence of a DTA, the domestic laws of Malaysia and therelevant foreign country remain applicable. In this case,unilateral credit pursuant to Paragraph 15, Schedule 7 of theITA may be allowed for foreign tax if the individual has paidforeign tax in respect of income from an employment exercisedoutside Malaysia, regardless of whether he is a resident in thebasis year for the year of assessment for which the Malaysiantax is paid.• With effect from the year of assessment 2007, income derivedby non-resident foreign nationals from participating in theMalaysian Technical Co-operation Programme is exempt fromtax [P.U.(A) 18 Income Tax (Exemption) Order 2008].Public Ruling 9/2011 (PR9/2011) – Co-operative SocietyBased on the ITA, a co-operative society is any co-operativesociety registered under any written law relating to the registrationof co-operative societies in Malaysia. A co-operative societyregistered outside Malaysia is not subject to this PR and is taxedlike a non-resident company.• The PR is effective from YA2011 onwards.• The principle of mutuality does not apply to co-operativesocieties. Hence, co-operative societies are charged to tax onincome arising from both mutual and non-mutual activities.Examples of the income from mutual activities are interest,processing fees and membership fees received from itsmembers and staff.• Chargeable income is computed in the manner as ascertainedin section 5 of the ITA. The deductibility of expenses is basedon the provisions of section 33 of the ITA, i.e. expenses that arewholly and exclusively incurred in the production of grossincome are deductible. In contrast, expenses, which aredomestic and capital in nature, are not allowable.• Co-operative societies enjoy special deductions underparagraphs 65A(a) and 65A(b) of the ITA (as explained below).• Deduction under paragraph 65A(a) of the ITA:-- The amount to be deducted under total income is the sumwhich has been transferred or paid by a co-operativesociety in the basis period for a year of assessment to:• a statutory reserve fund;• any educational institution and/or co-operativeorganisation established for the furtherance of the cooperativesociety; or• a Co-operative Education Trust Fundas may be required under the provisions of any written lawrelating to the registration of co-operative societies in Malaysia.However, the allowable deduction under this provision isrestricted to 25% of the audited net profits for that basis periodof the co-operative society.• Deduction under paragraph 65A(b) of the ITA- The amount to be deducted is equal to 8% (or suchpercentage as may be prescribed) of the member’s funds[as defined in paragraph 12 (2), Part I of Schedule 6] as atthe first day of the basis period for a year of assessment.• A newly registered co-operative society is exempt from tax onany income for a period of 5 years commencing from the dateof registration [paragraph 12(1)(a), Schedule 6 of the ITA].• A co-operative society, which has been registered for morethan 5 years, is exempt from tax only if its members’ funds, asat the first day of the basis period for a year of assessment isless than RM750,000 [paragraph 12(1)(b), Schedule 6 of theITA].• The income exempted from tax is at the level of chargeableincome. Thus, the adjusted income/losses and capitalallowances need to be computed each year, notwithstandingthat the co-operative society is eligible for tax exemption. Anyadjusted losses and unabsorbed capital allowances can becarried forward.• A co-operative society is chargeable to tax at scale rates as setout in Part IV, Schedule 1 of the ITA.• The tax return (Form C1) is due for filing within 7 months fromthe date following the close of the accounting period.• Any dividend paid, credited or distributed to any member of aco-operative society is tax exempt [paragraph 12A, Schedule6 of the ITA].• Any gains, profit, interest or bonds received by members andnon-members who are resident from money deposited with aco-operative society is exempt from tax [Income Tax(Exemption) (No.7) (Amendment) Order 2009].M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant FEATURE 7Public Ruling 10/2011 (PR10/2011) – GratuityThe PR, which is effective from the YA2011, explains themethod used to characterise lump sum payments received byemployees upon the termination of their employment as gratuityand its tax treatment. When an employment ceases, the employermay make a lump sum payment in accordance with the terms andconditions of the contract of service. The lump sum payment maybe described by the employer as compensation for loss ofemployment, ex-gratia, contractual payment, retrenchmentpayments, gratuity, etc. The purpose of the lump sum payment hasto be established in order to determine the tax treatment of thepayment received by the employee. The PR provides examples onhow to distinguish between a gratuity payment and compensationfor loss of employment as well as the tax treatment of gratuitypayment received in different scenarios.The salient points are summarised below:-• When a payment is received upon the cessation ofemployment or retirement by an employee is attributable to hispast services, it is likely that the payment is considered agratuity• Gratuity payments are taxable pursuant to paragraph 13(1)(a ofthe ITA. However, gratuity received upon retirement from anemployment qualifies for a full exemption pursuant toParagraph 25, Schedule 6 of the ITA under the followingcircumstances:- if the Director General is satisfied that the retirement wasdue to ill-health;- if the retirement takes place on or after reaching the age of55, or on reaching the compulsory age of retirement fromemployment specified under any written law and in eithercase from an employment which has lasted ten years withthe same employer or with companies in the same group;or- if the retirement takes place on reaching the compulsoryage of retirement pursuant to a contract of employment orcollective agreement at the age of 50 but before 55 and thatemployment has lasted for ten years with the sameemployer or with companies in the same group.- Gratuity that is not exempt from tax will be taxed inaccordance with the proviso to Section 25(4) of the ITA. Insuch cases, where the employment began more than 5years before the beginning of the basis period in which theemployment ceased, the sum received will be spread overthe last 6 basis periods.- Where gratuity is paid upon cessation of employment butprior to retirement and where the gratuity is not paid directlyto the employee but is credited to the employee’sEmployees Provident Fund (EPF) account (thisarrangement may be made under a collective agreement oran optional scheme), the gratuity will be treated as incomeat the time the payment is made. In this regard, theemployer is required to credit the net amount (afterdeducting income tax) to the EPF account. Further, theForm 22A is to be submitted by the employer to the relevantIRB branch office to ascertain the amount of tax to bededucted and the employer must withhold any moniespayable to the employee until tax clearance is received fromthe IRB.Public Ruling 11/2011 (PR11/2011) – Bilateral Credit andUnilateral CreditThe PR takes effect from the YA2011 and explains bilateral creditand unilateral credit that may be claimed by a person who has beencharged to tax on the same income in Malaysia and in anothercountry. The PR provides for general rules that govern theapplicability of bilateral credit and unilateral credit and situations inwhich taxpayers are ineligible to claim bilateral credit or unilateralcredit.Where an Agreement for the Avoidance of Double Taxation(DTA) has been concluded with another country, a bilateral creditrelief can be claimed against the foreign tax payable pursuant tosection 132 of the ITA. Bilateral credit can be claimed by a personresident in Malaysia for the basis year for a year of assessment. Thebilateral credit cannot exceed the Malaysian tax payable for thatyear of assessment. Such claim must be made in writing and within2 years after the end of that year of assessment.Where there is no DTA between Malaysia and a foreigncountry, a person who is resident in Malaysia for the basis year fora year of assessment and who is charged to tax in Malaysia and hassuffered tax in respect of the same income in that foreign country inwhich the income arose, may be entitled to claim unilateral credit.The claim for unilateral credit is subject to the same rules as thosew w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

8 FEATUREThe Malaysian Accountantgoverning bilateral credit. The credit allowed shall not exceed halfof the foreign tax payable on the foreign income. Unilateral creditcan be claimed by a person resident in Malaysia for the basis yearfor a year of assessment. However, in the case of an employee whois charged to tax in Malaysia and in a foreign jurisdiction in respectof the same income from an employment exercised outsideMalaysia, the employee is eligible to claim unilateral reliefirrespective of whether or not he was a resident for the basis yearfor the year of assessment.Public Ruling 12/2011 (PR12/2011) – Tax Exemption OnEmployment Income Of Non-Citizen Individuals WorkingFor Certain Companies In MalaysiaThe tax treatment of employment income derived by noncitizenindividuals working for an Operational HeadquartersCompany (OHQ), Regional Office (RO), International ProcurementCentre Company (IPC) and Regional Distribution Centre Company(RDC) are explained in this PR, which is effective from the year ofassessment 2011.Non-citizen individuals deriving employment income from anOHQ, RO, IPC and RDC are taxed only on the portion of theirchargeable income attributable to the number of days theyexercise their employment in Malaysia. In order to substantiate aclaim for this exemption, a copy of the employment contract and aconfirmation from the employer as to the number of days theemployment is exercised in Malaysia and outside Malaysia isrequired.Income derived by non-citizen individuals from anemployment with an OHQ, RO, IPC or RDC exercised in Malaysiafor a period or periods not exceeding 60 days in a basis year or foreach of the overlapping basis years, as the case may be, would betax exempt in accordance with the provisions of Paragraph 21,Schedule 6 of the ITA.Public Ruling 1/2012 (PR1/2012) – Compensation For LossOf EmploymentPursuant to Section 13(1)(e) of the ITA, compensation forloss of employment is treated as gross income from anemployment and is taxable. Compensation for loss of employmentwould include salary or wages in lieu of notice, compensation forbreach of a contract of service, payments to obtain release from acontingent liability (employer’s obligation) under a contract ofservice, ex-gratia or contractual payments such as redundancypayments or a payment in consideration of a covenant.The PR (which is effective from the year of assessment 2012)explains the different modes in which payment of compensation forloss of employment may be made. There is a need to distinguishbetween compensation for loss of employment and gratuity as thetax exemption accorded to each category differs. As a general rule,where a contract of employment is for a specific number of yearsand the employment ends at the specified time or at retirementage, any lump sum paid to the employee should be regarded ascompensation for loss of employment and not gratuity.Compensation received for loss of employment (includingcompensation received under a separation scheme) is given a fullor a partial exemption pursuant to the provisions of Paragraph 15,Schedule 6 of the ITA, as follows:-• Full exemption is given if the DG is satisfied that the payment ismade on account of loss of employment due to ill health• Partial exemption is given in the case of a payment made inconnection with a period of employment with the sameemployer or with companies in the same group, as follows:-- RM10,000 for each completed year of service (with effectfrom July 1, 2008);- RM6,000 for each completed year of service (for the yearsof assessment 2003 – 2008)- RM4,000 for each completed year of service (for the yearsof assessment 1987 – 2002)- RM2,000 for each completed year of service (for the year ofassessment 1986 and prior years)The partial exemption will not apply to compensation paid by acontrolled company and received by a director of the companywho is not a full-time service director.Payment received by an employee from an employer for an earlytermination of an employment contract under a separationscheme is eligible for the partial exemption provided that suchscheme does not expressly or impliedly provide for the employeeto be reemployed under any other scheme of employment by thesame or any other employer.M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant FEATURE 9Double Tax Agreements (DTAs)Malaysia – LaosThe DTA with Laos has come into force on January 1, 2012.Withholding tax rates under the DTA are as follows:-• Dividends – 5% or 10%• Interest – 10%• Royalty – 10%• Technical fees – 10%Protocol(s) to DTAsEntered into forceEffective dateMalaysia – South Africa Not enforced yet. Not enforced yet.(the protocol was concluded on April 5,2011 and gazetted on September 27, 2011)Malaysia – Ireland February 15, 2011 Beginning on or after January 1, 2012Free Trade Agreements (FTAs)Malaysia – Chile FTAAn FTA was signed between Malaysia and Chile in November 2010and came into force in February 2012 after both countries havecompleted their domestic processes. This is Malaysia's firstbilateral FTA with a Latin American country.The other FTAs, which Malaysia is currently negotiating, are with:• Turkey• AustraliaTrans-Pacific Partnership Agreement (TPP)The TPP is a free trade agreement initiative involving nine countriesi.e. Australia, Brunei, Chile, Malaysia, New Zealand, Peru,Singapore, United States and Vietnam. 11 rounds of negotiationshave been held so far with the last round of negotiations takingplace in March 2012 in Australia, with the TPP Leaders agreeing toconcerted efforts to be taken in 2012 towards concluding thenegotiations.A unique distinguishing feature of the TPP as compared withFTAs is additional focus on cross-cutting “horizontal issues” suchas regional integration, regulatory coherence, competitivenessand development of small and medium enterprises. AlthoughMalaysia has FTA agreements with most of the TPP members, theTrans-Pacific Partnership is a positive step towards deeperintegration within the Asia Pacific region and would allow Malaysiato engage the United States, which remains an important tradingpartner and source of investment. The TPP will not supersedeexisting FTAs but will co-exist with existing FTAs among the currentmembers.Administrative GuidelinesInformation on e-Filing for Form e-BE, e-B, e-M, e-P, e-C ande-R for year of assessment (YA) 2010With effect from January 30, 2012, the Inland RevenueBoard (IRB)’s e-filing system for Forms e-BE, e-B, e-M, e-P, e-Cand e-R for the YA2010 will not be operative from January 30, 2012onwards. Thus, taxpayers who have still not submitted their taxreturns can do so manually. The return forms can be obtained at allIRB branch offices.Relocation of Inland Revenue Board’s HeadquartersEffective from December 22, 2011, the IRB’s headquartersstarted its full operations at a new building at Menara HasilCyberjaya at Cyberjaya. The headquarters, which was previouslylocated at Block 9 of the Government Complex in Jalan Duta, willbe located at the following address:Jabatan Dasar PercukaianAras 16 & 17, Wisma HasilPersiaran Rimba PermaiCyber 8, 63000Cyberjaya, Selangorw w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

10 FEATUREThe Malaysian Accountantreceipt of the incentives even though they have not received a copyof Form CP58 (2011) from the payer company.Note that where a company fails to complete and render acopy of the Form CP58 (2011) to the relevant agent, dealer ordistributor within the said stipulated period, the company shall beguilty of an offence and shall upon conviction, be liable to a fineranging from RM200 to RM 2,000 or to an imprisonment for a termnot exceeding 6 months, or to both.There is no requirement to file the Form CP58 with the IRBbut the company is required to keep a copy of the duly completedforms (for a period of 7 years from the end of the calendar year inrespect of which the payments are made) for audit purposes.Therefore, forms, which were previous, submitted to Block 9, JalanDuta (i.e. Technical Department) e.g. application forms forreinvestment allowance and double deductions should now besubmitted to the aforementioned address.It should be noted that the tax payment counters at the JalanDuta IRB branch, the Kuala Lumpur IRB Collection branch and theNon-Resident IRB branch as well as the Corporate TaxDepartment located at Blok 8A and Blok 11 of the Jalan DutaGovernment Complex were not involved in the relocation.Prescribed Form CP58 (2011) - Statement of Monetary andNon-Monetary Incentive Payment to an Agent, Dealer orDistributor [Pursuant to Section 83A, Income Tax Act 1967]Section 83A enacted under the Finance Act 2012 providesthat every company is obliged to prepare Form 58 (2011) to eachof its agents, dealers or distributors. The Form CP58 sets outdetails of incentive payments made to agents, dealers ordistributors, in both monetary and non-monetary form. The saidform can be obtained from the IRB’s website.The information to be provided in the form includes thefollowing:• Payer’s information• Recipient’s information (resident/ non-resident)• Particulars of incentive payment• Monetary or non-monetary valueThe deadline for providing the Form 58 (2011) to the respectiveagent, dealer or distributor is not later than March 31 in the yearfollowing the relevant year. However, for payments made duringthe period from January 1, 2011 to December 31, 2011, anextension of time until May 31, 2012 has been granted for thecompletion of the form. Notwithstanding the extension of time,recipients of the incentive payments are required to report theFiling Programme for Income Tax Return Forms (ITRF) In theYear 2012The filing due dates for ITRF due in the calendar year 2012has been outlined in the filing programme. The following arehighlighted:• A grace period of 15 days is given to taxpayers who submit viae-filing. This grace period also applies to payment of balanceof tax payable under subsections 103(1) but does not apply topayment under subsection 103(1A) and 103(2) of the ITA.• A grace period of 3 days is given to taxpayers who opt for“manual filing” provided that the ITRF are sent by post. Thegrace period of 3 working days is also applicable to payment ofbalance of tax payable under subsection 103(1) of the ITA.• There is no grace period for “manual filing” by hand.• Taxpayers who intend to request for an extension of time withregards to the submission of the ITRF or payment of balance oftax payable should send separate applications to the Directorof Policy and Operations Division, IRB at Cyberjaya. Suchrequest must be made at least 15 days before the due date.Each application should be supported by strong and validreasons and the IRB’s decision will be based on the merits ofeach case.• Filing of Form R for YA2010 and subsequent years onwards isnot mandatory for companies, which commenced operationsafter December 31, 2007.• When requesting for tax refunds, taxpayers are required tomanually submit the relevant attachments (Lampiran) andworksheets (Helaian Kerja).Thang Mee Lee is an Executive Director at TAXAND MALAYSIASdn Bhd, which is part of the TAXAND Global Organisation, thefirst global organisation of independent tax advisers with apresence in nearly 50 countries. She can be contacted atmlee@taxand.com.my. The views expressed are the personalviews of the writer.M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant FEATURE 11IntroductionThe previous October 2011 issue had reported on thepressure to change the landscape for CorporateReporting. The recent financial crisis and the financialscandals that have taken place have underscored the need for adifferent form of reporting.Traditionally, corporate reporting consists mainly of financialinformation,madeupoftheBalanceSheet,IncomeStatementandDirectors’ Report. In the past decade, significant changes haveoccurred in how firms report on the impact of the firms on theirstakeholders. Firms began to include greater disclosures of nonfinancialinformation, and the effect the firms had on theenvironment and the wider society. These have taken the form ofcorporate social responsibility (CSR), environmental, social andgovernance (ESG), corporate responsibility (CR) andenvironmental, safety and health (ESH) reports.However, it is now recognised that merely reporting on CSRand sustainability issues is insufficient. Investors and otherstakeholders have begun to demand for some form of reportingthat not only discloses non-financial information, but also one thatallows investors to identify the link between non-financial andfinancial information, and hence be able to make sense of all thereports that are available to stakeholders. Champions of such amethod of reporting call it ‘Integrated Reporting’.Integrated Reporting – as is currentlybeing developed by IIRCSimplistically, Integrated Reporting is about better communicationbetween firms and stakeholders. Its attempts to provide anintegrated representation of a firm’s performance in terms of nonfinancialand financial results. The Report shall provide disclosureson a range of information that demonstrates their interaction andlinkages via provision of:a) Relevant information about the firm’s strategy, business model,the environment in which the firm operates and the related risksb) Holistic picture of a firm’s performance and prospectsc) Clearer and concise information of the most material issues.Such information provided should enable users to betterunderstand the pressures that the firm is operating under, andascertain, whether the firm is able to achieve the performancemeasures and be sustainable in the short, medium and longerterm.In short, Integrated Reporting seeks to present a clear,concise and joined-up account of a business.Towards this end, the International Integrated ReportingCouncil (IIRC) seeks to create a globally accepted framework foraccounting for sustainability, and bring together environmental,financial, social and governance information in an integratedformat.w w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

12 FEATUREThe Malaysian AccountantIIRC has set out five Guiding Principles and six ContentElements for an Integrated Report:2011 and September 2012. Some sixty firms from around theworld have joined the programme.Guiding Principles• Strategic Focus• Future Orientation• Connectivity of Information• Responsiveness and Stakeholder Inclusiveness• Conciseness, Reliability and materialityThe participants comprise of over 65 organisations (involved incorporate and public sectors) from around the globe, and an‘investor network’ of over 20 institutional investors.c) Pilot Cycle 2This shall build on experiences from the first yearContent Elements• Organisational overview and business model• Operating context, including risks and opportunities• Strategic objectives• Governance and remuneration• Performance• Future outlookWhile many countries (Malaysia included) await the outcome theresults of the pilot run by IIRC and the issue of an exposure draft onthe proposed framework (expected in 2012), the subsequent partof this write-up seeks to discuss some of the developments inSouth Africa, in particular the proposed framework for IntegratedReporting. This country is seen by many as the leader in IntegratedReporting.The project is currently under a ‘pilot run’ arrangement to test theprinciples and practicalities of Integrated Reporting, and providefeedback for the creation of a new global standard in IntegratedReporting. The pilot run is made up of three phases:a) Dry runThis run has been completed where firms were asked toundertake a walkthrough of IIRC’s Framework, and identifyopportunities and challenges of implementation, provideconsultation on IIRC’s Discussion Paper.b) Pilot Cycle 1This pilot cycle kicked off on 17 and 18 October 2011 inRotterdam with a meeting of programme participants. Theparticipants shall be reporting using the draft IntegratedReporting Framework for reporting cycles between OctoberThe experience in South AfricaIn February 2010, the Johannesburg Stock Exchange (JSE) ofSouth Africa, through its listings requirements, made it compulsoryfor all listed companies to comply with King III, including therequirement for a company to produce an integrated reportfor its financial year starting on and after 1 March 2010, or to explainwhy it was not doing so.Preparers in South Africa required guidance regardingintegrated report, and hence, in May 2010, the IntegratedReporting Committee (IRC) was established in South Africa todevelop guidelines on good practice in integrated reporting. TheIRC was founded by the Association for Savings & InvestmentSouth Africa, Business Unity South Africa, Institute of Directors inSouthern Africa, JSE Ltd and the South African Institute ofChartered Accountants, and were later joined by many importantentities such as the Banking Association South Africa, CharteredSecretaries Southern Africa Principal Officers Association,Government Employees Pension Fund, Institute of InternalAuditors, Financial Services Board and many others. This goes todemonstrate the level of widespread support for IntegratedReporting in South Africa, and firms that do not practice IntegratedReporting are likely to be scorned upon.0n 25 January 2011, a discussion paper on the ‘Frameworkfor Integrated Reporting and the Integrated Report’ was releasedby theIRC. Thedocumentprovidesdirectionto the400 companieslisted on JSE, with the view that Integrated Report that reports ontotal performance and not just financial performance, shall form afirm’s primary report, replacing the traditional annual report.M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant FEATURE 13The following notes some of the important points from thediscussion paper:a) Integrated Reporting and the Integrated ReportIntegrated Reporting is seen as a process that enhances andpreserves long-term sustainability of firms in all its dimensions,ideally without sacrificing short-term performance.An Integrated Report on the other hand is a product that formsone part of the broader suite of a firm’s communicationactivities with its stakeholders.b) Principles governing the frameworkThe Discussion Paper prescribes three reporting principles:• Principles informing the report scope and boundary – firmsneed to define the scope and boundary of the integratedreport, which can involve determining:1. The entities to be represented in the report (e.g.subsidiaries, JVs, franchisees).2. The nature of the information to be provided for eachentity (e.g. full or pro-rata performance data, disclosureon the management approach applied to that entity, orgeneral narrative reporting on the relevant risks andopportunities associated with that entity).• Principles informing the selection of the report contentThere should be careful determination about theinformation to be included in the report, which necessitatesa high degree of judgment, care and skill. To be useful,information needs to be both relevant and faithfullyrepresented. Hence, consideration should be given to thefactors that may influence the assessment or decisionmakingof stakeholders and the firm. Items that are notmaterial to making such a decision should not be includedin the integrated report.• Principles informing the quality of the reported informationEvery effort should be made to ensure the information ispresented as effectively as possible. The informationpresented should meet appropriate quality criteria. Theprinciples cover important characteristics such ascomparability and consistency, verifiability, timeliness,understandability or clarityc) Suggested elements to be included in Integrated Report• Report profile (What is the scope and boundary of thereport?)The report should include a brief description of the scopeand boundary of the integrated report• Firm overview, business model, and governancestructure (How do we create value and make decisions?)This should allow stakeholders to make an informedassessment on the firm’s ability to create and sustain valueover the short-, medium- and long-term, and on howefficiently and effectively the firm’s executive team andgoverning structure have discharged their responsibilitiesto use the firm’s resources responsibly.• Understanding the operating context (What are thecircumstances under which we operate?)The report should provide information to allowstakeholders to assess the extent to which theorganisation’s ability to create and sustain value (in theshort-, medium- and long-term) is based on financial,social, environmental and economic systems and itsrelationships with key stakeholders.• Strategic objectives, competencies, KPIs and KRIs(Where do we want to go and how do we intend to getthere?)There should be a statement outlining a firm’s strategicobjectives and targets, an indication of the firm’scompetencies required to realise these objectives, and asuccinct list of KPIs and KRIs that will track performanceagainst the strategic objectives and competencyrequirements. This should cover the short-, medium- andlong-term periods.• Account of the firm’s performance (How have we faredover the reporting period?)w w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

14 FEATUREThe Malaysian AccountantThis section represents an important part of the integratedreport that accounts for the firm’s performance. Thisincludes current financial performance and otherappropriate measures of performance. This should includea brief description of the firm’s activities taken in respect ofits strategic objectives and targets, as well as a concisereview of the outcome of these activities. Performancereview primarily would be done at a group level, although itmight also involve a high-level performance review of eachof the significant business units. The performance reviewshould be integrated in a holistic manner throughout thereport.• Future performance objectives (Informed by our recentperformance, what are our future objectives?)Further to reporting on the performance during thereporting period, the integrated report should include aforward-looking statement of the firm’s anticipatedactivities and performance objectives, informed by itsassessment of recent performance and understanding ofsocietal trends and stakeholder expectations.• Remuneration policies (What is our approach towardsremuneration?)It is advocated that there should be provision of high-levelinformation on how employees in general and seniorexecutives in particular are remunerated. Disclosureshould include how they have been remunerated in thecurrent period, as well as factors that will influence futureremuneration.• Analytical commentary (What are the views of theleadership about the firm?)Integrated reports should include a brief analyticalcommentary that reflects the understanding of themembers of the firm’s governing structure and executiveteam regarding the nature of the firm’s current andanticipated performance in the context of the firm’sstrategic objectives. The firm should report how it canimprove its positive material impacts and how it caneradicate or ameliorate its negative material impacts.d) AssuranceThe Discussion Paper argues that independent assurancelends credibility to the firm’s activities and reporting with regardto the accuracy, completeness and reliability of disclosure inthe integrated report, whether it relates to financial, social,environmental, economic, or governance information.It is recommended that the Board should ensure the integrity ofthe integrated report, by delegating to the audit committee theevaluation of sustainability disclosure. The audit committeeshould review the sustainability issues in the integrated reportto ensure they are reliable and that there is no conflict with thefinancial information.In turn, the audit committee should engage the externalauditors to provide assurance on summarised financialinformation. Sustainability reporting and its disclosures shouldbe independently assured.Thereshould exist acombinedassurancemodelthattakesintoaccount assurance provided by management, internal audit,external audit, and any other external assurance provider.Firms should engage at an early stage with their auditors andother external and internal assurance providers to determinethe aspects of the integrated report that are to be subject toaudit or assurance, and the applicable financial reporting andsustainability or quality frameworks to be applied to theinformation reported.e) Suggested steps when developing an Integrated ReportThe discussion paper also lists nine (9) steps for firms to follow,being:Step 1 – Ensure the firm understands of the implications ofIntegrated Reporting.Step 2 – Plan the reporting process and define the reportscope and boundary.Step 3 – Determine the material risks and opportunities thatimpact on the firm’s ability to create and sustainvalue.Step 4 – Implement systems to ensure responsiveness tothe firm’s key stakeholders.Step 5 – Establish internal systems to accurately obtain andmonitor performance data.M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant FEATURE 15Step 6 – Develop and implement an appropriate assuranceprocess.Step 7 – Compile and structure the integrated report.Step 8 – Ensure the firm’s governing structure approves thereport.Step 9 – Publicly release the integrated report.For many firms in South Africa, while Integrated Reporting ismandatory, there still exists a big variation in the quality ofIntegrated Reports being produced. This is mainly due toIntegrated Reporting being a new concept and many firms thereare still trying to get to grips with this new way of thinking. In fact,many acknowledge Integrated Reporting as a journey, and expectthe quality of Integrated Reports to improve from year to year.Some developments in MalaysiaMalaysia is currently awaiting the outcome of the work of IIRC.Emphasis continues to be given for Sustainability Reporting for thetime being until a more complete guideline is provided by the IIRC.Following the development of the CSR Framework in 2006, BursaMalaysia launched its sustainability portal and Guide for Directorsin 2010. Bursa Malaysia recognises that the sustainability agendaneeds to be driven from the boardroom and embedded within acorporate strategy, and continues to drive and push for greatersustainability strategies and disclosures by Malaysian listed firms.The Securities Commission of Malaysia (SC) has madeseveral announcements that also bear relation to IntegratedReporting. On 12 April 2011, the Capital Market Masterplan 2(CMP2), the blueprint for the development of the Malaysian capitalmarket over a ten-year period, was launched. To ensure thesuccess of the plans for the development of the Malaysian capitalmarket, CMP2 also emphasised on the importance of investorprotection and governance.On 11 June 2011, the SC followed up with the launch of itsfive-year Corporate Governance Blueprint. It contains SC’s actionplan to raise the standards of corporate governance bystrengthening self and market discipline, and promoting greaterinternalisation of the culture of good governance. Overall, it seeksto promote good corporate governance through the deepening ofthe relationship of trust between firms and stakeholders.One of the themes covered in the blueprint is titled‘Disclosure and Transparency’, which the SC explains that it seeksto promote a more effective disclosure of non-financial informationand has commented that whilst Malaysian firms do provide adescription of their CSR activities, there still exists a gap wherefirms do not provide an assessment of the impact of their businessoperations on communities.Once again, Integrated Reporting is seen as a solutiontowards this problem. Firms would then be reporting on thepositive and negative impact of the firms’ operations from an ESGperspective and how the firms then seek to manage the negativeaspects of the business operations. Such reporting is also seen asbeing in line with the expectations of socially responsible investing.SC recognises that integrated reporting is still at thedevelopmental stage. As such, its plan for now is to establish ataskforce to review the developments in integrated reporting,promote its awareness and its adoption by firms (initially, on avoluntary basis).ConclusionAs explained earlier, an Exposure Draft for the Framework forIntegrated Reporting is expected to be issued by IIRC in 2012.However, much reference work has been made to the works byIRC of South Africa. In fact, many of the proposals as outlined byIRC and IIRC appear similar and overlap.Accordingly, this write-up has sought to discuss the SouthAfrican experience as a preliminary study to understand andprepare readers for what to expect when the ED by IIRC is finallypublished.Malaysia is still adopting a wait-and-see approach towardsIntegrated Reporting, although there appears to exist regulatorysupport. It is envisaged that in the end, Malaysian firms wouldinevitably have to implement Integrated Reporting as it has alreadyspelt out in SC’s Corporate Governance Blueprint, which in turnsupports Malaysia’s CMP2.Nonetheless, for firms that have yet to begin, taking babysteps such as placing sustainability as a key consideration in anybusiness decision as advocated by Bursa Malaysia, in a lead-uptowards the expected mandatory Integrated Reporting. Indeed,increased awareness about Integrated Reporting, its challengesand making early preparation would be key to a firm’s success in itsimplementation in the long run.Ng Kean Kok and Dr Low Lock Teng lecture accounting andfinance subjects at Universiti Tunku Abdul Rahmanw w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

16 FEATUREThe Malaysian AccountantPricingConvertibleSecuritiesBy Jasvin JosenConvertible securities are traded widely in global debt markets.The most common convertible securities are convertible bondsand convertible preferred stocks. The Convertible Bond (CB) is anequity-linked instrument that gives the holder of the bond the rightto convert the bond into a predetermined number of commonstock in the future. It is attractive to investors as it providesdownside protection of a straight bond with coupons and principalpayback at maturity plus the upside return of equities.Being a hybrid of a bond and equity, the price behaviour of aCB is rather unique. The pricing of CBs is also not very clear-cut. Inthis article, I describe the features of the CB and its pricingbehaviour and illustrate two common pricing methods in themarket.Features of a Convertible BondSuppose Company Q issues a convertible bond with a conversionratio of 25.32 shares. The par value of the bond is $1000. Thismeans that for each $1000 of the par value of this issue that thebondholder exchanges for Company Q’s stock, he will receive25.32 shares.The stated conversion price is therefore:= Par Value of the CB / Conversion Ratio= $1000 / 25.32= $39.49If this CB pays an annual coupon of 6% with a maturity of 5 years,the CB has an investment value. Assuming the risk free discountingrate is 2.5% and the credit spread is zero, the Investment Value ofthe bond can be derived by discounting its cash flows at the riskfree discount rate, as shown in Chart 1.Chart 1: Investment Value of Company Q’s Convertible BondNow, the conversion price, realistically, is revised to:= Investment Value of the CB / Conversion Ratio= $1162.60 / 25.32= $45.92The CB example I provide above is one of its most basic kinds.Frequently, CBs are accompanied with a redeemable feature thatallows the issuer to call back the bond after a certain period, at apredetermined price. In some cases the issuer can only call backthe bond if the price of the underlying stock is above the conversionprice by a certain percentage. The callable or redeemable featuremakes the CB to some extent cheaper than a non-redeemable CB.M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant FEATURE 17Price Behaviour of Convertible BondsThe price of the CB is affected by movement in interest rates(and credit spreads) as well as movements in the stock prices.Taking the example of Company Q’s CB, there are two extremecases:(i) When the stock price of Q is relatively small to the conversionprice of $45.92, the CB is very unlikely to be converted andtherefore it is effectively a straight bond that can be priced usingthe standard bond pricing method.(ii) When the stock price is very high relative to the conversionprice, the CB will certainly be converted into stock. The CBprice will then be the conversion value, which is the stock pricemultiplied by the conversion ratio.This conversion feature resembles a call option on the stock.The conversion premium increases as the spot price or the volatilityof the stock increases.Chart 3: CB priced as a straight bond plus a call option on thestockFor example, if the stock price is $60, this CB is very likely to beconverted. Its price will behave very much like the stock. The priceof the CB in the market is likely to be near $1,519.20 (stock price of$60 multiplied by the conversion ratio of 25.32)Chart 2: Convertible Bond Price ChartIn Chart 3, say the current stock price is $40. This price is not toofar from the conversion price (which effectively now is the strikeprice of the call option) of $45.92. The CB holder effectively isholding the option to buy the stock at $45.92. As the stock priceincreases beyond $40, we expect the call option to get moreexpensive.In Chart 2, the solid line corresponds to the conversion value,which linearly increases with the stock price. The horizontaldashed line corresponds to the price of a straight bond and it is notaffected by the stock price. Generally, since you have the option tomake the convertible bond either a bond or a stock, its value shouldbe at least the value of the bond or the stock. This is representedby the dotted line.Pricing a CB as a straight bond plus a call option on thestockIntuitively, a CB must be worth at least the value of a nonconvertiblebond of similar characteristics. If the holder does notconvert, he will receive the coupons and the principal back.However, the CB is worth more than this as the holder has a chancein participating in the stock price movement.The call option here is priced using the Black Scholes model. Theparameters are:Current stock price: $40Strike Price: $45.92Risk Free rate: 2.5%Stock volatility: 20%Maturity:5 yearsThe CB value of $1169.47 is then derived by adding the call optionvalue of $6.87 to the Investment Value of the Bond of $1162.60.Pricing a CB as a stock plus put option on the stockOwning a CB can also be seen from another angle. Theholder of the CB will only choose not to convert the CB into stock ifthe stock price is below the strike price of $45.92. This is as goodas saying that the owner already has the stock, but has the optionto sell the stock if its price goes down beyond a certain level. Inreturn, he gets the returns from the bond.w w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

18 FEATUREThe Malaysian AccountantChart 4: CB priced as a stock plus put option on the stockIn Chart 4, the stock value is simply the conversion value (stock price of$40 multiplied by the conversion ratio of 25.32). The put option isarrived using the Black Scholes model, with the same parameters used to arrive at the call option on the stock in the first pricing method.Multiplying the put option value ($7.39) with the conversion ratio (25.32) would give us the put value embedded in the CB. Indirectly,this put value represents the fixed income value of the convertible.certain situations (e.g. in periods of high volatility) theoretical pricescan drift away from real market prices. This is because the modelsused to obtain theoretical prices are subject to many assumptionsand are therefore, at best, only an estimate of the real prices. Thereal market price is determined by random but collective behaviourof market players reacting simultaneously to interest rates, stockprice and the issuer’s credit risk.ConclusionThere are also other more advanced pricing techniques (butless commonly used) in the market like multi-factor models thattake into account of several stochastic factors that simultaneouslyaffect the price of the CB, namely interest rates, credit spreads,stock price and in some cases, foreign exchange rates.We see that convertibles can be theoretically priced using afew techniques to resemble their real market prices. However inThe article appeared in The Edge on January 30, 2012.Reproduced with kind permissionJasvin Josen is an ex-investment banker from London,specialising in the areas of valuation and risk in financialderivatives. Currently, she is back in Malaysia providingconsultancy and training. Readers can follow her athttp://derivativetimes.blogspot.com/ and send their comments toJasvin@souqmatters.comM a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant INSTITUTE NEWS 19MICPA 53rd AnniversaryCOMMEMORATIVE LECTUREByYB Senator Dato’ Sri Idris JalaIn keeping with tradition, the Institute on March 27, 2012 held its53rd Anniversary Commemorative Lecture cum Luncheon atthe Sime Darby Convention Centre. The Lecture titledEconomic Transformation Programme Update was delivered byYB Senator Dato’ Sri Idris Jala, Minister in the Prime Minister’sDepartment and Chief Executive Officer of PEMANDU to a packedaudience.This is the summit event in the Institute’s calendar of the yearas it provides a platform for members of the accountancyprofession, Government, the regulatory authorities and thebusiness community to get together and evaluate the mostpertinent issues affecting the Malaysian economy and the role ofthe accountancy profession.The event was well attended by a distinguished audiencefrom the corporate sector and members of the accountingfraternity.The Institute wishes to express its heartfelt thanks tomembers, guests, member firms and organisations for supportingthe Institute’s 53rd Anniversary Commemorative Lecture.To view the Presentation Slides of YB Dato’ Sri Idris Jala,please visit www.micpa.com.my.w w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

20 INSTITUTE NEWSThe Malaysian AccountantAnnouncement54 th Annual General MeetingMembers are informed that the 54th Annual GeneralMeeting of the Institute has been set for Saturday, June23, 2012 at 10:00 a.m., to be held at Bilik Seraya, Level4, Seri Pacific Hotel, Jalan Putra, Kuala Lumpur.Notice of the Annual General Meeting, minutes of the 53rdAnnual General Meeting and the Institute’s Annual Report will bedispatched to members in the last week of May 2012.Nomination of candidates for election to the Council must bemade by notice in writing, signed by ten members to be receivedby the Secretary not later than five weeks before the date of theAGM, i.e. by May 18, 2012. Such nomination must beaccompanied by an intimation in writing from each candidate ofhis/her willingness to serve if elected.Any member who wishes to bring before the AGM anymotion not relating to the ordinary annual business of the Institutemay do so provided the following conditions are complied with:(a) Notice in writing of the proposed motion must be received bythe Secretary not later than five weeks before the date of theAGM, i.e. by May 18, 2012.(b) Not less than ten members entitled to vote at the AGM shallhave sent notice in writing expressing their desire that theproposed motion be brought before the AGM to be received bythe Secretary not later than four weeks before the date of theAGM, i.e. by May 25, 2012.(c) The proposed motion should be related to matters affecting theInstitute or the accountancy profession.MICPA ActivitiesMICPA Participates in Professional Career TalksThe Institute continues to embark on an aggressive marketingstrategy to position the Revised MICPA Programme and the CPA(M) and CA (Austr) designation respectively.In this regard, the Institute participates actively in career fairsand exhibitions across the country to promote accountancy as acareer, and in particular to create greater awareness.The following presentations were made in March and April2012 to the following firms, universities and colleges. It is also anopportunity for the Institute to promote the MICPA-StudentsSponsorship Programme (MICPA-SSP).• March 5 Exhibition at KPMG On-boarding• March 6 Professional Career Talk, Universiti MalayaCourtesy Visit, Universiti Malaysia Terengganu• March 14 Professional Career Talk, UniversitiKebangsaan Malaysia• March 15 Exhibition, Universiti Malaya• March 16 Professional Career Talk, Universiti TeknologiMARA (UiTM)• March 17 Exhibition at Multimedia Universiti (MMU),Melaka – IVAQ 2012• March 14-16 Exhibition & Professional Career Talk, CurtinUniversity Sarawak• March 19 Professional Career Talk, Deloitte Orientation• March 24 Exhibition & Professional Career Talk, MaktabSains Rendah MARA (MSRM), Merbok Kedah• March 25 Professional Career Talk for SPM SchoolLeavers, Universiti Malaya• March 29 Professional Career Talk, Universiti UtaraMalaysia• March 30 Professional Career Talk & Exhibition,Universiti Sains Malaysia• April 2 Exhibition at KPMG On-Boarding• April 3 Courtesy Visit to CIMB Group• April 17-19 TalentCorp Career Fair & Exhibition, IIUM• April 18 Accounting Carnival, Universiti MalaysiaTerengganu• April 26 TalentCorp Career Fair & Exhibition, SunwayUniversityM a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant INSTITUTE NEWS 21MEMBERSHIP UPDATEADMISSION TO MEMBERSHIP AS CPA ON MARCH 17, 2012No Name1. Abdul Malik bin Abdul Rahim2. Eddie Dzurraimin bin Zulkipli3. Dzulfiqar Azli b Ayub @ Abdul Rahim4. Dzulfiqri Azli b Ayub @ Abdul Rahim5. Megat Mohamed Naquiyuddin b Sonari6. Mohd Faizal b Mohd Farid7. Muhammad Adhwa b Ismail8. Noraini bt RiduanRESIGNATION OF MEMBERSHIPNo Name1. Kwong Bee Ling (Ms)2. Sam Teng Choong3. See Chee Boon4. Shirley Tan (Ms)5. Teo Chew Hiong (Ms)6. Teoh Chong LimCOMMENCEMENT OF PRACTICENo Name1. Chua Wai Hong (wef. September 2, 2011 under Crowe Horwath, KL)CESSATION OF PRACTICENo Name1. Choong Mei Ling (wef. September 30, 2011under Ernst & Young)2. Seow Yoo Lin (wef. December 31, 2011 underKPMG)3. Dato ‘ Zainal Abidin Putih (wef. 2006 under Ernst& Young)ADMISSION TO MEMBERSHIP AS CERTIFIED FINANCIAL ACCOUNTANT (CFiA) ONMARCH 17, 2012No Name1. Dr Ahmad Zahiruddin bin Yahya2. Associate Professor Dr Nor Aziah binti AbdulManaf3. Dr Muzainah binti Mansor4. Dr Norhani binti Aripin5. Dr Noor Afza binti Amran6. Cik Rohana @ Norliza binti Yusof7. Dr Rosliza binti Mat ZinDISCIPLINARYMarch 2012The Investigation Committee found a prima facie case established against a member of the Institute in that themember had been engaged in public practice without holding a practising certificate issued by the Institute andwere, therefore, in breach of bye-law 55 of the Institute’s bye-laws within the meaning of Article 22(1)(d) of theInstitute’s Articles of Association. The Investigation Committee has, in accordance with the provisions of bye-law102 (consent orders), ordered that the member be reprimanded and fined a sum of Ringgit Malaysia threethousand three hundred only (RM3,300).w w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

22 INSTITUTE NEWSThe Malaysian AccountantContinuing Professional Development Programmes(April 2012 - June 2012)It is an integral part of the Institute to conduct CPD Programmes to enhance the skills and knowledge ofmembers. Our training covers a wide range of areas, including auditing, financial reporting, tax and more.The following CPD Programmes have been planned:Date Programme Title Speaker(s) Type CategoryApril 23 - 24 Basic Practical Guide to Auditing Yung Chuen Seng Workshop AuditMay 7 Business Combinations and Consolidation Tan Liong Tong/ Seminar FRSWoon Chin ChanMay 9 - 10 Updates of the 2012 IFRS- Tan Liong Tong/ Seminar FRScompliant MFRSs - Preparing forWoon Chin ChanConvergence to IFRSsMay 21 - 22 Accounting for Construction Contracts, Lim Geok Heng Workshop FRSProperty Development & Real EstateActivities and Borrowing CostsJune 14 Tax Planning for Mergers and Chow Chee Yen Workshop TaxAcquisitions and Initial Public OfferingsJune 25 Risk Management Ranjit Singh Workshop OtherFor further information, please contact the Education and Training Department: Ms Leong May San/ Pn Salmiah AliyasTel: 03-2698 9622 or email: lms.edu@micpa.com.my/ salmiah.edu@micpa.com.my.CPD On-Line RecordEffective January 1, 2007, it is mandatory for all members to complete at least 120 hoursof relevant Continuing Professional Development (CPD) activity in each rolling three-yearperiod, of which 60 hours should be verifiable. Members are required to submit an annualdeclaration as to compliance with the CPD requirements prescribed in the CPDStatement.An on-line CPD Record functionality has been added to the MICPA website, whichfacilitates members to update their CPD records online in the format provided. Please visitwww.micpa.com.my, login as a Member, click on Membership Update on the left-handmenu and go to Section F to update your CPD records.MICPAPractising CertificateThe Membership Affairs Committee of the Institute in considering applications for practising certificates, has frequently come across caseswhere a member has commenced public practice before he is issued with a practising certificate by the Institute.The Committee would like to remind members that in accordance with bye-law 56 of the Institute’s bye-laws, a member shall beentitled to engage in public practice 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 Services Department.The 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.myM a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant INSTITUTE NEWS 23REVISED MICPA PROGRAMMETERM 3, 2011 EXAMINATIONCPA StudentsList of Successful CandidatesThe President and Council of The Malaysian Institute of Certified Public Accountants congratulate successfulcandidates in the Term 3, 2011 ExaminationETHICS & BUSINESS APPLICATIONThe following candidates passed Ethics & BusinessApplication to the satisfaction of the Institute:NO NAMEPRINCIPAL/STREAM1 AJJRINA ANNUAR (Cik) Stream II2 CHEW LOONG JIN Johan Idris/ Stream I3 LEE CHEE HOW Ng Kim Lian/ Stream I4 MOHD AFIQ MOHD NASIR Stephen Oong Kee Leong/ Stream I5 TAN HUI LYN (Ms) Tan Soo Yan/ Stream I6 WAN NUR SAARAA WAN MANSHOL (Cik) Stream II7 WONG BOON KIN Nik Rahmat Kamarulzaman/ Stream IFINANCIAL ACCOUNTING & REPORTINGThe following candidates passed Financial Accounting &Reporting to the satisfaction of the Institute:NO NAMEPRINCIPAL/STREAM1 AFIQ HISYAM BAHARUDDIN Sivadasan Narayanan Nair/ Stream I2 AHMAD TALAHAH MUKHTAR Mohd Noor Abu Bakar/ Stream I3 AHMAD ZHAFIR MUSTAFA Eric Ooi Lip Aun/ Stream I4 ALYA FARHANA ROSLAM (Cik) Tang Seng Choon/ Stream II (S)5 CHAI XU KANG Stream II (S)6 CHAN YEU WAI Theresa Goh Lee Hwa/ Stream I7 CHANG KAR WAI,ALICIA (Ms) Alex Khaw Hock Hoe/ Stream I8 CHIA PEI XIAN (Ms) Yee Yoon Chong/ Stream I9 CHOO SHEAU FANG (Ms) Lee Tuck Heng/ Stream I10 CHUAH ENG HWA Lim Foo Chew/ Stream I11 FATIN FARIZA ABDUL HALIM (Cik) Susanna Lim Saw Keng/ Stream I12 GLORIA TAN @ REBED (Ms) Alex Khaw Hock Hoe/ Stream I13 HELWA MOHSIN (Cik) Yap Seng Chong/ Stream I14 HOO MEI SHIOW (Ms) Gary Lee Yoke Khai/ Stream I15 HOOI SHEY MAN (Ms) Mok Wai Ling/ Stream II (S)16 IZZUDDIN MOHAMED SHARIFF Lee Tuck Heng/ Stream I17 JAMES LUCA WRIGHT Theresa Goh Lee Hwa/ Stream I18 KAMAL HADI MUHAMAD Stephen Oong Kee Leong/ Stream I19 KHOR MENG CHEW Tang Seng Choon/ Stream II (S)20 KOH KIM FOOK Tan Poay Lin/ Stream II (S)21 KOK AI THENG (Ms) Tan Poay Lin/ Stream II (S)22 LAI XIM YEE (Ms) Teoh Soo Hock/ Stream I23 LALITHA SHANMUGAM (Ms) Yee Yoon Chong/ Stream I24 LAU JIA RONG Susanna Lim Saw Keng/ Stream I25 LAU JUN-ZHE Eric Ooi Lip Aun/ Stream I26 LEE KWEE LOONG Lee Tuck Heng/ Stream I27 LEONG XUAN NEE (Ms) Stream II (S)28 LIEW KAR YEE (Ms) Tang Seng Choon/ Stream II (S)29 LIM CHING YOONG (Ms) Shirley Goh/ Stream I30 LOK PEI LENG (Ms) Tang Seng Choon/ Stream II (S)31 LOOI FONG WEI, DARREN Gloria Goh Ewe Gim/ Stream I32 LOW PEI YI (Ms) Tang Seng Choon/ Stream II (S)33 MOHAMAD FIRDAUS BAHARUM SHAH Sivadasan Narayanan Nair/ Stream I34 MOHAMAD TARIQUE MOHD ZULKIPLI Sivadasan Narayanan Nair/ Stream I35 MOHAMED AFIQ ISMAIL Ahmad Shahrul Hj Mohamed/ Stream IMOHAMED ZAMANI36 NABIL FIKRI ZAINOODIN Stephen Oong Kee Leong/ Stream I37 NABILA MOHD YUSOFF (Cik) Teoh Soo Hock/ Stream I38 NATASHA HILMAN CHEOW (Cik) Shirley Goh/ Stream I39 NG SHI MAY (Ms) Foong Mun Kong/ Stream I40 NG WEN HARN, JANSEN Stephen Oong Kee Leong/ Stream I41 NG YEN SHAN Siew Chin Kiang/ Stream I42 NIK AISYAH AMIRAH MANSOR (Cik) Lee Tuck Heng/ Stream I43 NOOR AQILAH ADNI (Cik) Tang Seng Choon/ Stream II (S)44 NORASHIKIN HASSAN (Cik) Tang Seng Choon/ Stream II (S)45 NORMASHITAH HASIM (Cik) Tang Seng Choon/ Stream II (S)46 NUR ATHIRA MAT ARIFFIN (Cik) Mohd Afrizan Hussain/ Stream I47 NURSYILA CHE HAT (Cik) Tang Seng Choon/ Stream II (S)48 NURUL FARHANAH MIOR ISA (Cik) Tang Seng Choon/ Stream II (S)49 ONG KHAI PIN (Ms) Tang Seng Choon/ Stream II (S)50 RACHEL YONG YEONG SHIN (Ms) Khoo Chin Guan/ Stream I51 ROHKHADIJA JAMIL (Cik) Mohd Noor Abu Bakar/ Stream I52 SHONG JAY SHEN Gary Lee Yoke Khai/ Stream I53 SIMREN KAUR BALBIR SINGH (Ms) George Koshy/ Stream I54 SITI ALLIA MUZLI (Cik) Lee Tuck Heng/ Stream I55 TAN CHUNG KEAT Gary Lee Yoke Khai/ Stream I56 TAN SUE ANNE (Ms) Eric Ooi Lip Aun/ Stream I57 TANG HSIAO YINN (Ms) Eric Ooi Lip Aun/ Stream I58 TEE G-MUN Yee Yoon Chong/ Stream I59 TEO HONG LENG (Ms) Stream II60 THONG HUI THENG (Ms) Nik Rahmat Kamarulzaman/ Stream Iw w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

24 INSTITUTE NEWSThe Malaysian Accountant61 TOH WEI NING (Ms) Lee Tuck Heng/ Stream I62 WONG KUAN JHUN Lee Tuck Heng/ Stream I63 YEONG RUZHEN (Ms) Gary Lee Yoke Khai/ Stream IMANAGEMENT ACCOUNTING & ANALYSISThe following candidates passed Management Accounting& Analysis to the satisfaction of the Institute:NO NAMEPRINCIPAL/STREAM1 ANG CHONG MIN Lee Tuck Heng/ Stream I2 ARIF RIDA SHABARUDDIN Johan Idris/ Stream I3 BROWN DANIEL Nik Rahmat Kamarulzaman/ Stream I4 CHEN KWOK WEI Abdullah Abu Samah/ Stream I5 CHENG LIN HUI (Ms) Gary Lee Yoke Khai/ Stream I6 CHUAH SOO ZHONG Teoh Soo Hock/ Stream I7 GOH MEI SZE (Ms) Nik Rahmat Kamarulzaman/ Stream I8 HAR HOU WEI Gary Lee Yoke Khai/ Stream I9 HUE KAY RYLN (Ms) Eric Ooi Lip Aun/ Stream I10 LAU ZHI FANG, MICHELLE (Ms) James Chan Kuan Chee/ Stream I11 LIM LI SHEA, ELIZABETH (Ms) George Koshy12 NG SOOK YIN (Ms) Teoh Soo Hock/ Stream I13 PARASARAN SWAMINATHAN Eric Ooi Lip Aun/ Stream I14 SYED AHMAD AMIR AKMAL SYED ABD RAHMAN Lee Tuck Heng/ Stream I15 TAN SOO WEN (Ms) Alex Khaw Hock Hoe/ Stream I16 TAN YI YING (Ms) Alex Khaw Hock Hoe/ Stream I17 TAN ZHI HUI (Ms) Alex Khaw Hock Hoe/ Stream I18 WONG KAH LING (Ms) Loh Kok Keong/ Stream I19 YAM BING JING Theresa Goh Lee Hwa/ Stream IREVISED MICPA PROGRAMMEADVANCED STAGE EXAMINATIONList of Successful CandidatesThe President and Council of the Malaysian Institute of Certified Public Accountants congratulate successfulcandidates who completed the ADVANCED STAGE EXAMINATION of the Revised MICPA Programme to thesatisfaction of the Insititute:NO NAMEPRINCIPAL/STREAM1 AJJRINA ANNUAR (Cik) Stream II2 CHEW LOONG JIN Johan Idris/ Stream I3 LEE CHEE HOW Ng Kim Lian/ Stream I4 MOHD AFIQ MOHD NASIR Stephen Oong Kee Leong/ Stream I5 TAN HUI LYN (Ms) Tan Soo Yan/ Stream I6 WAN NUR SAARAA WAN MANSHOL (Cik) Stream II7 WONG BOON KIN Nik Rahmat Kamarulzaman/ Stream ITERM 3, 2011 EXAMINATIONWINNER OF MODULE PRIZEEthics & Business Application(PricewaterhouseCoopers Gold Medal)Financial Accounting and Reporting(Datuk Oh Chong Peng Gold Medal)AJJRINA ANNUAR (Cik)LOW CHOON WEI (Pass with merit)TERM 3, 2011 EXAMINATIONPERFORMANCE IN INDIVIDUAL SUBJECTSPART MODULE PASSED FAILED% %Advanced Stage Examination Financial Accounting & Reporting 73.6 26.4Management Accounting & Reporting 65.5 34.5Ethics & Business Application 70.0 30.0M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant PROFESSIONAL NEWS 25MASB Update (www.masb.org.my)PRIVATE ENTITIES, THE WAYFORWARDThe Malaysian Accounting Standards Board (“MASB”) has recentlyissued Request for Views (“RFV”) on Private Entities, the WayForward, to further seek views from interested parties about thefuture financial reporting framework for private entities in Malaysia.This RFV is issued following comments received with regardto MASB ED 52, Private Entity Reporting Standards, MASB ED 72,Financial Reporting Standards for Small- and Medium-sizedEntities, and MASB ED 74, Amendments to Financial ReportingStandards arising from Reduced Disclosure Requirements. MASBED 52 was issued in 2006 while MASB ED 72 and MASB ED 74were issued in 2010.The RFV seeks feedback on the following broad issues:• Whether replacing the Private Entity ReportingStandards (“PERS”) Framework with a new set ofstandards only in 2015 with the effective date of 2016 is inthe best interest of financial reporting for private entities.MASB is proposing to replace the PERS Framework with a newset of standards only in 2015 with the effective date of 2016 tobe in line with Malaysia’s eXtensible Business ReportingLanguage (“XBRL”) initiative by the Suruhanjaya SyarikatMalaysia (“SSM”).• Whether there are any immediate changes that the PERSFramework requires if private entities continue applyingit until 2015Many constituents, including international parties, haveexpressed concerns that the PERS Framework, which wasdeveloped based on 2003-version of International AccountingStandards, comprises an out-dated set of standards and hasnot kept in pace with the evolving business environment.Various principles of the PERS Framework are also noted to beinconsistent with those of the Malaysian Financial ReportingStandards (“MFRS”) Framework as a result of thedevelopments in financial reporting in recent years.As a practical expedient, MASB may consider reviewing thePERS Framework if there are areas that need immediateimprovement or amendment so as to mitigate the increasingconcerns about the gap differences between PERS and MFRSreporting.• Whether the existing PERS Framework should bereplaced by MASB ED 52, MASB ED 72 or MASB ED 74post-2015According to the results of a survey conducted by MASB in2010, MASB ED 72, which is identical to the InternationalFinancial Reporting Standards for Small- and Medium-sizedEntities, (“IFRS for SMEs”) was found to be the preferred option.It should be noted that the International Accounting StandardsBoard plans to review the IFRS for SMEs soon in order to identifyany implementation issues.MASB also found that there was support for MASB ED 74 inview that its measurement and recognition criteria wereidentical to the MFRS Framework, thereby improvingcomparability of financial statements as well as facilitatingconsolidation with MFRS reporting entities.• Whether the proposed timeframe is sufficient to enable aprivate entity to properly transition to the new financialreporting requirements.Many private entities currently apply the PERS given it is asimpler set of standards. As a consequence, time is required toconduct training and possibly system changes may be requiredto implement the new standards.It is acknowledged that SMEs in Malaysia account for a majority ofthe establishments in economic sectors such as manufacturing,services and agriculture. Taking into consideration theaforementioned concerns and issues, as well as the important rolethat private entities play in the economy, MASB believes that it iscritical for affected parties to provide its feedback on the futurefinancial reporting framework for private entities in Malaysia.Members are encouraged to study the RFV and providefeedback to MASB. The RFV is available on MASB websitew w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

26 PROFESSIONAL NEWSThe Malaysian Accountanthttp://www.masb.org.my. Members who wish to provide theircomments electronically may do so through “Comment Online” onMASB website. The deadline for the submission of comments toMASB is June 29, 2012.MINOR AMENDMENTS TOFINANCIAL INSTRUMENTSTANDARDSThe Malaysian Accounting Standards Board (“MASB”) has recentlyissued minor amendments to the financial instrument standards.These pronouncements are identical to those issued by theInternational Accounting Standards Board (“IASB”) and will affectthe related standards in both the Malaysian Financial ReportingStandards (“MFRS”) Framework and the Financial ReportingStandards (“FRS”) Framework.The pronouncements are as follows:(a) Amendments to MFRS1. Mandatory Effective Date of MFRS 9 and Transition Disclosures(Amendments to MFRS 9 (IFRS 9 issued by IASB in November2009), MFRS 9 (IFRS 9 issued by IASB in October 2010) andMFRS 7)2. Disclosures – Offsetting Financial Assets and FinancialLiabilities (Amendments to MFRS 7)3. Offsetting Financial Assets and Financial Liabilities(Amendments to MFRS 132)• Phase 1: Classification and measurement (published as IFRS 9in November 2009; and revised in October 2010)• Phase 2: Impairment methodology (published as an exposuredraft in 2009)• Phase 3: Hedge accounting (published as an exposure draft in2010)The IASB is still deliberating Phase 2 and Phase 3 of theaforementioned project.In view that IASB has extended its timeline for the completionof the remaining phases of the project beyond June 2011, theseamendments were published to allow all phases of the IASB’sfinancial instruments project to have the same mandatory effectivedate.These amendments defer the mandatory application MFRS9 / FRS 9 from January 1, 2013 to January 1, 2015. Early applicationcontinues to be permitted. The amendments to MFRS 9 / FRS 9(IFRS 9 issued by IASB in November 2009), MFRS 9 / FRS 9 (IFRS9 issued by IASB in October 2010) and MFRS 7 / FRS 7 are effectiveimmediately.These amendments also provide relief from the requirementto restate comparative financial statements for the effect of applyingMFRS 9 / FRS 9, which was originally only available to companiesthat opted for the early application of MFRS 9 / FRS 9 prior toJanuary 1, 2012. Additional transition disclosures will be required toaid investors’ understanding of the effect of the initial application ofMFRS 9 / FRS 9 on the classification and measurements of financialinstruments.(b) Amendments to FRS1. Mandatory Effective Date of FRS 9 and Transition Disclosures(Amendments to FRS 9 (IFRS 9 issued by IASB in November2009), FRS 9 (IFRS 9 issued by IASB in October 2010) and FRS7)2. Disclosures – Offsetting Financial Assets and FinancialLiabilities (Amendments to FRS 7)3. Offsetting Financial Assets and Financial Liabilities(Amendments to FRS 132)Mandatory Effective Date of MFRS 9 / FRS 9 and TransitionDisclosures(Amendments to MFRS 9 / FRS 9 (IFRS 9 issued by IASB inNovember 2009), MFRS 9 / FRS 9 (IFRS 9 issued by IASB inOctober 2010) and MFRS 7 / FRS 7)IASB has undertaken the project to replace IAS 39, FinancialInstruments: Recognition and Measurement, which is equivalent toMFRS 139 or FRS 139, in the following three (3) phases:Disclosures – Offsetting Financial Assets and FinancialLiabilities(Amendments to MFRS 7 / FRS 7)These amendments introduce additional disclosure requirements,which are intended to enable users of an entity’s financialstatements, in particular, investors, to better gauge the effect orpotential effect of offsetting arrangements on an entity’s financialposition.These amendments also aim to improve transparency in thereporting of how companies mitigate credit risk, includingdisclosure of related collateral pledged or received.The amendments to MFRS 7 / FRS 7 are effective for annualperiods on or after January 1, 2013.Offsetting Financial Assets and Financial Liabilities(Amendments to MFRS 132 / FRS 132)The amendments to MFRS 132 / FRS 132 clarify the followingrequirements for offsetting financial instruments:M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant PROFESSIONAL NEWS 27(i) the meaning of ‘currently has a legally enforceable right of setoff’;and(ii) that some gross settlement systems may be consideredequivalent to net settlement.The amendments to MFRS 132 / FRS 132 are effective for annualperiods beginning on or after January 1, 2014 and are required tobe applied retrospectively.These new amendments to financial instrument standardsrepresent the first batch of issuance subsequent to MASB’sannouncement on its new MFRS Framework on November 19,2011. The due process of the MFRS Framework aligns the MASB'sdue process timeline to that of the IASB with the objective of puttingthe new or amended standards in place for adoption andapplication within a timely manner. This is to ensure that the effectivedate of the new or amended standards will be the same as that ofIFRSs.These pronouncements are available at MASB website(http://www.masb.org.my) or from MASB after March 16, 2012 at:Malaysian Accounting Standards BoardWisma UOA Pantai, Suite 5.02, Level 5, No. 11, Jalan Pantai Jaya,59200 Kuala LumpurEmail: masb@masb.org.mySecurities Commission Malaysia (www.sc.com.my)Malaysia's New CG Code puts StrongEmphasis on Board EffectivenessOn March 29, 2012, the Securities Commission Malaysia (SC)released the Malaysian Code on Corporate Governance 2012(MCCG 2012) as the first major deliverable of the CorporateGovernance Blueprint 2011 (Blueprint) launched in July last year.Aimed at enhancing board effectiveness of listed companiesthrough strengthening board composition, reinforcing theindependence of directors and fostering commitment of directors,the new code will supersede the Malaysian Code on CorporateGovernance 2007."In essence, the Malaysian Code on Corporate Governance2012 and the Blueprint seek to embed a culture of good corporategovernance, addressing the key components of the corporategovernance ecosystem to strengthen self and market discipline.Boards and shareholders must embrace the fact that goodbusiness is not just about achieving the desired financial bottomline by being competitive. It is equally about creating shareholdervalue, which can only be sustained by well-informed strategicdirection and engaged oversight, which stretch beyond short-termfinancial performance," said Tan Sri Zarinah Anwar, Chairman ofthe SC.The new CG code sets out eight broad principles andspecifies the best practices of good corporate governance at ahigher level than that expected by regulations. Each principle isfollowed by a series of recommendations, which include theformalisation of a board charter, capping of the tenure ofindependent directors to nine years and the separation ofchairman and CEO roles. It also elaborates on the need for boardsto recognise and manage risks and for companies to encourageshareholder participation.To support and enhance the capacity of directors to fulfil thedemands of their role, the new code puts greater emphasis on therole of the Nominating Committee, chaired by a seniorindependent director, in relation to the recruitment, assessment,and training needs of directors."Good corporate governance cannot be achieved merely onthe strength of regulations. Directors have a duty not just in settingstrategic direction and overseeing the conduct of business incompliance with laws, they should also be effective stewards andguardians of the companyin respectof ethicalvalues,and ensuringan effective governance structure for the appropriate managementof risks and level of internal controls," added Tan Sri Zarinah.The MCCG 2012 will be effective on December 31, 2012although listed companies are encouraged to make an earlytransition to the principles and recommendations elaborated in thisnew code.The new CG code, as well as a set of FAQs, is available atthe SC website at www.sc.com.myw w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

28 PROFESSIONAL NEWSThe Malaysian AccountantIASB Update (www.iasb.org)IFRS 2012 Red Book Now AvailableThe IFRS Foundation is pleased to announce that the “2012International Financial Reporting Standards" (IFRS®) Red Book isnow available.This edition is presented in two volume parts A and B, andincludes the following changes made during 2011:• Four new standards–IFRSs 10, 11, 12 and 13;• One new Interpretation–IFRIC 20;• Seven revised standards–IFRSs 7 and 9 and IASs 1, 12, 19, 27and 28;• Amendments to IFRSs that were issued as separatedocuments–IFRSs 7and 9, IASs 1, 19 and 32; and• Amendments to other IFRSs resulting from those amendedstandards.This edition includes amendments to IFRSs that have an effectivedate after January 1, 2012. It does not contain documents that arebeing replaced or superseded but remain applicable if thereporting entity chooses not to adopt the newer versions early. Formore information please visit the web shop.Republic of Ecuador Adopts IFRS for SMEs for all Non-Publicly Accountable EntitiesThe Republic of Ecuador has adopted the IFRS for SMEs for allnon-publicly accountable entities for years ending on or afterDecember 31, 2012. There are approximately 60,000 suchentities in Ecuador.New Investor Perspective Published – ‘ImprovingDisclosures About Intercompany Investments’A new Investor Perspective by Paul Pacter entitled 'Improvingdisclosures about intercompany investments' has been publishedon the Investor Resources section of the IASB website.IASB Issues Amendments to IFRS 1The International Accounting Standards Board (IASB) todayissued amendments to IFRS 1 First-time Adoption of InternationalFinancial Reporting Standards.The amendments, dealing with loans received fromgovernments at a below market rate of interest, give first-timeadopters of IFRSs relief from full retrospective application of IFRSswhen accounting for these loans on transition. This is the samerelief as was given to existing preparers of IFRS financialstatements.The amendments are mandatory for annual periodsbeginning on or after January 1, 2013. Earlier application ispermitted.Chungwoo Suh Appointed to the IASBThe Trustees of the IFRS Foundation, the oversight body of theIASB announced the appointment of Chungwoo Suh as a memberof the IASB for an initial five-year term from July 1, 2012 andrenewable for a further three-year term.Dr Suh currently serves as an advisor to the KoreaAccounting Standards Board (KASB) and is a Professor ofAccounting at Kookmin University, Seoul. He served as Chairmanof the KASB between 2008 and 2011, during which time he ledKorea’s preparations to adopt International Financial ReportingStandards (IFRSs) in full from 2011.IFAC Update (www.ifac.org)IFAC Forum Addresses Challenges and OpportunitiesFacing Small & Medium Practices in an Ever-ChangingGlobal MarketplaceOn March 19, 2012, over 200 delegates from 40 professionalaccountancy organisations in 36 countries convened in Singaporefor the sixth annual IFAC Small and Medium Practices (SMP)Forum. Co-hosted with the Institute of Certified PublicAccountants of Singapore (ICPAS), this year’s event featured akeynote address by Ms. Jessica Tan, Chairman of the GovernmentParliamentary Committee for Finance and Trade & Industry inM a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant PROFESSIONAL NEWS 29Singapore, and speakers from the Singapore Business Federation(SBF) and Accounting and Corporate Regulatory Authority (ACRA)of Singapore.Delegates from IFAC member bodies convened withrepresentatives from the regulatory community, leading regionalbusiness associations, and international standard setters todiscuss the hot-button challenges facing the SMP sector and tocollaborate on the solutions on a global level. Plenary panel sessiontopics included shaping regulations and standards and how SMPscan capitalise on emerging opportunities in an ever-changingmarketplace.In his opening remarks, IFAC Deputy President Warren Allengave an overview of IFAC’s role in the changing SME/SMPlandscape, “The results of the 2011 IFAC Global LeadershipSurvey highlighted that the needs of SMPs and small- andmedium-sized entities (SMEs) continue to be a high-priority areaamong IFAC’s membership. This may be because SMEs—and theSMPs that serve them—often constitute the backbone ofeconomic stability. Here in Singapore, for instance, SMEs andsmall components (subsidiaries, branches, etc.) of multinationalcorporations contribute up to half of gross domestic product(GDP). And that is why IFAC is speaking out to ensure that worldleaders recognise that the small business sector is a public interestissue, and that policy, regulation, and standards are developed ina way that will facilitate the growth of this sector.”IFAC Releases Policy Position Paper Four, Calling forEnhanced Public Sector Financial ManagementTransparency and AccountabilityThe IFAC has released Policy Position Paper 4, Public SectorFinancial Management Transparency and Accountability: The Useof International Public Sector Accounting Standards.The paper sets out IFAC’s view that governments around theworld must provide clear and comprehensive informationregarding the financial consequences of economic, political, andsocial decisions, in order to protect the public as well as investorsin government bonds. It is issued at a time when deficiencies inmany governments’ financial management, transparency, andaccountability have become more prominent, as a result of theworsening sovereign debt problems around the globe.Transparency and accountability can only be provided through ahigh-quality, robust, and effective accrual-based financialreporting system, which allows for government assets andliabilities (including debt) to be appropriately recorded, reported,and disclosed—and hence effectively monitored.The most globally accepted high-quality accrual-basedfinancial reporting system is the International Public SectorAccounting Standards (IPSASs), issued by the International PublicSector Accounting Standards Board (IPSASB), an independentstandard-setting board supported by IFAC.IFAC’s global seminar, The Sovereign Debt Crisis, A Matter ofUrgency—from Lessons to Reform, was held on March 19-20,2012, in Vienna. The Seminar features prestigious guest speakersthat include: Vincenzo LaVia, Chief Financial Officer of the WorldBank Group; Hon. David Walker, Founder and CEO of theComeback America Initiative and Former United StatesComptroller General; and Göran Persson, Former Prime Ministerof Sweden.IFAC Releases Revisions to Policy Position – Paper Two;Promoting a Single Set of Auditing Standards for AllAudits, Including of Small-and Medium-Sized EntitiesThe IFAC has released a revised version of Policy Position Paper 2,A Single Set of Auditing Standards: Audits Of Small-And Medium-Sized Entities.“IFAC reaffirms its view that a single set of auditing standardsthat can be applied to all audits is in the public interest,” stated IanBall, chief executive officer of IFAC. “A key objective of financialreporting is to provide users with relevant and reliable informationfor decision making; a single set of standards gives usersconfidence that audits—whether small or large, simple orcomplex—have been performed to the same high standards.”The use of International Standards on Auditing (ISAs) foraudits of small- and medium-sized entities has again been broughtinto focus following the release of the European Commission’sproposed audit legislation late last year.“The International Auditing and Assurance Standards Board(IAASB)’s ISAs are designed to be applied in a mannerproportionate to the size and complexity of an entity,” continuedProf. Arnold Schilder, chairman of the IAASB. “IAASB is committedto addressing the needs of small- and medium-sized entities andsmall and medium practitioners.”Policy Position Paper 2, A Single Set of Auditing Standards:Audits Of Small-And Medium-Sized Entities, was first issued byIFAC in 2008. The main revisions to the position paper includeupdated references to:• the Clarified ISAs;• other standards that the IAASB has issued and that are relevantto small and medium practitioners; and• tools and guidance made available to practitioners by IFACand the IAASB.IIASB Enhances Compilations Standard: Addresses SMENeedsCountless entities around the globe—especially small-andmedium-sized entities (SMEs)—look to professional accountantsw w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

30 PROFESSIONAL NEWSThe Malaysian Accountantin public practice to assist in the preparation and presentation oftheir financial information. Recognising the important rolepractitioners play in providing accounting and financial reportingexpertise to entities in support of high-quality financial reporting,the IAASB has released International Standard on RelatedServices (ISRS) 4410 (Revised), Compilation Engagements,addressing such service engagements.“This is an important standard in the many jurisdictionswhere compilation engagements are commonplace, but also injurisdictions where it is a relatively new service. This enhancedstandard contributes to quality in these important engagementsand ensures clear communications to users,” stated Prof. ArnoldSchilder, IAASB Chairman. “While the standard is applicable toentities of all sizes and for all forms of historical financialinformation, the needs of SMEs, users of their financial information,and those who provide compilation services were key focus areasin our deliberations.”ISRS 4410 (Revised) clarifies the practitioner’s role andresponsibilities in a compilation engagement and matters thatneed to be considered when accepting such engagements, andemphasises the importance of quality control. It also expands thetraditional compilation engagement report to make clear to usersthe practitioner’s contribution to the compiled financial informationpresented by management, and the key features of a compilationengagement.The revised standard is effective for compilationengagement reports dated on or after July 1, 2013.IESBA Revises 2012 StrategyThe International Ethics Standards Board for Accountants (IESBA)has agreed on a revision to its strategy and activities for 2012. Itsrevised strategy calls for the board to undertake the followingactivities in 2012:Rotation—The IESBA will consider firm rotation and alsowhether the position of the Code of Ethics for ProfessionalAccountants (the Code) on partner rotation remains appropriate,including whether the requirement to rotate off the auditengagement after serving seven years as a key audit partner andobserve a two-year time-out period continues to be appropriate.Non-assurance services—The IESBA will consider whether theCode's position on non-assurance services remains appropriate,including the use of materiality, and, if so, whether guidance shouldbe provided for applying the materiality test. If certain nonassuranceservices are permitted, the IESBA might also considerwhether they should be subject to pre-approval by those chargedwith governance, restricted in size in relation to the audit fee, orpublicly disclosed.Structure of the Code—The IESBA will determine how toincrease the visibility of the requirements and prohibitions in theCode and clarify who is responsible for meeting them.Part C of the Code—The IESBA will determine whether recentcorporate accounting irregularities reveal ethical implications forprofessional accountants in business (PAIBs) and whether part Cof the Code should be strengthened to provide PAIBs with moreguidance and support.These matters will be discussed initially at the IESBA's June 2012meeting. Depending upon the positions reached, the IESBAultimately may propose revisions to the Code.Responding to a Suspected Illegal ActAt its February 2012 meeting, the IESBA discussed its position onhow a professional accountant should respond to a suspectedillegal act. The IESBA agreed on the following:• An auditor and a professional accountant in public practiceproviding non-assurance services to an audit client should berequired to disclose to an appropriate authority suspectedillegal acts that affect financial reporting or fall within theexpertise of the professional accountant. This requirementwould apply when the suspected illegal act is of suchconsequence that disclosure would be in the public interestand the client has not done so.• Accountants performing non-assurance services for nonassuranceclients and accountants in business should berequired to disclose the matter to the external auditor. If theresponse to the matter is not appropriate, the accountantwould be expected to exercise his right to disclose the matterto an appropriate authority.• Exceptional circumstances may exist where a reasonable andinformed third party would conclude that it is not in the publicinterest to make such disclosure because the probableconsequences, such as the risk to the personal safety of theprofessional accountant or other individuals, would outweighthe benefits of disclosure.The IESBA expects to approve an exposure draft on this subject atits next meeting in April.M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant CASE LAW HIGHLIGHT OR ARTICLE 31It’s Not Business As Usual With Competition ActSTRIKING A BALANCE: New law must protect the rights of both intellectualproperty owners and consumers, write Anand Raj and Jyeshta MahendranAfter a long gestation, the Malaysian Competition Act 2010 (CA)was brought into force on January 1, 2012.The CA prohibits anti-competitive and abusive practices,which would have an effect on competition in any market in thecountry, irrespective of whether the commercial activity wascarried out within or outside of Malaysia.The Competition Commission Act 2010 set up theCompetition Commission (MyCC), which is entrusted with, amongothers, overseeing, regulating, enforcing and investigatingcompetition law matters across the various commercial sectors.Some key language in the CA is modelled upon theEuropean Competition Law and it is likely that European case,materials, authorities and authorities from other jurisdictions mayprovide some guidance on the interpretation of the CA provisions.Competition law generally seeks to enhance the process ofcompetition and increase economic efficiency. It also seeks toprohibit or control cartels, monopolies and abuses of dominance.However, it is well known that intellectual property (IP) rightsgenerally enjoy a special status and can have certain monopolisticfeatures as the law generally recognises that there are justificationsfor such rights.IP rights generally share the same basic objective ofpromoting economic efficiency and innovation. IP laws providecertain monopolistic legal rights to IP owners which exclude othersfrom commercially exploiting and using their new and improvedproducts and processes.This exclusivity is justified as inventors and owners of IPrights need an incentive and the protection of the law to beencouraged to innovate and enjoy a period of exclusiveexploitation of their rights so that they can recover their researchand development (R&D) cost and profit from the commercialpotential of their IP rights.Nevertheless, while IP rights would protect the IP rightholders’ interest from being exploited unlawfully, such anadvantage or dominant position in the market place by the IP rightsholder should not be abused as this may distort competition.For instance, refusing to offer licences to competitors andblocking or controlling the introduction of new and improvedproducts and processes in the market is an example of an actdeemed anti-competitive and falls foul of the CA.IP and competition laws are inextricably linked to each otherand a balance must be struck so that both can coexist to ensurethat the rights of the IP owners and that of the consumers areprotected.MyCC is looking into the issuance of guidelines to explainand address many of the specifics of the CA, which should shedmore light in this area.The draft guidelines issued by MyCC touch upon theinteraction between IP rights in the context of franchiseagreements. It is hoped that MyCC will formulate morecomprehensive guidelines dealing with IP rights soon.The CA also prohibits abuse of dominance by enterprises.w w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

32 CASE LAW HIGHLIGHT OR ARTICLEThe Malaysian AccountantCrucially, a parent and subsidiary company shall be regardedas a single enterprise if, despite their separate legal entity, they forma single economic unit within which the subsidiaries do not enjoyreal autonomy in determining their actions on the market.There are numerous criminal provisions for obstructing orimpeding MyCC and other breaches of the CA.Directors, managers and persons assisting in management,among others, may face jail terms or fines for the criminal conductof any enterprise unless they can show that the offence wascommitted without their knowledge, consent or connivance andthat they had taken all reasonable precautions and exercised duediligence to prevent the commission of the offence.Enterprises operating in Malaysia need a heightenedawareness of the CA and must monitor and keep their businesspractices and strategies under review to ensure compliance withthe CA provisions.An enterprise would be in a “dominant position” if itpossesses a significant power to adjust prices, output or tradingterms without effective constraint from competitors or potentialcompetitors.The percentage of market share of the company would notnecessarily be conclusive in determining whether the company isin a dominant positions and dominance can exist in the case of asingle enterprise or more than one acting collectively.The maximum penalty for infringing the CA is onerous – up to10 per cent of worldwide turnover of the enterprise.ANAND RAJ & JYESHTA MAHENDRANADVOCATES & SOLICITORSPARTNERSSHEARN DELAMORE & CO.Reproduced by kind permission of SD Services Sdn Bhd. This is anexcerpt of an article, which first appeared in Asia IP and has beenupdated for publication in the News Straits Times on 6 February2012. The contents herein are not intended to constitute advice onany specific matter and should not be relied upon as a substitutefor detailed legal advice on specific matters or transactions.Dear Readers,If you have any article, which in your view, is suitable for inclusion in our columns, please send the article to theEditorial Board at the address below or via e-mail. We will be happy to review the article for publication in thisjournal. Kindly contact:PublicAffairs&CommunicationsManagerThe Malaysian Institute of Certified Public Accountants15 Jalan Medan Tuanku, 50300 Kuala LumpurE-mail: vic.pr@micpa.com.myM a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant GLOBAL INSIGHT 33NEWSfrom Down UnderBy Bill Palmer, Director, Asia, The Institute of Chartered Accountants in AustraliaSuccess brings challengesIt is said every cloud has a silver lining. However the reverse cansometimes be true in that a rising sun shining on a clear sky cannevertheless hide hidden clouds. A good example of this is currentlyoccurring in Australia and could also pose challenges for Malaysia.Australia has been experiencing a boom in its mining industry onthe back of strong demand for iron ore and coal from China, and toa lesser extent India. This has led to a strong appreciation in theexchange rate, which while providing benefits for Australianstravelling overseas and for importers is adversely impacting exportindustries, particularly those in manufacturing.As a result although there is a shortage of workers in themining industry, those in manufacturing, particularly in the motorvehicle industry, are experiencing job losses. ConsequentlyAustralia now finds itself with a two-speed economy.Although political leaders are under pressure to providefinancial incentives for businesses such as foreign owned vehiclemanufacturers to continue operating plants in Australia, manyeconomic commentators consider such support to be a waste oftaxpayers money as any investment will only delay the inevitableshut down of the industry and that a better solution is to invest in reskilling manufacturing workers.This alone will not solve the problem, as many of the new jobopportunities are located in remote areas of the country whereasthe manufacturing industry is concentrated around the maincapital cities of Melbourne, Sydney and Adelaide where themajority of workers wish to live.Although the issues for Malaysia are not the same, they aresimilar as Malaysia moves up the value chain on the back of theimpact, which China and India are having on economic growth inthe region.The challenges associated with restructuring and shiftingmore of the supply chain to lower cost environments is increasingthe demand for business reengineering consulting services andinternational tax consulting offering good opportunities for theaccounting profession in both Australia and Malaysia. Theprofession itself will need to re-orientate its offering in order tocapitalise on these opportunities by committing more resources inthe area of consulting.For those firms, which add to their existing skills through acombination of training and broader recruitment the sky will indeedbe clear. However for those that do not recognise the changes,which are occurring in the structure of the Australian and Malaysianeconomies the hidden clouds could make for dark days ahead.w w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

34 GLOBAL INSIGHTThe Malaysian AccountantWRLD NewsGlobal Reporting InitiativeGRI Releases New XBRL Taxonomyfor Sustainability DataThe Global Reporting Initiative (GRI) has announced the launch ofa new XBRL taxonomy for tagging sustainability data in reports.The GRI Taxonomy — which is available for free — was developedin collaboration with Deloitte Netherlands. A team of experts fromdifferent stakeholder communities reviewed the draft taxonomybefore the Public Comment Period.Nelmara Arbex, Deputy Chief Executive of the GlobalReporting Initiative said, “Today’s new taxonomy is a major stepforward in making sustainability data available to society. Manycompanies already use XBRL to tag their financial performancedata; the GRI Taxonomy means that companies can tag theirsustainability data, making it easily accessible for people who wantto find information in the report.”Cees de Boer, CFO and COO of Deloitte Netherlands said,“With the release of the GRI Taxonomy, many organizations canbenefit from a well-defined, structured format for collecting anddisseminating sustainability information. It enables both reportersand regulators to exchange sustainability data electronically andinform stakeholders with consistent and high quality information. Itcan be a major leap in the interactive use of sustainability data andintegrating financial and non-financial reporting.”GRI has also launched a Voluntary Filing Program, wherereporters that use the new GRI Taxonomy can promote theirtagged reports on GRI’s website.Nelmara Arbex added, “Now is the time for companies topilot this new taxonomy. GRI expects that regulators will beincreasingly interested in tagged data, so by starting to use the GRITaxonomy now in the sustainability reporting process, companiescan get ready for future requirements.”(Source: www.globalreporting.org/)InternationalIVSC Consults on New FairnessGuidelinesThe IVSC has issued draft new guidelines on the provision offairness opinions.Many corporate transactions are supported by fairnessopinions, which aim to provide boards and other stakeholders withadvice as to whether the terms of a proposed transaction are fairfrom a financial perspective. A valuation or valuation analysis isoften at the core of the opinion. While in some countries there areregulatory requirements governing when opinions are required,who may provide them and what they should contain, these are notconsistent and many companies are domiciled in countries with noregulation at all.The draft guidelines are the latest step in the IVSC’s projectto develop best practice guidelines aimed at promotingconvergence and good corporate governance in the internationalarena.The project is being led by the IVSC Professional Board.Board member Doug McPhee, who is Head of Europe, Middle East& Africa Valuation Services at KPMG in London explained,“Because a typical fairness opinion contains more than valuationadvice, they have often been seen as falling outside of theInternational Valuation Standards and the ethical framework thathas developed around valuation. These guidelines are designed tobridge that gap and show how the key principles of independence,objectivity and transparency in the IVS can be applied to theprovision of fairness opinions.”The new guidelines examine potential conflicts that couldthreaten the objectivity of the provider of a fairness opinion andmatters that should be undertaken in developing and reporting theopinion to maximise transparency for investors and others who relyon opinions.Comments on the draft are invited by the end of May.(Source: www.ivsc.org)United StatesGASB Proposal on GovernmentCombinations and Disposals ofOperationsThe Governmental Accounting Standards Board (GASB) of the UShas issued for public comment a proposed Statement that wouldprovide U.S. state and local governments with standards forfinancial reporting regarding government combinations (mergers,acquisitions, and transfers of operations) and disposals (sales andtransfers) of government operations. The GASB is seeking publiccomment on its proposals, which are contained in its ExposureDraft, Government Combinations and Disposals of GovernmentOperations.M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y

The Malaysian Accountant GLOBAL INSIGHT 35The proposed Statement is intended to improve accountingand financial reporting by providing standards for combinations inthe governmental environment. Specifically, it would require stateand local governments to:(a) Identify whether a government combination is a governmentmerger, government acquisition, or a transfer of operations(b) Use carrying values to measure the assets and liabilitiescombined in a government merger or transfer of operations(c) Measure acquired assets and liabilities based upon theiracquisition values in a government acquisition, and(d) Provide guidance for government operations that have beentransferred or sold.The proposed Statement would also require disclosures to bemade about government combinations and disposals ofgovernment operations to enable users of financial statements toevaluate the nature and financial effects of those transactions.“Until now, state and local governments have accounted formergers and acquisitions by referring to accounting and financialreporting guidance intended for the business environment,” saidRobert Attmore, GASB chairman. “Based on our research andfeedback from stakeholders, the GASB decided to propose newguidance tailored to governmental situations and circumstances,to enable financial statement users, preparers, and auditors toevaluate the specific nature and financial effects of thosetransactions.”The amendments in this proposal would be effective forperiods beginning after December 15, 2013, and would be appliedon a prospective basis. Early application of the standards would beencouraged.(Source: www.accountingeducation.com)FASB Responds to FAF’s Post-Implementation Review Report onFIN 48The FASB has issued its response to the Financial AccountingFoundation’s (FAF) Post-Implementation Review (PIR) Report onFASB Interpretation No. 48, Accounting for Uncertainty in IncomeTaxes (FIN 48). In its response, the FASB noted that the PIR Reportfindings affirm the overall effectiveness of FIN 48. In particular,stakeholder feedback indicates that FIN 48 has resulted in moreconsistent recognition and measurement of uncertain taxpositions and more relevant reported information about income taxuncertainties. Most preparers said that they did not incursignificantimplementation and compliance costs.“The FASB is pleased with the PIR team’s finding thatFIN 48 is resulting in more consistent and useful information forinvestors and other users of financial statements,” said FASBChairman Leslie F. Seidman.“The FASB welcomes the PIR team’s recommendations tocontinue to improve our processes and we are taking steps tomake enhancements in those areas. While the FASB does not planto undertake a separate project to review FIN 48 at this time, theBoard plans to consider the technical findings in future efforts tosimplify our standards, converge them with International FinancialReporting Standards, or both,” Seidman added.The FASB said that it welcomes the PIR team’srecommendations for improving the standard-setting process,including suggestions that the FASB involve investors earlier in theprocess, more completely describe the Board’s cost-benefitanalysis, and elaborate on how the Board applies its criteria for reexposingdecisions reached in re-deliberations.The Board said that the criteria for a review orreconsideration of FIN 48 were not met, based on the criteriaestablished in the FASB Rules of Procedure. However, the FASBsaid it will consider the PIR Report technical findings in a review ofwhether simplifications or modifications in U.S. GAAP arewarranted for private companies and in its analysis of the remainingdifferences between U.S. GAAP and IFRS, in particular, IAS 12,Income Taxes.“With this response from the FASB, we complete our firstPost-Implementation Review,” said John J. Brennan, chairman ofthe FAF Board of Trustees. “The Trustees believe that this processprovides critically important feedback in the standard-settingprocess and we’re pleased with the overall result. We’ll take whatwe’ve learned from this first effort and use it to improve the processas we move forward with our next accounting standard reviews.”The FASB has made available online its full response to theFIN 48 PIR Report.The FASB issued FIN 48 in June 2006 to reduce diversity inpractice in recognizing, measuring, and reporting uncertaintiesrelating to income tax positions. The review of FIN 48 (codified inAccounting Standards Codification Topic 740, Incomes Taxes),was undertaken by an independent FAF team working under theoversight of the FAF Board of Trustees. The team’s formal report isavailable on the FAF website.The PIR process is designed to be independent of thestandard-setting process of the FASB and the GovernmentalAccounting Standards Board (GASB). The FAF review staff reportsto the Trustees and FAF president, but members are drawn fromexperienced FASB and GASB staff to promote a collaborativereview process aimed at improving the standard-setting process.The review staff tested the initial review process by selecting oneFASB and one GASB standard, with the FIN 48 standard as the firsttest.(Source: www.fasb.org/home)w w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2

36 LISFESTYLEThe Malaysian AccountantBeing healthy is one of the most important things’ in ourlives. We would do anything to ensure good health and goto great lengths to look for ways to improve our generalwell being. Whether trying to improve our health, lose weight, getmore energy, clear the skin or get sick less often, the one thing thatwill help tremendously to achieve our goals quickly is drinkinggreen smoothies every day. It is amazing what one can do with afridge full of fresh fruits, vegetables and a blender.We are well aware that to improve our health and achieveideal weight, we should be eating a healthy diet that includes loadsof fresh fruits and vegetables.However, not many of us are able to actually do thisconsistently each and everyday and in quantities that would makea difference. And how many of uswould eat loads of raw vegetables ona regular basis, especially leafy greenones. We may have a saladoccasionally but how often do we takethe trouble to prepare one and most of the timewhen we do eat salad, we make it tastier withadding unhealthy dressings.Which is why smoothies are growingin popularity these days, especially greenones because they are super healthy, easy tomake and tasty as well. It takes only about 15minutes or so to make a smoothie and providesincredible benefits. The impact of a smoothiethat just takes a short amount of time to make willhave a positive effect on our well being and can befelt throughout the day.A healthy green smoothie is simply a fruit smoothie madewith greens and vegetables added in. Simply get some spinach,kale, parsley, broccoli; the darker the leaves, the more nutrients thevegetable usually has, and add some fruits like apple, orange andbanana, blueberries and blend it with water. The other interestingcombinations include using strawberries, mangoes, peaches withgreen vegetables, and other veggies such as cucumber,tomatoes, celery and carrots.The colour of this tasty, tremendously beneficial drink mayput one off to even tasting the mixture but one should not let thegreenness of this smoothie keep one away from the health benefitsone would get from it.Experts say that we need to consume fresh fruits, veggiesand greens everyday. Most of us don’t eat enough of them. This iswhy smoothies are so wonderful. Just use the blender to mix it allup and get a nutrient boost we would not get otherwise.Millions of people today indulge in smoothies because it’s adelicious guilt-free way to have a little sugar with the veggies andfruits. But one must be careful of making smoothies unhealthy. Yes,that can happen too if one is not careful.A smoothie can be as healthy or as unhealthy as you make it.Adding whipped cream, sugar and high sugar content fruit juicesSmoothie BenefitsBy Kavalyn Kreerwill make a smoothie delicious but it will be unhealthy if takeneveryday.Blending a smoothie at home allows you to explore yourcreativity and your taste buds, adding ingredients that you need tostay healthy. Smoothies are particularly great for picky eaters; it isa useful way to incorporate fruits and vegetables that otherwiseyou might not be able to eat. You can mask the taste of bitterveggies that you normally shy away from with your favourite fruitsand have a healthy alternative to meals. This is the way to goespecially for children who have difficulty eating their fruits andveggies. Hiding ‘disliked’ foods in a smoothie that has theirfavourite fruits can actually hide the taste of vegetables andchildren will drink it without even realising it. As long as you ensurethat the sugar levels are not too highin a smoothie.Why are these smoothiesbeneficial to our health? The fruitsand vegetable contribute vitamin A,vitamin C, fibre, potassium and antioxidants tosmoothies. Your fruit choices can be anything fromstrawberries, blueberries, bananas,oranges, apples, grapes, pears,mangoes, papayas and etc. Commonveggie choices include spinach,carrots, broccoli, tomatoes,cucumber, basil, parsley and etc.You can also mix in nuts and spices.Nuts contribute protein, healthy fat,fibre and minerals to your diet. Almonds,cashew nuts, walnuts, peanuts, pecansare some of the choices you can try inmoderation. Spices provide antioxidants and an extra flavour kick.Experiment by using some cinnamon, cloves, allspice, red pepper,cardamom or ginger, adding a dash only. You don’t want tooverpower the smoothie with spices.Making smoothies can be fun because it is all about variety.Try adding one unusual healthy ingredient every time you make asmoothie. Try using flax seeds, soy milk, almond milk, honey darkchocolates chunks, raw oats, instant coffee even, wheat germ,sunflower seeds or sesame seeds, you just might make somethingunusual and tasty.Make some time in the day to make smoothies for yourselfand your family. Make a routine out of it. Set apart 20 minutes everymorning and get a majority of your daily nutrition all before lunch.The high water and nutrient content will keep you hydrated andprovide you with a feeling of well being throughout the day. Drinkinga smoothie everyday is even better than popping multi vitaminsbecause the best way to obtain nutrition is from food and byconsuming a healthy smoothie everyday you are getting most ofyour nutrition in one delicious dosage.This article was written by Kavalyn Kreer, who writes lifestylearticles for publication on the web and print.M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y