Malaysia

Corporate financial reporting requirements in Malaysia are outlined in several laws, which include the Companies Act of 1965, Financial Reporting Act of 1997, Central Bank of Malaysia Act of 2009, Financial Services Act of 2013, Islamic Financial Services Act of 2013, and the Securities Commission Act of 1993.

The Companies Act of 1965 governs the incorporation of companies and sets requirements for companies to prepare financial statements and have them audited. The Act requires companies incorporated under the Act to have their financial statements audited following the Malaysian Approved Standards on Quality Control, Auditing, Review, Other Assurance and Related Services issued by the Auditing and Assurance Standard Board of the Malaysian Institute of Accountants. Financial statements are to be prepared in accordance with the approved accounting standards issued by the Malaysian Accounting Standards Board (MASB).

The MASB was established under Section 7 of the Financial Reporting Act of 1997 as an independent authority to develop and issue accounting standards, for the preparation of financial statements, which are required to be prepared or lodged under any law administered by the Securities Commission, the Central Bank (BNM) or the Registrar of Companies in Malaysia.

The Malaysian Financial Reporting Standards (MFRS) and Financial Reporting Standards (FRS) as issued by the MASB are required for application by all entities except private-entities. MFRS and FRS are developed based on the International Financial Reporting Standards (IFRS). The Malaysian Private Entity Reporting Standards (MPERS) are required to be applied by private entities. MPERS is a direct translation of IFRS for SMEs except for requirements for property development activities and changes in terminology,

A private entity is a private company, incorporated under the Companies Act of 1965, that (a) is not itself required to prepare or lodge any financial statements under any law administered by the Securities Commission or the BNM; and (b) is not a subsidiary or associate of, or jointly controlled by, an entity which is required to prepare or lodge any financial statements under any law administered by the Securities Commission or the BNM.

In addition to financial reporting requirements set above, the following laws also apply to certain entities in Malaysia. The Central Bank of Malaysia Act of 2009, Financial Services Act of 2013 and Islamic Financial Services Act of 2013 give BNM regulatory authority for banks and insurance companies. These financial institutions are required to follow policy documents on Financial Reporting, Financial Reporting for Islamic Banking Institutions and Financial Reporting for Takaful Operators.

The Securities Commission Act of 1993 established the Securities Commission which is responsible for regulating all matters relating to securities: supervising exchanges, licensing and supervising all licensed persons, ensuring proper conduct of market institutions and licensed persons, among other things. The Securities Commission sets additional audit and reporting requirements for entities under its supervision and enforces their application.

In Malaysia, the accountancy profession is regulated by the Audit Oversight Board (AOB), the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia or SSM), the Malaysian Institute of Accountants (MIA), and the Malaysian Institute of Certified Public Accountants (MICPA).

The Accountants Act of 1967 stipulates that no person shall practice or declare themselves as either a Chartered Accountant or licensed accountant unless registered with MIA. MIA confers the Chartered Accountant qualification and membership with the institute is mandatory for individuals who wish to practice in Malaysia. Under the Act, MIA is responsible for (a) determining the qualifications for admission as members of the institute; (b) providing for the training and education by MIA for individuals who wish to practice in the accountancy profession; (c) approving, regulating, and supervising the examinations; (d) regulating the accountancy profession in Malaysia; and (e) promoting the interests of the accountancy profession. In addition, under the Act, MIA is authorized to establish ethical requirements and an investigative and disciplinary (I&D) mechanism. Under the By-laws of the institute, MIA has also established a quality assurance mechanism.

The AOB is responsible for the independent oversight of auditors of Public Interest Entities (PIEs). Section 31U of the Securities Commission Act of 1993 provides legislative authority to the AOB for ensuring and enforcing compliance with auditing and ethical standards by auditors of PIEs and registering auditors of PIEs. Under the same act, the AOB is also given legislative authority to set auditing standards. The AOB, however, has delegated this responsibility to MIA.

MICPA is a professional body for accountants formed under the Companies Ordinance 1940/1946. It participates in the setting of accounting and auditing standards, provides technical advice to regulatory bodies, and confers the Certified Public Accountant designation. In addition, as authorized under its By-Laws, MICPA has established both ethical requirements and an I&D system for its members. Membership in the institute is voluntary.

The Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia or SSM), formed as a regulatory body in 2002, enforces the Companies Act of 1965, the Registration of Business Act of 1956 and the Trust Companies Act of 1949, carries out the monitoring and enforcement activities that comprise compliance, investigations, and legal services of all companies incorporated under the Companies Act of 1965. The Corporate Accounts Monitoring Section of the SSM is responsible for registration of audit firms, monitoring of changes in audit firms and auditors and monitoring the resignation and removal of auditors. SSM imposes sanctions on companies, their directors and their auditors.

The Audit Oversight Board (AOB), established under Section 31C of the Securities Commission Act of 1993 and operational since April 2010, is responsible for audit oversight and ensuring confidence in the quality and reliability of audited financial statements in Malaysia.

The key responsibilities of the AOB are to:

• Implement policies and programs in ensuring an effective audit oversight system in Malaysia;
• Register auditors of public interest entities (PIEs);
• Establish or adopt, or by way of both, the auditing and ethical standards to be applied by auditors;
• Conduct inspections and monitor programs on registered auditors to assess the degree of compliance of auditing and ethical standards;
• Conduct inquiries and impose appropriate sanctions against auditors who fail to comply with auditing and ethical standards;
• Cooperate with relevant authorities in formulating and implementing strategies for enhancing standards of financial disclosures of PIEs;
• Liaise and cooperate with oversight bodies outside Malaysia to enhance the standing of the auditing profession in Malaysia and internationally; and
• Perform such other duties or functions as the Audit Oversight Board determines necessary or appropriate to promote high professional standards of auditors and to improve the quality of audit services provided by auditors.

In regards to adopting auditing standards, however, the AOB has delegated this responsibility to the Malaysia Institute of Accountants.

The AOB is a member of the International Forum of Independent Audit Regulators.

There are two national accountancy organizations operating in Malaysia.

The Malaysian Institute of Accountants (MIA)

Under the Accountants Act of 1967, MIA is responsible for (a) determining the qualifications for admission as members of the institute; (b) providing for the training and education by MIA for individuals who wish to practice in the accountancy profession; (c) approving, regulating, and supervising the examinations; (d) regulating the accountancy profession in Malaysia; and (e) promoting the interests of the accountancy profession. In addition, under the Act, MIA is authorized to establish ethical requirements and an investigative and disciplinary (I&D) mechanism. Under the By-laws of the institute, MIA has also established a quality assurance mechanism. The Accountants Act stipulates that no person shall practice or declare themselves as either a Chartered Accountant or licensed accountant unless registered with MIA. MIA confers the Chartered Accountant qualification and membership with the institute is mandatory for individuals who wish to practice in Malaysia. In addition to being a Member of IFAC, MIA is also a member of the ASEAN Federation of Accountants (AFA).

The Malaysian Institute of Certified Public Accountants (MICPA)

MICPA is a professional body for accountants formed under the Companies Ordinance 1940/1946. It participates in the setting of international accounting and auditing standards, provides technical advice to regulatory bodies, and confers the Certified Public Accountant designation. In addition, as authorized under its By-Laws, MICPA has established both ethical requirements and an I&D system for its members. Membership in the institute is voluntary.

There is a close working relationship between MICPA and MIA. In addition to being a Member of IFAC, MICPA is an Associate member of AFA.

In Malaysia, the Audit Oversight Board (AOB) and the Malaysian Institute of Accountants (MIA) are responsible for establishing and operating quality assurance (QA) mechanisms in the jurisdiction.

Under Part IIIA of the Securities Commission Act of 1993, the AOB is responsible for conducting QA reviews of audit firms that are registered with the AOB and that audit Public Interest Entities (PIEs). The AOB undertakes inspections, and takes action, including sanctions, against audit firms and auditors for non-compliance with relevant auditing and ethical standards. MIA reports that, based on MIA’s discussions with the AOB, the AOB’s QA review system is in line with the requirements of SMO 1.

Under Section 550 of the MIA By-laws (On Professional Ethics, Conduct and Practices), MIA is responsible for surveillance and enforcement of audit firms registered with MIA that audit non-PIEs, through its Practice Review Framework. The institute reports that its program complies with the best practices outlined in SMO 1 and that it has adopted and published quality control standards requiring firms to implement a system of quality control in line with the International Standard on Quality Control 1. This framework is mandatory for all members of MIA.

A memorandum of understanding is in place between the AOB and MIA, in the event that there is a firm that audits both PIEs and non-PIEs, where the responsibilities of both the AOB and MIA are clearly outlined to eliminate overlaps. All audit firms in Malaysia are required to be registered with MIA.

Current Status: Adopted

In Malaysia, initial professional development (IPD) and continuing professional development (CPD) requirements for professional accountants are established by the two professional accountancy organizations in the jurisdiction: the Malaysian Institute of Accountants (MIA) and the Malaysian Institute of Certified Public Accountants (MICPA).

Under the Accountants Act of 1967, MIA is responsible for establishing IPD and CPD requirements for chartered accountants in Malaysia. MIA has established IPD and CPD requirements that are overall aligned with the IES. Due to the issuance of the revised IES by the IAESB, MIA reported that it was reviewing its CARE program, a structured practical experience assessment program, in order for the program to be fully in line with requirement of the revised IES 5. In addition, MIA was also in the process of assessing and reviewing its entire IPD and CPD framework for further improvement. This review was expected to conclude in November 2017, and MIA reports that it will subsequently implement a new competency framework.

MIA and the Ministry of Education (MoE) is responsible for the accreditation of local accounting degree programs offered by Institutes of Higher Learnings (IHLs) in Malaysia. The accreditation criteria includes aligning to the IES and implementing requirements as determined by Hala Tuju (HT). The HT provides a comprehensive guidance and framework which IHLs should adhere to, including recommendation of syllabus and curriculum structure that is to be adopted. In 2014, the HT concluded the third review of its assessment framework for accounting programs at the universities and it has been fully endorsed by the MoE in October 2015.

Under the authority of its By-Laws, MICPA administers and adopts the Chartered Accountants Australia and New Zealand qualification program, except for the module on taxation, to assess students who wish to become members of MICPA. The module on taxation, as reported by MICPA, is administered by the institute. MICPA has also developed other requirements for its members, including practical training, and CPD that it reports, meets the requirements of the IES.

Current Status: Partially Adopted

Under the Securities Commission Act of 1993, the Auditing Oversight Board (AOB) is given legislative authority to set auditing standards in relation to the audit of public interest entities. The AOB, however, has delegated this responsibility to the Malaysia Institute of Accountants (MIA).

The Companies Act of 1965 establishes that all public and private companies have a mandatory statutory audit requirement regardless of their size, ownership structure or whether they are actively operating.

Under the Accountants Act of 1967, auditing standards are issued by MIA’s Auditing and Assurance Standards Board (AASB). The AASB reviews standards and technical pronouncements issued by the IAASB and adopts them as the Malaysian Approved Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements. The IAASB standards are adopted as drafted, with minimal amendments for laws and regulations in Malaysia. As of February 2018, MIA has adopted ISQC 1 and the 2016 ISA.

Current Status: Adopted

In Malaysia, ethical requirements for professional accountants are established by the two professional accountancy organizations (PAOs): the Malaysian Institute of Accountants (MIA) and the Malaysian Institute of Certified Public Accountants (MICPA). Both PAOs set ethical standards under the oversight of the Audit Oversight Board.

Under the Accountants Act of 1967, MIA is responsible for establishing ethical requirements for its members who are Chartered Accountants. MIA’s Ethics Standard Board (ESB) was set up under its the MIA Council to promote adherence to high quality ethical standards. In 2010, the ESB substantially incorporated all of the requirements of the IESBA Code of Ethics while making some modifications to the IESBA Code to ensure consistency with the Malaysian regulatory or legislative framework and suit the Malaysian professional environment. MIA’s ethical requirements are embodied under Part I of the MIA By-Laws (MIA’s Code of Ethics) and are subject to an ongoing update process following revisions to the IESBA Code. The institute reports that it has adopted the 2016 IESBA Code of Ethics.

Under the MICPA By-Laws, MICPA has adopted the 2016 IESBA Code of Ethics for its members without modifications.

Current Status: Adopted

Formed in 1946, the Department of the Accountant General of Malaysia is responsible for the accounting functions of both Federal and State governments in Malaysia and endeavors to comply with the requirement of IPSAS where possible. The Government Accounting Standards Advisory Committee is a committee established under the Accountant General’s Department to develop Malaysian Public Sector Accounting Standards (MPSAS). MPSAS have been adapted from IPSAS. The federal government is in full compliance with cash-basis IPSAS and intends to apply MPSAS when it moves to accrual-basis of accounting.

The Malaysian Institute of Accountants reported that the Malaysian government had established a timeline for Malaysia to adopt accrual-basis accounting by January 2016; however, it is unclear if this initiative has progressed.

Current Status: Partially Adopted

In Malaysia, the two professional accountancy organizations—the Malaysian Institute of Accountants (MIA) and the Malaysian Institute of Certified Public Accountants (MICPA)—and the Companies Commission of Malaysia (the Suruhanjaya Syarikat Malaysia or SSM), are responsible for the investigation and discipline (I&D) of professional accountants.

Under the authority of the Accountants Act of 1967, MIA has established an I&D mechanism to investigate formal complaints and cases of unprofessional conduct by its members, and to refer any matter to a Disciplinary Committee where appropriate. Investigation and disciplinary proceedings are carried out and decisions are made in accordance with the Malaysian Institute of Accountants (Disciplinary) (No. 2) Rules of 2002. MIA reported in its 2016 SMO Action Plan that its I&D system is mostly in line with SMO 6 and that it was conducting a review to identify improvements. Further information has been requested regarding the conclusion of the review.

The Companies Commission of Malaysia (the Suruhanjaya Syarikat Malaysia or SSM) which was formed as a regulatory body in 2002 has the power to impose sanctions on companies, their directors, and their auditors and penalties for noncompliance with mandatory accounting, auditing and financial reporting requirements under the Companies Act of 1965. Sanctions include the revocation of auditor licenses and the prosecution of noncompliant companies, which can lead up to fines and prison terms.

Under Part IIIA of the Securities Commission Act of 1993, an Audit Oversight Board (AOB) was established to provide independent oversight of auditors of Public Interest Entities. The AOB inspects and takes action against registered auditors for non-compliance with the relevant auditing and ethical standards. It is unclear if the systems adopted by the SSM and AOB are aligned with the requirements of SMO 6.

Under its By-Laws, MICPA is responsible for establishing an I&D mechanism for its members. The institute has conducted a review of its system against the requirements of SMO 6, and reports it incorporates all requirements.

Current Status: Partially Adopted

Under the Financial Reporting Act of 1997, the Malaysian Accounting Standards Board (MASB) was established as an independent authority to develop and issue accounting standards for the preparation of financial statements, which are required to be prepared under laws administered by the Securities Commission, the Central Bank, or the Registrar of Companies in Malaysia. Accounting standards for entities other than private entities are the Malaysian Financial Reporting Standards (MFRS) and Financial Reporting Standards, while private entities are required to use the Malaysian Private Entity Reporting Standards (MPERS). MFRS framework is developed identical to IFRS and is being updated on an ongoing basis. The MPERS is identical to IFRS for SMEs except on requirements related to real estate.

Section 26B of the Financial Reporting Act of 1997 allows foreign companies that are listed on the Malaysian stock exchange to use internationally recognized accounting standards such as those issued by the Financial Accounting Standard Board (USA), Accounting Standards Board (UK) and the Australian Accounting Standards Board (Australia) in lieu of the MASB approved accounting standards.

Current Status: Adopted

Relevant Organizations

• Auditing and Assurance Standards Board (AASB)
• Malaysia Institute of Accountants (MIA)
• Malaysia Institute of Certified Public Accountants (MICPA)
• Malaysian Accounting Standards Board
• Suruhanjaya Syrikat Malaysia (SSM)

Relevant Legislation

• Accountants Act of 1967
• MIA By-Laws
• MIA Rules of 2001

Relevant Publications

• Current Status of the Accounting and Auditing Profession in ASEAN Countries, September 2014.
• IFRS Foundation, “IFRS Application Around the World, Jurisdictional Profile: Malaysia,” February 2017.
• Malaysian firms to adopt global reporting standards by 2018.
• MIA, SMO Action Plan, November 2017.
• MICPA, SMO Action Plan, April 2018.
• Suruhanjaya Sekuriti, Securities Commission Malaysia, “Report on the Strengthening of the Accountancy Profession in Malaysia,” December 2014.
• World Bank, “Report on the Observance of Standards and Codes (ROSC), Accounting and Auditing: Malaysia,” February 2012.