Adoption the IFRS in Malaysia

 

 

 

Adoption the IFRS in Malaysia

The Question :

 

 

Malaysia has the largest number of Islamic Financial Institutions and has decided to adopt the IFRS as a basis for their accounting treatment.  Investigate how the Malaysian authorities are approaching any conflicts between Shariah requirements, AAOIFI standards and requirements of IFRS.  Discuss whether you consider this strategy to be working satisfactorily.

sample answer

The method of financial statement preparation is of great essence to all the stakeholders in a particular set of economy. Harmonization of the manner in which various items are treated in the accounting system allows for comparability. Comparability is used to rate the performance of regional economies and institutions against other regions. IFRS and Accounting, and Auditing Organization of Islamic Financial Institutions (AAOIFI) were founded based on establishing a unified way of reporting the financial transactions across all the sectors. However, the two types of standards differ in the manner in which various items are treated in the accounting system (MIDA 2014, Pg. 16). On the other hand, IFRS was enacted to harmonize the universal accounting procedures and processes into a harmonized system.

This study will cover the implementation of the IFRS by the country of Malaysia. The paper will have a candid review of the adoption of the IFRS by Malaysia, and the conflicts that this move presents to the application of the AAOIFI standards. As a start off, the paper evaluates the financial and accounting system in Malaysia. AAOFIFI and IFRS are then evaluated with respect to their components, procedures of application and treatment of various financial transactions. The paper then compares and contrast the accounting treatment of both standards before discussing the procedures that are used by the Malaysian authorities to implement IFSR and overcome Conflicts with AAOIFI (Schoon, 2009, 48-67). The study finalizes by analysing the effectiveness of the IFRS implementation strategy in Malaysia.

2.0 Malaysia Financial System

The financial system of Malaysia is made up of Islamic and conventional financial institutions which operate in parallel. The apex of financial and monetary structure in Malaysia is the Bank Negara, which is the Malaysian Central bank. The financial system comprises the banking and non-banking system. The banking system is made up of 21 Islamic banks, 25 commercial banks and 15 investment banks. To compliment banking institutions are the non-banking financial institutions. In Malaysia, there are 43 insurance and re-insurance companies, 13 Takaful Operators, four retakaful operators and six development financial institutions. The Islamic financial system in Malaysia has continued to grow and develop. Currently, the Islamic financial system comprise of Takaful, Retakaful, Islamic Capital Market and Islamic Interbank Money market. MIFC (International Islamic Financial Centre) was opened in the year 2006, with the aim of strengthening the role of Malaysia as an Islamic financing intellectual epicentre (Rahman, Rahim and Shariff 2013, Pg. 63)……………………….

ACCA (2013), Harmonising financial reporting of Islamic finance. Retrieved on 22nd April 2014 from http://www.accaglobal.com/content/dam/acca/global/PDF-technical/financial-reporting/tech-af-hfrif.pdf

IASB (2014), IFRS Foundation and the IASB. Retrieved on 22nd April 2014 from http://www.ifrs.org/Pages/default.aspx

Ibrahim M., and Hameed S., (2008). IFRS vs AAOIFI: The Clash of Standards? Retrieved on 22nd April 2014 from http://mpra.ub.uni-muenchen.de/12539/1/The_Clash_of_Standards_international_accountant_article.pdf

KPMG (2013), Empowering Islamic Finance. Retrieved on 22nd April 2014 from http://frsic.mia.org.my/at/at/2013/08/03.pdf

MASB (2011), Financial Reporting Issues relating to Islamic Finance. Retrieved on 22nd April 2014 from http://www.ifrs.org/Meetings/MeetingDocs/IASB/Archive/Leases/Leases-0611b02D

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