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KPMG IN MALAYSIA

Insights

into Malaysia’sconvergencewith IFRS

Transition to IFRS-compliant Malaysian

Financial Reporting Standards (MFRS)

December 2011

kpmg.com/my



About this publicationThis publication has been produced by KPMG in Malaysia and the views expressed herein are those

of KPMG in Malaysia.

Content

The purpose of this publication is to assist you in understanding the main differences between the

existing Financial Reporting Standards (FRSs) and IFRS-compliant Malaysian Financial Reporting

Standards (MFRSs) that are effective from 1 January 2012. This publication also discusses the

relevant transition exemptions under MFRS 1, First-time Adoption of Malaysian Financial Reporting

Standards that are applicable in the period when an entity first adopts and applies MFRSs.

The new IFRS-compliant MFRSs issued by the Malaysian Accounting Standards Board (MASB) are

equivalent to International Financial Reporting Standards (IFRSs) issued by the International

Accounting Standards Board (IASB).

This publication does not discuss every possible difference; rather, it highlights those differences thatan entity could expect to encounter when transitioning to the new MFRS framework.

Generally, the standards and interpretations discussed in this publication are those that are applicable

for an annual reporting period beginning on 1 January 2012. The differences and changes from

MFRSs with effective date after 1 January 2012 are not covered in this publication. For example,

implications arising from MFRSs 9, 10, 11, 12 and 13 are not included in this publication. However, an

entity may early adopt these standards before they are effective.

MFRSs and their interpretations change over time. Therefore, it is important for companies planning

their adoption of MFRSs to monitor developments that may impact their conversion. Accordingly, this

publication should not be used as a substitute for referring to the standards and interpretations

themselves.

Organisation of the text

This publication is organised into topics, following the typical presentation of items in financial

statements. Section 2 discusses the main differences between FRSs and MFRSs on general topics

such as business combinations and relevant transition exemptions under MFRS 1. Section 3 and 4

deal with specific statement of financial position items and specific statement of profit or loss and

other comprehensive income items respectively. Section 5 mainly highlights the new and major

changes to the disclosure requirements under MFRSs for the annual periods beginning on or after 1

January 2012.

Other ways KPMG can help Other KPMG publications

Copies of this publication are available fromthe Professional Practice Department of

KPMG in Malaysia. Please contact us at:

KPMGProfessional Practice Department

Level 10, KPMG Tower

8, First Avenue

Bandar Utama

47800 Petaling Jaya, Selangor

Malaysia

Phone: +60 (3) 7721 3388

Email: [email protected]

We have a range of publications that can assist you

further, including:

Insights into IFRSs

IFRS Handbook: First-time adoption of IFRS

First Impressions publications, which discuss

new pronouncements

New on the Horizon publications, which discuss

consultation papers and exposure drafts

IFRS Disclosure Checklist

Illustrative Financial Statements

Technical information is also available at

kpmg.com/ifrs.



Your conversion to MFRS/IFRS

As part of a global network of member firms with experience in more than 1,500 IFRS convergence

projects around the world, we can help determine that the issues are identified early and can share

leading practices to help avoid the many pitfalls of such projects. KPMG has extensive experience

and the capabilities to help support you through your MFRS/IFRS assessment and conversionprocess. Our experienced professionals can advise you on your MFRS/IFRS conversion process,

including training company personnel and transitioning financial reporting processes.

For further assistance with your conversion to MFRS/IFRS, please speak to your usual KPMG

contact.

Abbreviations used in this publication

FRS Financial Reporting Standard issued by the MASB

IASB International Accounting Standards Board

IAS International Accounting Standard issued by the IASB

IC Int. or IC Issues Committee Interpretation issued by the MASB

IFRS International Financial Reporting Standard issued by the IASB

MASB Malaysian Accounting Standards Board

MFRS Malaysian Financial Reporting Standard issued by the MASB that is

effective for annual periods beginning on or after 1 January 2012



Contents

1 Introduction 1

1.1 New MFRS framework 1

1.2 Effective date and applicability 1

1.3 Differences between FRS and MFRS 2

1.4 Transition to MFRS framework 3

1.5 General principles of MFRS 1 3

2 General 4

2.1 Business combinations and contingent consideration 4

2.2 Foreign currency translation and presentation currency 5

2.3 Capitalisation of borrowing costs 7

3 Specific statement of financial position items 8

3.1 Property, plant and equipment and investment property 8

3.2 Prepaid lease payments 12

3.3 Biological assets 13

3.4 Income taxes 14

3.5 Government loans 17

4 Specific statement of profit or loss and other comprehensive

income items 18

4.1 Property development activities 18

4.2 Shared-based payment 21

4.3 Employee benefits 22

5 New and amended disclosures 23

5.1 Related party disclosures 23

5.2 Financial instruments: Transfers of financial assets 25

Appendix 1 IFRS-compliant Malaysian Financial Reporting Standards 26



1 Insights into Malaysia’s convergence with IFRS

1 Introduction

1.1 New MFRS framework

On 19 November 2011, the Malaysian Accounting Standards Board (MASB) issued a new MASB

approved accounting framework, the Malaysian Financial Reporting Standards (MFRSs). The issuance

of MFRS framework finalised MASB Exposure Draft 75, IFRS-compliant Financial Reporting

Standards issued in June 2011 and sealed the MASB’s plan to fully converge with International

Financial Reporting Standards (IFRSs) on 1 January 2012.

The issuance of MFRSs will result in the Malaysian financial reporting framework being recognised as

an IFRS-compliant financial reporting framework. The MFRSs are equivalent to IFRSs word-by-word

and have the same effective dates as IFRSs.

1.2

Effective date and applicabilityEntities that are currently applying the existing Financial Reporting Standards (FRSs) shall apply the

new MFRS framework for annual periods beginning on or after 1 January 2012, except for entities as

discussed below.

Entities within the scope of MFRS 141, Agriculture or IC Interpretation 15, Agreements for the

Construction of Real Estate, are temporarily exempted from applying MFRS framework on 1 January

2012. An entity (i.e. parent, significant investor or joint venture partner) that consolidates, equity

accounts or proportionately consolidates another entity within the scope of MFRS 141 or IC

Interpretation 15 is also temporarily exempted from applying MFRS framework on 1 January 2012.

Such exempted entities (referred to as ‚Transitioning Entities‛) may continue to apply existing FRS

framework. Under existing FRS framework, IC Int. 15, Agreements for the Construction of RealEstate has been withdrawn and IAS 41, Agriculture has not been adopted. As such, entities involved

in property development will continue to apply FRS 201, Property Development Activities and entities

in agriculture sector will continue to apply existing accounting policies.

Nevertheless, these Transitioning Entities will apply MFRS framework for annual periods beginning

on or after 1 January 2013. Early adoption of the MFRS framework is permitted.

This partial exemption model adopted by the MASB is likely to pose significant challenges to certain

group of companies or conglomerates operating in multiple industries since the exemption has not

been granted to other related entities within a group (subsidiaries, associates or joint ventures) of the

Transitioning Entities if they do not fall within the scope of MFRS 141 or IC Interpretation 15.



Insights into Malaysia’s convergence with IFRS 2

The following chart illustrates the entities that are exempted from applying MFRS framework (i.e.

may continue to apply FRS framework) and other group entities that are required to apply MFRS

framework:

Private entities currently applying the Private Entity Reporting Standards (PERS) may continue to

apply PERS or they may choose to apply the MFRS framework in its entirety for the annual periods

beginning on or after 1 January 2012.

1.3 Differences between FRS and MFRSMany believe that IFRS Convergence will not bring a major impact to Malaysian entities since the

existing FRSs issued by the MASB are mostly adopted from IFRSs. However, this is not the case.

The differences between FRS and MFRS may arise from the followings:

certain key MFRS standards and interpretations were not previously adopted by Malaysian

entities;

different effective dates;

different transitional provisions; and

certain FRS requirements are allowed to be applied prospectively, whereas first-time

adoption of MFRS requires retrospective application.

This means certain balances in the financial statements prepared under existing FRSs may bedifferent under IFRS-compliant MFRSs.

Holding company

and ultimate holding

company

Significant investor / joint

venture partner

Entities within

scope of MFRS

141 or IC 15

Other subsidiariesOther associates /

joint ventures

Subsidiaries not

within scope of

MFRS 141 or IC 15

Associates not

within scope of

MFRS 141 or IC 15

FRS / MFRS FRS/ MFRS

FRS/ MFRS MFRS MFRS

MFRS MFRS




1.4 Transition to MFRS framework

Upon transition to MFRS framework, Malaysian entities are required to adopt MFRS 1 in order to

assert full compliance with MFRSs. MFRS 1 requires comparatives to be restated based on the

specific requirements of MFRS 1.

MFRSs require entities that are currently applying FRSs to apply MFRSs together with at least oneyear of comparative information. In addition, public listed entities will be required to prepare interim

reports based upon MFRSs for their quarterly announcements. When an entity prepares the first

financial statements or interim report in MFRSs, their comparatives also need to be prepared in

accordance with MFRSs. The following table illustrates relevant dates for first-time adopters:

Financial year-end 31 December 31 March 30 June 30 September

Date of transition * 1 January 2011 1 April 2011 1 July 2011 1 October 2011

First interim reporting

date under MFRS 31 March 2012 30 June 2012 30 September 2012 31 December 2012

First annual reporting

date under MFRS 31 December 2012 31 March 2013 30 June 2013 30 September 2013

* The opening balance for the comparative period.

1.5 General principles of MFRS 1

Generally, an entity is required to apply all MFRSs retrospectively upon transition to MFRS

framework. MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards contains the

transitional requirements applicable to an entity on its first application of MFRSs, which provides

some relief and exemptions to an entity from full retrospective application of MFRSs.

An entity adopting MFRSs does not apply the transitional provisions of individual MFRS or

interpretations unless specifically required or permitted to do so under MFRS 1. An entity adopting

MFRSs also does not apply MFRS 8, Accounting Policies, Changes in Accounting Estimates and

Errors to any changes in accounting policies made upon transition to MFRS framework.




2 General

2.1 Business combinations and contingent consideration

Business combinations

Brief overview of certain requirements under MFRS 3, Business Combinations :

All items of consideration transferred by the acquirer are measured and recognised at fair

value at the acquisition date, including contingent consideration. Subsequent changes in the

fair value of contingent consideration classified as liabilities or assets are recognised in

accordance with MFRS 139, MFRS 137 or other MFRSs, as appropriate (rather than by

adjusting goodwill).

Transaction costs incurred by the acquirer in connection with the business combination do not

form part of the business combination. As such, they are expensed as incurred, unless they

relate to the issuing of debt or equity securities, in which case they are accounted for under

the financial instruments standards.

The acquirer can elect to measure any ‘ordinary’ non-controlling interest (NCI) at fair value or atits proportionate interest in the fair value of the identifiable assets and liabilities of the acquiree

on a transaction-by-transaction basis. Ordinary NCI is present ownership interest that entitles

its holder to a proportionate share of the entity’s net assets in liquidation. Other NCI generally

is measured at fair value.

When a business combination is achieved in stages (step acquisition), the acquirer’s previously

held non-controlling equity interest in the acquiree is remeasured to fair value at the

acquisition date, with any resulting gain or loss recognised in profit or loss.

FRS 3 MFRS 3

Effective dateFRS 3 shall be applied prospectively to business

combinations for which the acquisition date is onor after the beginning of the first annual reporting

period beginning on or after 1 July 2010. [FRS

3.64]

Effective date and transitional provisions are not

applicable to first-time adopter.

Transition exemptions under MFRS 1upon first adoption of MFRS 3, Business Combinations

A first-time adopter may elect not to apply MFRS 3 retrospectively to past business combinations

(i.e. business combinations that occurred before the date of transition to MFRS framework).

However, if a first-time adopter restates any business combination that was occurred at a particular

date before the date of transition to comply with MFRS 3, it shall restate all later business

combinations and shall also apply MFRS 127 from that same date. [MFRS 1.C1]

Hence, a first-time adopter may:

(a) elect to apply MFRS 3 prospectively to business combinations that occurred after the date of

transition to MFRS framework; or

(b) claim that it has applied MFRS 3 for all business combinations for which the acquisition date is

on or after the beginning of the first annual reporting period beginning on or after 1 July 2010 as

FRS 3 is essentially equivalent to MFRS 3.

KPMG’s observation and comment

No significant impact is expected as a first-time adopter may elect to apply the transition exemption

to adopt MFRS 3 prospectively from the date of transition to MFRS framework.




2.2 Foreign currency translation and presentation currency

Outstanding contingent purchase consideration

FRS 3 MFRS 3

Transitional provisionOutstanding contingent purchase consideration

arising from business combinations before the

effective date of the revised FRS 3 (i.e. 1 July2010) shall not be adjusted upon application of

the revised FRS 3. [FRS 3.65]

The contingent consideration is adjusted as part

of the purchase accounting without time limit

when it is probable and can be measured reliably.

Transitional provision in FRS 3 or MFRS 3 is not

available to first-time adopter.

Transition exemptions under MFRS 1

No specific exemption is provided in MFRS 1 for first-time adopter.


A first-time adopter measures the outstanding contingent purchase consideration at fair value at dateof transition and any fair value adjustment is taken up directly in retained earnings. Subsequent

changes in fair value are recognised in profit or loss.

Translation of foreign operations

FRS 121 MFRS 121

Assets and liabilities of foreign operations are

translated to presentation currency at closing rate

at the end of reporting period, except for goodwill

and fair value adjustments arising from businesscombinations occurred before 1 January 2006

which are reported using the historical rate at the

date of acquisitions, an entity may continue to

use that historical rate. [FRS 121.59]

Assets and liabilities of foreign operations are

translated to presentation currency at closing rate

at the end of reporting period including goodwill

and fair value adjustments. [MFRS 121.48]


Under MFRS 1, a first-time adopter may elect not to apply MFRS 121 retrospectively to goodwill and

fair value adjustments arising in:

(a) business combinations that occurred before the date of transition to MFRS framework; or

(b) business combinations that occurred before a designated business combination that the entityelects to comply with MFRS 3, as discussed in Section 2.1 above.

If the entity does not apply MFRS 121 retrospectively to those goodwill and fair value adjustments,

carrying amounts of those goodwill and fair value adjustments at the date of transition to MFRS

framework or at the designated business combination date the entity elected under item (b) above

are ‚frozen‛ and not subsequently re-translated. [MFRS 1.C2]





We expect the following impacts to a first-time adopter depending on how the entity elects to apply

MFRS 121 upon transition to MFRS framework.

(a) Apply MFRS 121 prospectively

If an entity elects not to apply MFRS 121 retrospectively to all business combinations occurredbefore the date of transition to MFRS framework, the carrying amounts of those goodwill and fair

value adjustments at the date of transition are ‚frozen‛ and not subsequently re-translated. Any

translation differences relating to goodwill and fair value adjustments after the date of transition

that are reported under FRS in the comparative period are to be reversed.

(b) Apply MFRS 121 retrospectively from a designated business combination date

An entity may elect to apply MFRS 121 retrospectively to all past business combinations that

occurred after a designated business combination that the entity elects to comply with MFRS 3.

For all other past business combinations occurred before that designated business combination

(date), carrying amounts of those goodwill and fair value adjustments at the designated business

combination date are ‚frozen‛ and not subsequently re-translated.

(c) Apply MFRS 121 retrospectively

If an entity elects to apply MFRS 121 retrospectively to all past business combinations, the entity

needs to restate the translation of goodwill and fair value adjustments arising in past business

combinations to use the closing rate at the end of previous reporting periods. This will have an

impact to an entity if it has been using the historical rate at the date of acquisitions for business

combinations occurred before 1 January 2006 as allowed under FRS 121.

Partial disposal of foreign operations

FRS 121 MFRS 121

Transitional provision

An entity shall apply the following requirementprospectively for annual periods beginning on or

after 1 July 2010. [FRS 121.60B]

All foreign currency translation reserve (FCTR)

relating to a foreign operation is reclassified to

profit or loss for the following disposals of foreign

operation even if the entity retains an interest in

the former subsidiary, associate or jointly

controlled entity: [FRS 121.48A] (a) the loss of control of a subsidiary;

(b) the loss of significant influence over an

associate; and (c) the loss of joint control over a jointly

controlled entity.

Transition provision in FRS 121 or MFRS 121 isnot available to first-time adopter.


A first-time adopter shall apply the accounting for loss of control over a subsidiary prospectively from

the date of transition to MFRS framework, unless it elects to apply MFRS 3 retrospectively to all

past business combinations or designate the retrospective application of MFRS 3 from a business

combination (date) onwards. [MFRS 1.B7]

When MFRS 3 is not applied retrospectively to all past business combinations, a first-time adopter

will have to apply the transition exemption to deem FCTR for all foreign operations to be zero at the

date of transition to MFRS framework. Any gain or loss on subsequent disposal of any foreign

operation shall exclude FCTR that arose before the date of transition to MFRS framework and shallinclude later FCTR. [MFRS 1.D13]




2.3 Capitalisation of borrowing costs

Presentation currency

FRS 121 MFRS 121

Translation to the presentation currencyFor financial statements presented in Malaysia,

the presentation currency shall be in RinggitMalaysia. [FRS 121.38AA]

An entity may use any currency as the

presentation currency.




MFRS 121 provides an avenue for a Malaysian company to present its financial statements in

Malaysia in a currency other than Ringgit Malaysia, which is currently prohibited by FRS 121. This

may be relevant for a company having a functional currency other than in Ringgit Malaysia.

However, we do not expect any significant changes arising from this as companies in Malaysia willstill need to comply with Ninth Schedule 6(1) of the Companies Act, 1965 to present statutory

financial statements in Ringgit Malaysia. For example, if a company prepares its financial statements

using a functional currency other than Ringgit Malaysia, the company is required to translate and

present the financial statements in Ringgit Malaysia for statutory purposes.

Capitalisation of borrowing costs

FRS 123 MFRS 123

Effective date and transitional provisionPrior to the effective date of the revised FRS 123

(i.e. 1 January 2010), an entity has an option to

expense all borrowing costs in profit or loss.

On adoption of the revised FRS 123, the option to

expense all borrowing costs in profit or loss has

been removed and any change in this accounting

policy may be applied prospectively. [FRS 123.27]

Effective date and transitional provisions are not

applicable to first-time adopter.


A first-time adopter may elect to apply MFRS 123 prospectively to borrowings costs relating to

qualifying assets for which the commencement date for capitalisation is on or after the date of

transition to MFRS framework. [MFRS 1.D23]


No significant impact is expected as a first-time adopter may elect to apply the transition exemption

under MFRS 1.




3 Specific statement of financial positionitems

3.1 Property, plant and equipment and investment property

Property, plant and equipment

FRS 116 MFRS 116

Revalued amount as surrogate costAn entity that had not adopted a policy of

revaluation is allowed to continue carrying the

revalued amounts of property, plant and

equipment on the basis of their previous

revaluations when MASB first adopted IAS 16,

Property, Plant and Equipment in 1998. [FRS

116.77AA]

Cost model or revaluation modelAn entity shall choose either the cost model or

the revaluation model in measuring its property,

plant and equipment. [MFRS 116.29]

If revaluation model is chosen, valuations should

be kept sufficiently up to date such that the

carrying amount does not differ materially from itsfair value at the reporting date. [MFRS 116.31]

The transitional provision that allows revalued

amount to be carried as deemed cost in FRS 116

is not available in MFRS 116.

Investment property

FRS 140 MFRS 140

Revalued amount as surrogate cost under costmodel

Under the cost model, an entity may have

previously treated its investment property in

accordance with MASB 15, Property, Plant and

Equipment before the transition to FRS 140 in

2006 and carried the revalued amount of

property, plant and equipment (now the

investment property) on the basis of their

previous revaluations when MASB first adopted

IAS 16, Property, Plant and Equipment in 1998.

The entity may carry the revalued amount as

allowed under MASB 15 as the cost for

investment property on transition to FRS 140 in

2006. [FRS 140.75AA]

An entity shall choose either the cost model or

the fair value model in measuring its investment

property. [MFRS 140.30]

The transitional provision that allows revalued

amount to be carried as deemed cost in FRS 140

is not available in MFRS 140.


A first-time adopter who elects to measure its property, plant and equipment or investment property

using the cost model may apply the ‚deemed cost‛ transition exemptions.

(a) Use of previous revaluation as deemed cost

A first-time adopter may elect to use the previous revaluation of an item of property, plant and

equipment and investment property at or before the date of transition to MFRS framework as

deemed cost at the date of the revaluation. The deemed cost becomes the new MFRS cost

basis at the date of the revaluation. [MFRS 1.D6, D7]

Any existing revaluation reserve at the date of transition is reclassified to retained earnings or as

a separate component of equity, but is not described as revaluation reserve. [MFRS 1.11]




(b) Use of fair value at date of transition as deemed cost

An entity may also elect to measure an item of property, plant and equipment and investment

property at the date of transition at its fair value and use that fair value as its deemed cost at that

date. That item of investment property will be measured using the cost model subsequent to

the date of transition. The entity recognises the fair value adjustments directly in retained

earnings or a separate component of equity, but is not described as revaluation reserve. [MFRS

1.11, D5, D6]

Existing revaluation reserve, if any, relating to previous revaluation of that item of property, plant

and equipment and investment property is reclassified to retained earnings or a separate

component of equity, but is not described as revaluation reserve. [MFRS 1.11]

The following decision tree outlines the deemed cost exemptions available for property, plant and

equipment (PPE) and investment property (IP). [MFRS 1.D5, D6]


We expect most entities that are affected will use the transition exemptions in MFRS 1. With the

transition exemptions, no impact is expected upon transition to MFRS framework, other than the

reclassification of any existing revaluation reserve to retained earnings or as a separate component of

equity, or fair value adjustments taken up directly in retained earnings or separate component of

equity if an entity elects to use the fair value at the date of transition as deemed cost.

Malaysian public listed entities are required to disclose a breakdown of the unappropriated profits or

accumulated losses into realised and unrealised profits or losses. It is unclear whether the

reclassification of revaluation reserve or fair value adjustments taken up directly in retained earnings

are considered as realised or unrealised profit or loss in the context of disclosure pursuant to Bursa

Malaysia listing requirements. In our view, such reclassification of revaluation reserve or fair value

adjustment into retained earnings is not considered as realised profit or loss.

Transition to MFRS framework also gives an opportunity to companies within the same group to re-

align their accounting policies in respect of measurement of property, plant and equipment and

investment property. For example, prior to the MFRS framework, certain companies within the same

group are using cost model to measure investment properties while other companies are using the

fair value model. These entities using the fair value model will be able to change their accounting

policy of investment properties to cost model.

Any item of PPE or IP that is carried

at valuation or accounted for using

revaluation model?

Does the entity elect to measure

item of PPE or IP at fair value at date

of transition?

Does the entity elect to continue

using revaluation or fair value model

subsequent to transition?

The entity continues to carry existing

carrying amounts upon transition

The entity uses previous revaluation

at or before the date of transition asdeemed cost at the date of

revaluation

The entity uses fair value at the date

of transition as deemed cost

No

Yes

No

Yes

Yes

No

OR




The diagram below outlines the accounting policy choices available for property, plant and equipment

and investment property that a first-time adopter may elect upon transition to MFRS framework.

Investment property

Cost

model Cost

model

Fair value

model

(1) The entity continues to carry existing carrying

amounts upon transition; or

(2) The entity uses fair value at the date of

transition as deemed cost; or

(3) The entity uses previous revaluation (surrogate

cost) at or before the date of transition as

deemed cost at the date of revaluation; or

(4) The entity restates the surrogate cost, if any,

back to its original cost.

The entity measures investment property at

its fair value at the date of transition.

Fair value

model

Cost

model

The entity continues to carry existing carrying

amounts upon transition.

(2) The entity restates back to its original cost.

Fair value

model


transition as deemed cost; or

At

revaluation Cost

model

Revaluation

model

(1) The entity uses previous revaluation at or

before the date of transition as deemed cost at

the date of revaluation; or


transition as deemed cost or

The entity continues to carry existing carrying

amounts upon transition, provided the carrying

amounts are not materially different from their

fair value at the date of transition.

(3) The entity restates back to its original cost.

FRS MFRS At date of transition

Property, plants and equipment

At cost Cost model

Revaluation

model

(1) The entity continues to carry existing carrying

amounts upon transition; or


transition as deemed cost.

The entity revalues entire class of property,

plant and equipment to which an asset belongs

at their fair value at the date of transition and

any revaluation surplus is adjusted directly in

equity as revaluation reserve.




No depreciation on idle assets

FRS MFRS 116

No depreciation on idle assetsPrior to the effective date of the revised FRS 116

(i.e. 1 January 2006), there was no explicit

requirement whether an asset that becomes idleor retired from active use is subject to

depreciation.

As such, in the past some entities might have

ceased depreciating an asset when it was idle or

retired from active use.

Depreciation does not cease even when the

asset becomes idle or retired from active use

unless the asset is fully depreciated. [MFRS116.55]



KPMG’s observation and comment A first-time adopter adjusts the accumulated depreciation of the asset retrospectively as if the

depreciation had been provided for even when the asset was idle or retired from active use

previously. Any depreciation adjustment is taken up directly in retained earnings at the date of

transition to MFRS framework.

Alternatively, a first-time adopter may elect to apply deemed cost exemptions under MFRS 1 to such

an asset when it is impracticable to re-compute the depreciation charge retrospectively.

Capitalisation of severe foreign exchange loss

MASB 6 MFRS 121

Capitalisation of severe foreign exchange loss

An entity may have capitalised foreign exchange

loss as part of the cost of an asset, if the foreign

exchange loss is arising from severe devaluation

of a currency against the foreign currency liability

which arises directly on the acquisition of that

asset. [MASB 6.21]

Except for certain limited circumstances, all

exchange gains or losses shall be recognised in

profit or loss.




A first-time adopter adjusts the cost and accumulated depreciation of the asset retrospectively by

reversing the foreign exchange loss previously capitalised as part of the cost of that asset. Any

adjustment is taken up directly in retained earnings at the date of transition to MFRS framework.

Alternatively, a first-time adopter may elect to apply deemed cost exemptions under MFRS 1 to such

an asset when it is impracticable to retrospectively reverse the capitalisation of severe foreign

exchange loss.




3.2 Prepaid lease payments

Leases

FRS 117 MFRS 117

Revalued leasehold land classified as prepaid

lease paymentsAn entity is allowed to carry unamortised revalued

prepaid lease payments (leasehold land) as

surrogate cost for those that were previously

stated at revaluation on transition to FRS 117 in

2006. [FRS 117.67AA]

The prepaid lease payments often refer to

leasehold land that do not meet the classification

of a finance lease and classified as operating lease.

Prepaid lease payments to be stated at cost

Prepaid lease payments are required to bestated at cost. No revaluation is permitted.


A first-time adopter may continue to use the surrogate cost of an asset established under theprevious FRS framework because of an event such as a privatisation or initial public offering, as the

deemed cost of that asset upon transition to MFRS framework. The deemed cost becomes the new

MFRS cost basis at the date of the revaluation. [MFRS 1.D8]

Any existing revaluation reserve at the date of transition is reclassified to retained earnings or as a

separate component of equity, but is not described as revaluation reserve. [MFRS 1.11]

The following decision tree outlines the deemed cost exemption available for prepaid lease

payments. [MFRS 1.D8]


The transition to MFRS 117 will impact an entity who has previously revalued prepaid lease

payments. The entity will need to restate the revalued prepaid lease payments to their original costs

and any revaluation surplus will have to be retrospectively adjusted, unless the revaluation of prepaid

lease payments was made because of an event such as a privatisation or initial public offering.

We do not expect that there will be material adjustment arising from this. Based on our observation,

subsequent to the amendment to FRS 117 in 2010, most leasehold land are treated as finance lease

and classified as property, plant and equipment. Refer to section 3.1 for transition exemptions

applicable to property, plant and equipment.

Is prepaid lease payment previously

reclassified from revalued

leasehold land?

The entity continues to carry

existing carrying amounts upon

transition.

Was the valuation made because of

an event such as a privatisation or

initial public offering?

Retrospective adjustmentsThe entity restates the revalued

prepaid lease payments to their

original costs and any revaluation

surplus is retrospectively adjusted.

The entity may use the previous revaluation as deemed cost at the date of revaluation

and continues to carry existing carrying amounts upon transition.

No

Yes

Yes

No




3.3 Biological assets

Accounting for biological assets

Commonly used accounting practices MFRS 141

Measurement of biological assets

Entities in Malaysia commonly use the followingmethods to measure biological assets:

a) Capital maintenance method

Capital maintenance method is commonly

used in the plantation sector. This method is

normally not applied to other biological

assets. Under the capital maintenance

method, costs of new planting are capitalised

and not amortised subsequently. Replanting

cost is recognised in profit or loss for the

period in which the cost is incurred.

b) Cost amortisation method Under the cost amortisation method, initial

costs and subsequent costs that fulfill the

recognition criteria are capitalised and

amortised.

There are entities who measure biological assets

at fair value but this is not common in Malaysia.

Measurement of agricultural produceAgricultural produce is generally stated at the

lower of cost and net realisable value.

Measurement of biological assets

MFRS 141 requires biological assets to bemeasured on initial recognition and at subsequent

measurement at fair value less estimated costs to

sell, unless the fair value cannot be reliably

measured. [MFRS 141.12]

Under limited circumstances, the fair value of a

biological asset may not be reliably measured on

initial recognition. In such a case, that biological

asset shall be measured at its cost less any

accumulated depreciation and any accumulated

impairment losses until the fair value becomes

reliably measured. [MFRS 141.30]

Gain or loss on initial recognition of biological

assets at fair value less costs to sell, and changes

in fair value less costs to sell of biological assets

during a period, are recognised in profit or loss.

[MFRS 141.26]

Measurement of agricultural produce

Agriculture produce is measured at fair value less

costs to sell at the point of harvest. [MFRS

141.13]

Gain or loss on initial recognition of agricultural

produce at fair value less costs to sell is included

in profit or loss in the period in which it arises.

[MFRS 141.28]


No specific exemption is provided in MFRS 1 for first-time adopter. An entity with biological assets

applies MFRS 141 retrospectively at the date of transition.


The adoption of MFRS 141 will significantly impact earnings reporting of plantation and other entities

dealing with other biological assets (for example, aquaculture and poultry farming) in Malaysia.

As there is no transition exemption provided under MFRS 1, an affected entity will need to fair value

the biological assets of the opening and closing balances for its comparatives. For example, a

plantation company which has a financial year end on 31 December will need to fair value its

biological assets as at 1 January 2012 and also 31 December 2012 in order to prepare the

comparatives for the financial year ending 31 December 2013.

The adoption of MFRS 141 may also significantly impact the costing of other inventories if agricultural

produce that is measured at fair value less costs to sell at the point of harvest is the input cost of

other inventories. For example, an oil palm plantation and refinery company measures the fresh fruit

brunches at fair value less costs to sell at the point of harvest, which will be the input cost for its

refinery operations.




3.4 Income taxes

Deferred tax: recovery of underlying assets

FRS 112 MFRS 112

Measurement of deferred tax assets and

liabilitiesDeferred tax of an asset is measured based on

expected tax rates applicable to the usage or sale

of an asset. [FRS 112.47, 51]

If an entity expects to retain and recover the

asset through use, the tax rate applicable to the

usage of the asset is used.

If an entity expects to sell the asset without

further use, the tax rate applicable to the sale of

the asset is used.

When a depreciable asset is revalued, the

deferred tax on the revaluation is measured using

the tax rate applicable to the usage of the asset.

Hence, deferred tax is normally recognised for

buildings and leasehold land which are classified

as investment properties and measured at fair

value by applying the corporate tax rate.

When a non-depreciable asset is revalued, the

deferred tax on the revaluation is measured using

the tax rate that applies upon disposal. [IC 121.5]

Exception to the measurement principles in

specified circumstancesAn exception to the measurement principles of

deferred tax assets and liabilities is available

under MFRS 112. The exception is specifically

given to investment property measured using the

fair value model.

There is a rebuttable presumption that the

carrying amount of the investment property will

be recovered through sale. Consequently, an

entity uses the tax rate applicable for the sale of

investment property to compute the deferred tax

liability or asset arising from fair value changes.[MFRS 112.51C]

The presumption is rebuttable only if the

investment property is depreciable and held

within a business model whose objective is to

consume substantially all of the asset’s economic

benefits over the life of the asset. [MFRS

112.51C]

When non-depreciable investment property (e.g.

freehold land) is measured at fair value, the

deferred tax on the fair value changes is

measured using the tax rate that applies upon

disposal. [MFRS 112.51B]




Upon transition to MFRS framework, an entity with investment property measured using the fair

value model will be affected as it is presumed that the investment property will be recovered through

sale and the entity uses the tax rate applicable to the sale of the investment property to compute the

deferred tax assets or liabilities, as opposed to the tax rate applicable to the usage, unless such

presumption is rebutted.

The exception also applies to investment properties acquired in a business combination accounted

for in accordance with MFRS 3, Business Combinations provided the acquirer subsequently

measures these assets using the fair value model. This may lead to the restatement of deferred tax

assets or liabilities if MFRS 112 is applied to investment properties acquired in a business

combination that occurred in the previous reporting periods.

An entity recognises any adjustments to the deferred tax assets or liabilities directly in retained

earnings at the date of transition to MFRS framework.




Example – Deferred tax on investment property

Company T holds a portfolio of investment properties for more than five years from which it currently

earns rental income. The investment properties are measured at fair value.

The sale of investment property is not subject to tax if it is held for more than five years. Corporate

income tax rate is 25%.

The carrying amounts, tax bases and resulting temporary differences of the land and buildings

components are as follows: Carrying amount

(fair value) Tax baseTemporarydifference

Freehold land 200,000 100,000 100,000

Leasehold land 300,000 180,000 120,000

Buildings 250,000 110,000 140,000

Total 750,000 390,000 360,000

Under MFRS 112, the measurement of deferred tax depends on T’s business model, which isillustrated using the following scenarios:

Scenario A: T’s business model is to sell properties in the future in order to participate in the

increase in real estate prices (i.e. it consumes substantially all of the investment properties’

economic benefits through rental income and sales).

Scenario B: T’s business model is to hold properties for strategic purposes on long term

basis (i.e. it consumes substantially all of the investment properties’ economic benefits

through rental income). T rebuts the presumption under paragraph 51C of MFRS 112.

The deferred tax liability under each scenario is calculated as follows:

Temporarydifference

Applicable taxrate

Deferred taxliability

Scenario A:

Investment properties 360,000 0% Nil

Scenario B:

Freehold land

Leasehold land

Buildings

100,000

120,000

140,000

0%

25%

25%

Nil

30,000

35,000

65,000

Under existing FRS 112, the deferred tax liability will be equivalent to Scenario B.




Unutilised investment tax incentives

FRS 112 MFRS 112

Commonly used accounting treatments

FRS 112 does not deal with the methods of accounting

for investment tax incentives. [FRS 112.4]

In practice, entities in Malaysia commonly account for

the unutilised investment tax incentives, such as

reinvestment allowances and investment tax

allowances using the following methods:

a) Recognised as deferred tax assets

An entity accounts for the unutilised investment

tax incentives as deferred tax assets by analogy to

accounting for unused tax credits, to the extent

that it is probable that future taxable profits will be

available against which the unutilised investment

tax incentives can be utilised.

b) Do not recognise as deferred tax assets

An entity treats the investment tax incentives as

part of the tax base of an asset and does not

recognise the resulting deferred tax asset on initial

recognition of the asset and subsequently.

This tax base method is applied by analogy to

MASB 25, Income Taxes issued by the MASB,

which is applicable under the Private Entities

Reporting Standards Framework.

MFRS 112 does not deal with the methods

of accounting for investment tax incentives.

In our view, the tax base method is not

appropriate.


No specific exemption is provided in MFRS 1 for first-time adopter upon transition to MFRSframework. If the transition results in an entity recognising unutilised investment tax incentives as

deferred tax assets or as a reduction in the tax rate applied to deferred tax liabilities, an entity makes

a retrospective adjustment and recognises the resulting adjustments directly in retained earnings at

the date of transition to MFRS framework.


In our view, an entity that applies the tax base method and does not recognise the unutilised

investment tax incentives may need to change its accounting policy to recognise the unutilised

investment tax incentives using one of the following approaches:-

as deferred tax assets by analogy to the accounting for unused tax credits; or

as a reduction in the tax rate applied to deferred tax liabilities (tax rate reduction method).

Under the tax rate reduction method, an entity recognises lower deferred tax liabilities by applying

the adjusted tax rate that is expected to apply when the taxable temporary differences reverse. A tax

incentive is treated as a reduction of the tax rate as and when it is utilised and hence, deferred tax is

measured using the reduced tax rate.




3.5 Government loans

Government loans with below-market rate of interest

FRS 120 MFRS 120

Transitional provision

An entity measures government loans with abelow-market rate of interest received on or after

1 January 2010 at fair value on initial recognition.

[FRS 120.43]

For government loans received before 1 January

2010, an entity is allowed to measure the loans at

cost based on loan proceeds received. [FRS

120.43]

Transitional provision in FRS 120 or MFRS 120 isnot available to first-time adopter upon transition

to MFRS framework.


No specific exemption is provided in MFRS 1 for first-time adopter. Upon transition to MFRS

framework, a first-time adopter applies MFRS 120 retrospectively to measure existing governmentloans received before 1 January 2010 at fair value at date of loan origination.

However, in October 2011 the IASB issued an exposure draft to propose an amendment to IFRS 1.

The proposed amendment would require that first-time adopter applies MFRS 120 prospectively to

government loans received on or after the date of transition. A first-time adopter continues to carry

existing carrying amounts of government loans at date of transition.

A first-time adopter may apply MFRS 120 retrospectively, provided the information needed for

retrospective application to a government loan as a result of a past transaction was obtained at the

time of initially accounting for that loan.

The proposed amendment, when finalised, will become effective for annual periods beginning on or

after 1 January 2013. Early application of the amendments is permitted.


At the date of this publication, the proposed amendment has not been finalised by the IASB. Until

the proposed amendment is finalised, a first-time adopter applies MFRS 120 retrospectively to all

government loans regardless when the loan was originated.




4 Specific statement of profit or loss andother comprehensive income items

4.1 Property development activities

Property development activities and agreements for the construction of real estate

FRS 201, Property Development Activities IC Interpretation 15, Agreements for the

Construction of Real Estate (MFRS)

Percentage of completion methodUnder FRS 201, an entity that is involved in

property development activities applies

percentage of completion method in

recognising revenue and profit from the sale of

real estate.

Land held for future property development


shall be classified as non-current asset and

stated at cost less any accumulated

impairment losses.

Revenue recognitionUnder IC 15, an agreement for the construction of

real estate that does not meet the definition of a

construction contract (MFRS 111) shall be

accounted for as sale of goods under MFRS 118.

Revenue from sale of goods agreement isrecognised by reference to the stage of completion,

if and only if, the revenue recognition criteria of

MFRS 118 are met continuously as construction

progresses (i.e. continuous transfer of significant

risks and rewards of ownership).

Land held for future property developmentAn entity may need to account for a piece of land as:

(1) investment property if it is held for

undetermined future use; or

(2) inventory if it is held for planned development.


Agreements for the construction of real estateThere is no exemption provided in MFRS 1 for first-time adopter and there is no specific transitional

provision in IC 15. Hence, an entity applies IC 15 retrospectively at the date of transition.

Land held for future property development – accounted for as investment propertyIf a piece of land has been previously revalued and is to be accounted for as investment property

using cost model, then an entity may elect to use the previous revaluation of that piece of land as

deemed cost at the date of revaluation or use its fair value at the date of transition as its deemed

cost at that date upon transition to MFRS framework. [MFRS 1.D5, D6]

Any existing revaluation reserve and fair value adjustments at the date of transition are reclassified

or adjusted directly in retained earnings or a separate component of equity, but is not described as

revaluation reserve. [MFRS 1.11]

Land held for future property development – accounted for as inventoryIf a piece of land is to be accounted for as inventory under MFRS 102, Inventories and the land was

previously revalued while it was classified as land held for property development, an entity may

continue to carry the existing revalued amount upon transition to MFRS framework if the revaluation

was made because of an event such as initial public offering or privatisation. Otherwise, the land will

need to be stated at the lower of original cost and net realisable value. [MFRS 1.D8]

Any existing revaluation reserve at the date of transition is reclassified to retained earnings or a

separate component of equity, but is not described as revaluation reserve. [MFRS 1.11]





Agreements for the construction of real estateDepending on the outcome and development of the debate of whether percentage of completion

method or completed method may be applied for property development activities in Malaysia, there

could be a significant change and impact in this area. If the adoption of IC 15 results in a change ofrevenue recognition from percentage of completion method to completed method, the impact of this

policy change will be adjusted retrospectively.


Upon transition to MFRS framework, a property developer may account for a piece of land as:

(a) Investment property

An entity classifying a piece of land as investment property may be affected based on the

measurement model adopted for its investment property:

i) Where an entity is using the fair value model, the piece of land is measured at fair value at

the date of transition to MFRS framework.

ii) Where an entity is using the cost model, the piece of land may be restated to its originalcost or measured at deemed cost at the date of transition to MFRS framework.

Section 3.1 above discusses the transition exemptions relevant to investment property for a

first-time adopter.

(b) Inventory

Certain entities may have revalued land held for development as allowed under MAS 7,

Accounting for Property Development Activities and retained the revalued amount as surrogate

cost when they adopted MASB 32, Property Development Activities (which was later renamed

as FRS 201) in 2004. Under such circumstance, if a piece of land is to be reclassified as

inventory under MFRS 102, the following options are available for a first-time adopter:

i) Where the piece of land was not previously revalued, an entity continues to carry the land atits existing carrying amount upon transition to MFRS framework.

ii) Where the piece of land was previously revalued, an entity restates the land back to its

original cost, unless the revaluation was made due to an event such as initial public

offering or privatisation, in which case an entity may carry the land at its revalued amount

as deemed cost at date of revaluation.

In both the above options, land accounted for as inventory is stated at the lower of cost (or

deemed cost) and net realisable value (NRV) in accordance with MFRS 102.




The following decision tree outlines various accounting treatments for land held for property

development by a property developer upon transition to MFRS framework.

Account for as

Inventory Held for currently

undetermined future

use? (i.e. no planned

development)No

Continue to

carry existing

carrying amount

upon transition

Stated at revalued

amount?Yes

Account for as Investment

property Yes Use previous

revaluation as

deemed cost

Cost

model Restate back to the lower of its original

cost and NRV

Measure at

fair value at

the date of

transition.

(1) Measure at original cost; or

(2) Use fair value at the date of transition as deemed cost; or

(3) If the land was previously revalued, may use the previous revaluation at or

before the date of transition as deemed cost at the date of revaluation.

Fair value

model

Was the revaluation made

because of an event such as

an IPO or rivatisation?

No

Yes

A piece of land

No




4.2 Shared-based payment

FRS 2, Share-based Payment

Effective date and transitional provisionFor equity-settled share-based payment transactions, an entity shall apply FRS 2 to grants of shares,

share options or other equity instruments that were granted after 31 December 2004 and had notyet vested at the effective date of FRS 2, i.e. 1 January 2006. [FRS 2.53]

Transition exemptions under MFRS 1 upon first adoption of MFRS 2

1. Under MFRS 1, a first-time adopter is encouraged, but not required, to apply MFRS 2 to equity

instruments that were granted on or before 7 November 2002. [MFRS 1.D2]

2. A first-time adopter is also encouraged, but not required, to apply MFRS 2 to equity instruments

that were granted after 7 November 2002 and vested before the date of transition. [MFRS 1.D2]

3. However, a first-time adopter applies MFRS 2 to equity instruments that were granted after 7November 2002 and has not yet vested at the date of transition. [MFRS 1.D2]


Although MFRS 2 has an earlier cut-off as compared to FRS 2, no significant impact is expected since

it is unlikely that a scheme that was granted on or before 31 December 2004 still has not yet vested

as of the date of transition to MFRS framework. Hence, we do not expect that there will be a

significant impact to most companies in Malaysia.

7 November 2002

Application of MFRS 2

1. Encouraged, but not required

2. Encouraged, but not required

3. Apply MFRS 2

Grant date and vesting period

Date of transition

e.g. 1 January 2011

Granted

Granted and vested

Granted but not yet vested

Vested or not vested




4.3 Employee benefits

Prepayments of a minimum funding requirement

Amendments to IC Int. 14 (FRS) IC Interpretation 14 (MFRS)

Different effective dates

An entity shall apply these amendments forannual periods beginning on or after 1 July 2011.

Earlier application is permitted. [IC 14.27B]

An entity shall apply those amendments forannual periods beginning on or after 1 January

2011. Earlier application is permitted. [IC 14.27B]

The original IC 14 states that a surplus in a plan –

whether created by a prepayment or otherwise –

is not regarded as an economic benefit available

as a reduction in future contributions if the future

minimum funding contribution required in respect

of future accrual of benefits exceeds the future

service cost. Therefore, under the original IC 14

(and if the entity did not have an unconditional

right to a refund of surplus) a prepayment wouldbe recognised as an expense.

Under the amended IC 14, such a prepayment

would be recognised as an asset, on the basis

that the entity has a future economic benefit from

the prepayment in the form of reduced cash

outflows in future years in which minimum

funding requirement payments would otherwise

be required.


No specific guidance provided under MFRS 1 upon adoption of these amendments to IC 14.

Generally, first-time adopter applies the transitional provisions in the amendments to IC 14

retrospectively from the beginning of the earliest comparative period presented. If the entity had

previously applied this Interpretation before it applies the amendments, it shall recognise the

adjustment resulting from the application of the amendments in retained earnings at the beginning

of the earliest comparative period presented. [IC 14.29]


No significant impact is expected upon transition to MFRS framework.




5 New and amended disclosures

5.1 Related party disclosures

MFRS 124, Related Party Disclosures

Overview of major changes

Revised and clarified definition of a related party

Related party relationships were made symmetrical between each of the related parties, i.e. if A is

related to B, then B is also related to A.

The following are new relationships included in the definition of a related party: 1. In the financial statements of subsidiary A, any associate of the controlling shareholder of

subsidiary A is a related party to the subsidiary A. 2. In the financial statements of an entity (B) controlled or jointly controlled by a person, who is

also the key management personnel of another entity C, entity C is a related party to entity

B. 3. In the financial statements of an entity (D) jointly controlled or significantly influenced by a

close family member of an individual investor (P), any entity jointly controlled by that

individual investor P is a related party to entity D. 4. In the financial statements of an entity (E) that is significantly influenced by an individual

investor (Q), where the same investor Q also controls or jointly controls another entity (F),

entity F is a related party to entity E.

Two entities are no longer related if one of them is under significant influence of a person and the

other is:

1. under significant influence of that person’s close family member; or

2. managed by that person in his capacity as key management personnel.

Corporate and individual investor are treated in the same manner.

MFRS 124 clarifies that references to associates and joint ventures include the subsidiaries of those

associates and joint ventures.

Partial disclosures exemption for government-related entitiesMFRS 124 does not fully exempt state-controlled entities from disclosing transactions with other

stated-controlled entities.

A government-related entity may apply the exemption from disclosing fully the transactions and

outstanding balances with other government-related entities. A government-related entity applying

this exemption is still required to disclose: [MFRS 124.25, 26]

(a) the name of the government and nature of its relationship; and

(b) nature and amount of individually or collectively significant transaction.

Disclosure of major customersAn entity shall disclose information about the extent of its reliance on its major customers. The

requirements to treat the government and government-related entities as a single customer have

been relaxed whereby an entity is now required to exercise judgement to assess whether a

government including government agencies under the control of that government are considered a

single customer, taking into consideration of the extent of economic integration between the

government and government-related entities. [MFRS 8.34]

Effective dateMFRS 124 is effective for annual periods beginning on or after 1 January 2011.





An entity applies MFRS 124 retrospectively and hence, it is required to disclose the related party

information for the comparative period.


Government-related entities are not fully exempted from providing related party information in their

financial statements as MFRS 124 requires them to provide certain information about individually or

collectively significant transactions with the government or other government-related entities.

Management of government-related entities will need to exercise judgement in determining whether

a transaction is individually or collectively significant as the standard provides no quantitative

threshold. This might require some changes to these entities’ internal reporting procedures and

record keeping process.

An entity may need to re-assess the list of its related parties and relationships. This may require the

collection and disclosure of additional information, including information for the comparative period,

especially in respect of roles of individual investors and their close family members.

We expect MFRS 124 will bring significant challenges to government-related entities in identifying all

their relationship with other government-related entities and the related transactions.




5.2 Financial instruments: Transfers of financial assets

MFRS 7: Disclosures – transfers of financial assets

New disclosure requirements

Financial assets that are not derecognised in their entirety

For each class of transferred assets:

the nature of the risks and rewards associated with those assets;

a description of the relationship between the transferred assets and the associated liabilities,

including the restrictions on the entity’s use of those assets;

the carrying amounts of the transferred assets that the entity continues to recognise and of

the associated liabilities;

fair value information of the transferred assets and associated liabilities in transactions in

which the counterparty’s recourse is limited to the transferred assets; and

the carrying amounts of the original assets at the time of transfer in transactions in which the

transferred assets are recognised to the extent of the entity’s continuing involvement.

Financial assets that are derecognised in their entirety but where the entity retains

continuing involvementFor each type of continuing involvement:

the carrying amounts and fair values of the assets and liabilities representing the entity’s

continuing involvement;

the entity’s maximum exposure to loss and how this maximum exposure was determined;

a maturity analysis of the undiscounted cash flows that may be payable to the transferee in

respect of the transferred assets;

the gain or loss on transfer of the assets;

income and expenses arising from the entity’s continuing involvement (for the current period

and cumulatively); and

specific detailed disclosures in respect of situations in which transfer activity is not evenly

distributed throughout the reporting period (e.g. a high level of activity in the closing days).

Effective dateThe effective date for the new disclosure requirements is for annual periods beginning on or after 1

July 2011.


An entity is required to apply the new disclosure requirements for annual periods beginning on or

after 1 July 2011 but is not required to provide the disclosures for any period that begins prior to 1

July 2011. Earlier application is permitted.


Since the new disclosure requirements only impact the disclosure aspects, no financial impact is

expected upon transition to MFRS framework. Furthermore, transfers of financial assets are not

common.




Appendix 1 IFRS-compliant Malaysian Financial Reporting Standards

The term ‘Malaysian Financial Reporting Standards’ or ‘MFRSs’ refers to Standards (including IC

Interpretations) issued by the Malaysian Accounting Standards Board that apply to annual periods

beginning on or after 1 January 2012.

The MFRSs contained below are equivalent to IFRSs as issued by IASB, including IFRSs that are not

yet effective.

Standards applicable on 1 January 2012

The table below contains MFRSs applicable on 1 January 2012.

Entities, other than Transitioning Entities, are required to comply with all the Standards and IC

Interpretations set out in the table below, including MFRS 1, First-time Adoption of Malaysian

Financial Reporting Standards , for annual periods beginning on or after 1 January 2012.

Standard Title

MFRS 1 First-time Adoption of Malaysian Financial Reporting Standards

MFRS 2 Share-based Payment

MFRS 3 Business Combinations

MFRS 4 Insurance Contracts

MFRS 5 Non-current Assets Held for Sale and Discontinued Operations

MFRS 6 Exploration for and Evaluation of Mineral Resources

MFRS 7 Financial Instruments: Disclosures

MFRS 8 Operating Segments

MFRS 101 Presentation of Financial Statements

MFRS 102 Inventories

MFRS 107 Statement of Cash Flows

MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors

MFRS 110 Events after the Reporting Period

MFRS 111 Construction Contracts

MFRS 112 Income Taxes

MFRS 116 Property, Plant and Equipment

MFRS 117 Leases

MFRS 118 Revenue

MFRS 119 Employee Benefits

MFRS 120 Accounting for Government Grants and Disclosure of Government Assistance

MFRS 121 The Effects of Changes in Foreign Exchange Rates

MFRS 123 Borrowing Costs

MFRS 124 Related Party Disclosures

MFRS 126 Accounting and Reporting by Retirement Benefit Plans

MFRS 127 Consolidated and Separate Financial Statements

MFRS 128 Investments in Associates

MFRS 129 Financial Reporting in Hyperinflationary EconomiesMFRS 131 Interests in Joint Ventures




Standard Title

MFRS 132 Financial Instruments: Presentation

FRMS 133 Earnings per Share

MFRS 134 Interim Financial Reporting

MFRS 136 Impairment of Assets

MFRS 137 Provisions, Contingent Liabilities and Contingent Assets

MFRS 138 Intangible Assets

MFRS 139 Financial Instruments: Recognition and Measurement

MFRS 140 Investment Property

MFRS 141 Agriculture

IC Interpretations Title

IC Interpretation 107 Introduction of the Euro

IC Interpretation 110 Government Assistance – No Specific Relation to Operating Activities

IC Interpretation 112 Consolidation – Special Purpose Entities

IC Interpretation 113 Jointly Controlled Entities – Non-Monetary Contributions by Venturers

IC Interpretation 115 Operating Leases – Incentives

IC Interpretation 125 Income Taxes – Changes in the Tax Status of an Entity or its Shareholders

IC Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease

IC Interpretation 129 Service Concession Arrangements: Disclosures

IC Interpretation 131 Revenue – Barter Transactions Involving Advertising Services

IC Interpretation 132 Intangible Assets – Web Site Costs

IC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar LiabilitiesIC Interpretation 2 Members’ Shares in Co-operative Entities and Similar Instruments

IC Interpretation 4 Determining whether an Arrangement contains a Lease

IC Interpretation 5 Rights to Interests arising from Decommissioning, Restoration and

Environmental Rehabilitation Funds

IC Interpretation 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and

Electronic Equipment

IC Interpretation 7 Applying the Restatement Approach under MFRS 129 Financial Reporting in

Hyperinflationary Economies

IC Interpretation 9 Reassessment of Embedded Derivatives

IC Interpretation 10 Interim Financial Reporting and ImpairmentIC Interpretation 12 Service Concession Arrangements

IC Interpretation 13 Customer Loyalty Programmes

IC Interpretation 14 MFRS 119 – The Limit on a Defined Benefit Asset, Minimum Funding

Requirements and their Interaction

IC Interpretation 15 Agreements for the Construction of Real Estate

IC Interpretation 16 Hedges of a Net Investment in a Foreign Operation

IC Interpretation 17 Distributions of Non-cash Assets to Owners

IC Interpretation 18 Transfers of Assets from Customers

IC Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments

IC Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine




Standards and amendments with an effective date after 1 January 2012

The table below contains new and amendments to Standard with an effective date after 1 January

2012. An entity may apply a Standard or amendment that is not yet effective if that Standard or

amendment permits early application and has been issued by the MASB.

Standard Title Effective date

MFRS 9 Financial Instruments 1 January 2013

MFRS 10 Consolidated Financial Statements 1 January 2013

MFRS 11 Joint Arrangements 1 January 2013

MFRS 12 Disclosures of Interests in Other Entities 1 January 2013

MFRS 13 Fair Value Measurement 1 January 2013

MFRS 119 Employee Benefits (as amended in 2011) 1 January 2013

MFRS 127 Separate Financial Statements (as amended in 2011) 1 January 2013

MFRS 128 Investments in Associates and Joint Ventures 1 January 2013

MFRS 101 Presentation of Items of Other Comprehensive Income(Amendments to MFRS 101)

1 July 2012



Contact Us

KPMG in Malaysia

Professional Practice Department

Level 10, KPMG TowerNo.8, First Avenue , Bandar Utama,

The information contained herein is of a general nature and is not intended to address the

circumstances of any particular individual or entity. Although we endeavour to provide accurate

and timely information, there can be no guarantee that such information is accurate as of the date

it is received or that it will continue to be accurate in the future. No one should act upon such

information without appropriate professional advice after a thorough examination of the particular

situation.

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