Key Advantages and Challenges of Adopting IFRS in Malaysia
Accountants adhere to a set of rules in the measurement and recording of financial transactions. These rules are what we call accounting standards. Before, different countries have their own set of accounting standards. Further, countries and organizations can also choose to adopt the rules of other countries.
The differences in accounting rules, however, proves to be difficult. It was hard to compare company and industry performances when similar transactions are treated differently in every company and industry.
This is why the International Accounting Standards Board (IASB) created a set of accounting rules to unify the standards across the globe. These standards are what we call International Accounting Reporting Standards (IFRSs).
When a country is aiming to scale globally, it is advantageous if they follow the IFRSs. Following the IFRS allows companies to have the same methods in recording transactions. This way, the companies have the same accounting language. Thus, investors and other stakeholders can analyze different company financials in the same manner.
Adopting IFRS in Malaysia
As Malaysia takes the path to globalization, the country also adopts the IFRS. In 2005, the accounting sector adopted IFRS in Malaysia. From then, the former Malaysian Accounting Standards Board (MASB) accounting standards were changed to Malaysian Financial Reporting Standards (MFRSs). This signifies Malaysia’s intent to converge to a common set of accounting standards for the entire developed world.
This movement benefits Malaysian companies as international stakeholders can now view their financials in the same way they view their own. However, this also comes with some challenges that the accounting industry needs to overcome.
Here are the advantages and challenges of adopting IFRS in Malaysia.
Benefits of Following the IFRS
Reduction in Time and Expense of Preparing Multiple Reports
Before, companies have to prepare multiple reports for different stakeholders. For example, local government compliance reports have to follow the old Malaysian accounting standards. Another financial report will then be made for foreign investors, that adheres to another set of accounting rules. This takes time, effort, and money to undertake.
Upon adhering to IFRS, companies are now producing only one set of general-purpose financial statements. Different users can already use these reports, as these statements already follow the generally accepted accounting rules.
As Malaysia is now following the unified accounting standards, companies can now better compare their performance with many benchmarks. For example, it is now easier to compare from company to company. Additionally, local companies can now also compare their financial standing with foreign companies and industries.
The increased comparability is especially helpful for those companies gearing the branch out abroad. It is also helpful for foreign countries to seek out local companies to invest in. With common criteria to measure business standing and performance, it is now easier to see if investment decisions are adding value or not.
Challenges of Following the IFRS
Change is difficult to implement. Adopting IFRS in Malaysia will be faced with wariness. Some companies will incur big losses if the changes aren’t favourable for their type of business and industry. Further, many companies are reluctant to adhere to these new standards because this will reshape their business practices. And not everyone is comfortable with new methods.
Adopting IFRS in Malaysia will require experts and proper mechanisms to help disseminate new standards. The MASB has to prepare for the changes that the IFRS will bring. The organization will have to mobilize accounting firms and academicians to help integrate the new rules into the system.
Aspiring talents will have to learn the new standards, and the existing ones will have to relearn. The success of the IFRS convergence will depend upon the preparedness of the governing body and the recipients.
The preparation and implementation of plans to follow IFRS are costly. A budget needs to be set aside to mobilize the functioning agencies and sectors into action. Moreover, accounting and audit fees are also expected to increase with this change in the standard. As these firms have to retrain their staff on the new regulation and updates, they have to adjust this expense in their service fees.
Malaysia Complying to Global Accounting Standards
Malaysia is rising to be an accounting powerhouse. The accounting and finance services of Malaysia are increasing in demand, not just locally, but also globally. This calls for the decision to enhance the industry platform. Thus, the integration of IFRS in Malaysia.
With this change comes the benefit of being able to compete internationally. However, this change does not come easy. It also has to endure the challenges of moving forward. But no matter these obstacles, the goal remains the same: global preparedness. For the next few years, Malaysia will strive to top the accounting sector in the world.
Globally Competent Accounting Firm
3E Accounting Malaysia is a global firm that provides expert and professional financial services to any business sector. We employ Malaysia qualified accountants who are trained with the new global standards.
Are you looking to hire competent accountants to handle your company’s financials? Contact 3E Accounting today to let us know how we can help you.