Accrual Accounting’s Role in Malaysia
Rasmimi Ramli | November 12, 2018 |
Following the pressures of a contracting global economy and seeking to transform into a high-income nation by 2020, the Malaysian Government unveiled its New Economic Model in 2010. To achieve this goal, the government also launched six strategic reform initiatives (SRIs) under the umbrella of its Economic Transformation Program. These SRIs enhance the government’s ability to improve its delivery system, prioritize public needs, and strengthen Malaysia’s commercial environment to ensure Malaysian companies are globally competitive.
Recognizing the importance of strengthening the government’s finances to ensure stability and sustainability of public funds, one of the SRIs tackles public financial management (PFM) reform and introduces accrual-based accounting based on the International Public Sector Accounting Standards.
Since 2005, the federal government’s financial statements have been prepared on a modified cash basis and in compliance with cash-basis IPSAS. However, transitioning to accrual-basis IPSAS will:
- provide a holistic and accurate snapshot of the government’s financial position;
- enhance financial management transparency and accountability;
- improve financial management and accounting through good governance and delivering value for money;
- enhance the efficiency and effectiveness of the government’s fiscal management;
- result in effective measurement of policy outcomes through implementation of management accounting; and
- provide better indicators for prudent financial management.
As a leading advisor and accounting-training provider in Malaysia, as well as an IFAC member committed to fulfilling membership obligations, the Malaysian Institute of Accountants (MIA) consistently advocates for the adoption of accrual IPSAS and naturally participated in the SRI Lab organized by the government at the start of the reform project. MIA’s participation in this lab significantly impacted the government’s decision to move to accrual accounting.
From Adoption to Implementation
The decision to adopt an accrual-basis accounting system is one journey while the path toward proper implementation, however, is another endeavor all together. For that reason, MIA’s support for PFM reform did not end with the IPSAS-adoption decision but has extended throughout the implementation process over the past five years.
Since its establishment, the MIA has nominated a technical staff to serve on the Government Accounting Standards Advisory Committee, a committee that develops and endorses the Malaysian Public Sector Accounting Standards (MPSAS). MIA shared insights on the application and implementation of accrual-based accounting standards, given its role as the national professional accountancy organization, supporting a spectrum of accountancy professionals.
Furthermore, as the MPSAS are based on IPSAS, the MIA nominated the former Accountant General as a member of the International Public Sector Accounting Standards Board and appointed one of its own technical staff to serve as a technical advisor to network and learn from countries that have implemented IPSAS such as Australia, Canada, Morocco, New Zealand, Switzerland, and the UK.
Accountants in the PFM Space
As more implementation initiatives were undertaken, the MIA established its own Public Sector Accounting Committee to provide technical advice and expertise on the standards. Since then, the Committee has expanded its functions to include undertaking research on current IPSASB projects, identifying public sector accounting related issues in Malaysia, providing training and awareness, working with government ministries and agencies on IPSASB’s pronouncements, and producing articles and publication on public sector accounting. Through the Committee, the MIA organizes seminars, workshops, and public sector conferences emphasizing MPSAS and includes public sector sessions within its annual flagship event, the MIA International Conference.
The Accountant General’s Department has launched its accrual accounting system—an exciting and important outcome after years of foundational work. But the work for MIA hasn’t ended. As Malaysia advances implementation, we believe that professional accountants and the Institute can play a greater role in the PFM space. The MIA has signed multiple cooperation and collaboration agreements with a number of professional bodies to enable its public sector members to gain professional accounting qualifications as well as collaborate on the continued advancement of PFM. Additionally, the Committee’s scope was revised to include defining and promoting the roles of PFM accountants.
Accrual-based accounting information can be better utilized for accountability and effective decision making. But harnessing this information requires changes to public sector accountants’ roles and capabilities—and they will need support to make this shift.
The MIA is committed to providing value-add guidance to public sector members. This has recently included a number of PFM roundtables with public sector entities, such as the federal statutory bodies and the public higher learning institutions. These roundtables resulted in proposed competency requirements for finance function heads, which was submitted to relevant ministries. The proposal will help drive the shift of public sector accountants from mere guardians and record keepers to esteemed business partners.
If you are interested in learning more about the MIA’s support for accrual-based accounting, please post a comment below or visit the MIA’s website. Don’t forget to subscribe to receive updates from the IFAC Quality & Development Team, and let us know if your PAO has led an initiative related to PFM in your jurisdiction—we would love to showcase your work in action!