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THE FINANCIAL REPORTING ENVIRONMENT - Coggle Diagram
THE FINANCIAL REPORTING ENVIRONMENT
ACCOUNTING DEVELOPMENT IN MALAYSIA
Prior to 1957
- Companies Ordinance (and amendments) of 1940, 1946, 1956.
1958
- Malaysia Association of Certifies Public Accountants (MACPA) was formed.
1965
- Establishment of Companies Act, 1965.
Companies ordinance were the repealed. Contain Ninth Schedule (disclosure requirements).
1967
- The Malaysian Institute of Accountants
(MIA) was established under the Accountant Act.
1968
- MACPA issued first accounting guidance which dealt with specimen company accounts.
1978
- MACPA was admitted as a member of International Accounting Standards Committee (IASC) and began adopting IAS.
1984
- MACPA issued the first Malaysian Accounting Standard.
1985
- Companies Act 1965 was amended. New Ninth Schedule with more comprehensive disclosure requirements that includes the preparation of statement of source and application of funds.
1987
- Operation of MIA were activated. MIA began issuing accounting standards.
1993
- Securities Commission was established. Public listed companies are required to show full disclosure requirements as required by SC's.
1997
- Financial Reporting Foundation (FRF) and Malaysian Accounting Standard Board (MASB) was established under the Financial Reporting Act, 1997.
THE RATIONALE FOR REGULATING FINANCIAL ACCOUNTING PRACTICE
The reason why the parties argue that regulation is necessary:
Some parties who demand information about an organization can often obtain their desired information due to the power they possess as a result of their control over scarce resources required by the organization.
Investors need protection from fraudulent organizations that may produce misleading information, which due to information asymmetries cannot be known to be fraudulent when used
While proponents of "free-market" approach may argue that the capital market on average is efficient, such on average arguments ignore the rights of individual investors, some of whom can lose their savings as a result of relying upon unregulated disclosures.
Regulations leads to uniform methods being adopted by different entities, thus enhancing comparability.
Markets for information are not efficient and without regulation a sub-optimal amount of information will be produced.
The reason why the parties argue that regulation is not necessary:
Accounting information is like any other good, and people will be prepared to pay for it to the extent that it has use. This will lead to an optimal supply of information by entities.
Capital markets require information, and any organization that fails to provide information will be punished by the market.
Users of financial information typically do not bear its cost of production, regulation will lead to over-supply of information as users will tend to overstate the need for the information.
THE OF POWER ACCOUNTANT
The judgement of the accountant can directly impact on various parties' wealth.
Accountants generate information that is used to guide the actions of many people throughout society.
Accountants tend to give legitimacy to organizations that otherwise may not be deemed to be legitimate.
THE ROLE OF PROFESSIONAL JUDGEMENT IN FINANCIAL ACCOUNTING
Efficiency Perspective:
The organizations are best served by selecting accounting methods that best reflect their underlying performance.
Opportunistic Perspective:
This perspective does not assume that those responsible for selecting accounting methods will be objective. It assumes that they will be driven by self interest.