accounting

Applying IAS 41 in Malaysia

Mohamed Iskandar Thurrun Bhakir

Full convergence with International Financial Reporting Standards will

entail eventual compliance with IAS 41 Agriculture. The main concern in
applying IAS 41 is the fair valuation of Biological Assets.

A
study of 43 plantation entities
on Bursa Malaysia showed
that most companies disclose
biological assets separately
on the face of balance sheet
as required by FRS 101 Presentation
of Financial Statements. However, very
few companies fair value their biological
assets, instead following the capital main-
tenance and amortisation methods under
the repealed MAS 8 Accounting for Pre-
Cropping costs in determining their value.
One reason could
be that MASB ED
One of the most 50 Agriculture
controversial accounting which follows IAS
41 is yet to take
standards, IAS 41 effect in Malaysia.
Agriculture which took Dif ficulty in
identifying the
effect for financial periods attributes of bio-
beginning on or after logical assets, the
cost of fair valua-
January 1 2003, defines tion, volatility and/
biological assets as living or the lack of rel-
evant information
animals or plants. are some of the
concerns in imple-
menting IAS 41, and companies are rec-
ommended to benchmark international
practices in applying fair value to bio-
logical assets in Malaysia. In Part 1 of this
two-part article, the writer looks at valua-
tion methods under IAS 41.
The fair valuation of assets is not a
simple process because different types of
assets also differ in their nature. One of
the most controversial accounting stand-
ards, IAS 41 Agriculture which took effect

32 accountants today | MARCH 2010

 Applying IAS 41 in Malaysia

for financial periods beginning on or Fair Value

Determination
after January 1 2003, defines biological
assets as living animals or plants. IAS 41
requires biological assets to be measured Active Market No market Little biological transfor-
on initial recognition and at its fair value Exists determined price or value mation or the impact is
immaterial on price
less estimated point of sale costs at each
balance sheet date. Yes No
However, the agriculture industry is
One market More than one market
very wide because it covers breeding
animals and plantations for food and their
Market Most relevant Most recent Present value of Cost
produce or material. Types of animals quoted price market quoted market transac- expected net cash
and plants are very much influenced by price tion price flow from the
Market price for assets discounted
geographical factors, and these different similar asset, at a current market
types need to be valued using different and/or determined pre-tax
Sector benchmark rate
methods. Ultimately, the objective is to
determine the most appropriate fair value Chart 1
as required by IAS 41.
or days) would enable the determination recent reasonable time period.
of fair value more accurately. However, The third alternative for fair value
Methods of valuation
the quoted market price for bearer bio- determination prevails when market-
According to IAS 41: paragraphs 15 to 24, logical assets (e.g. long-term assets that determined prices or values may not
the fair value of biological assets can be produce each year such as palm oil trees be available for a biological asset in its
determined by grouping them according and rubber trees) is not easily available, present condition. In these circumstanc-
to significant attributes, like age or qual- since these are non-tradeable on the open es, an enterprise uses the present value
ity, that are the basis for market pricing market. of expected net cash flows from the asset
(See Chart 1 for the fair value determina- Furthermore, a biological asset might discounted at a current market-deter-
tion for biologi- be traded in more than mined pre-tax rate in determining fair
cal assets). one market. In such a value. This alternative would be most ben-
The first
IAS 41 stipulates that case, the quoted price eficial to estimate the fair value of bearer
step in fair value an active market exists in the most relevant biological assets because these assets do
determination market should be used not have value in their present condition
is to check the
when the items traded as the basis for deter- but they generate revenue more than
existence of an within the market are mining fair value. The once or periodically in the future.
active market quoted prices of differ- The last option for fair valuation is
for the biologi-
homogeneous, willing ent markets are not to the cost method. This option can only
cal asset. IAS 41 buyers and sellers can be averaged. be applied if little biological transforma-
stipulates that However, if an tion has taken place since initial cost was
an active mar-
normally be found at active market does incurred, and the impact of the biological
ket exists when any time, and prices are not exist, the second transformation on price is immaterial.
the items traded alternative is to use the IAS 41 lists fruit tree seedlings planted
within the mar-
available to the public. most recent market immediately prior to a balance sheet date,
ket are homogeneous, willing buyers and transaction price (with the condition that and initial growth in a 30-year pine planta-
sellers can normally be found at any time, economic changes between the transac- tion production cycle as examples. If the
and prices are available to the public. If tion date and the balance sheet date are market value is unavailable and the net
an active market exists for a particular insignificant), the adjusted market prices cash flows from the biological assets are
biological asset, IAS 41 suggests that for similar assets, and/or sector bench- difficult to estimate, this method might
the quoted market price is used as the marks. One or more of these bases can be applied. n
appropriate basis in determining the fair be used to arrive at the best estimation of
value of the biological asset. For exam- fair value. The recent market transaction The writer holds a degree in accountancy
ple, the quoted price for consumable price information or the adjusted market from the University of Malaya and current-
biological assets is easily available in prices for similar assets are possibly avail- ly works in Ernst & Young as an auditor in
the market, such as the price of animals able for all types of biological assets; how- Real Estate, Construction and Hospitality.
awaiting slaughter and vegetables. Their ever, there might not be any transaction He can be contacted at: Mohamed-Iskandar.
significant attributes like age (in years for specific types of biological assets in a [email protected].

MARCH 2010 | accountants today 33

 accounting

accountant roles
set to strengthen in 2010s
Calum Robson

C
redit crunch hangovers will Fine-tuning competencies
strengthen accountants roles as
Successful management accountants will have
business advisers over the next ten
a common set of attributes, said Tabor: The
years, according to the International
Management accountants skill is both to chart the course
Federation of Accountants. Roger
an organisation has been following, and to
accountants will be Tabor, chair of IFACs Professional Accountants
guide its future journey. Increasingly, theyll be
well placed over the next in Business Committee, has said that account-
expected to complement technical knowledge
ants are well suited to contribute significantly to
ten years - if they can and analytical mindsets with leadership and
recovery. In many organisations, theyll act as
overcome the many creators and enablers of value, providing perti-
personal relationship competences of a high
challenges ahead, say nent advice that informs strategic decisions and
order.
experts. This entails being
achieves better results, he
unafraid to come straight
said.
to the point, however
Peter Simons, tech- Accountants will some- unwelcome the message.
nical specialist at CIMA,
agreed saying he antici- times have to tell boss- Accountants will some-
times have to tell bosses
pated that business es things they dont things they dont wish to
accountants will shift
swiftly out of crisis man- wish to hear, requiring hear, requiring strength of
character on both sides,
agement mode: During strength of character said Tabor. In hard times,
the recession, there was
an emphasis on cash- on both sides. though, organisations that
are prepared to hear and
flow and risk mitigation.
Roger Tabor, chair of IFACs respond to bad news from
Looking ahead, theyll
Professional Accountants in trusted, internal sources
need to provide tactical
input on systems invest- Business Committee are more likely to succeed
than those that are not.
ments, as well as centrali-
And when good times return, those same
sation initiatives, such as in-house or out-
values will restrain organisations from over-
sourced shared service centres. The underly-
stretching or misleading themselves.
ing trend will be to become more influential
across the business.
However Simons predicted that the relent- Becoming better informed
less drive for greater efficiencies will continue Simons predicted a need for better informa-
in the 2010s. He said: Globalisation and tech- tion over the next ten years, for both report-
nological advances have helped drive down ing and management information purposes,
the cost of finance functions. In the future, along with closer business partnering. He
instead of simply questioning costs, manage- said that management accountants will be
ment accountants will be increasingly proac- well-placed to provide the information senior
tive in process improvements. managers need to capitalise on opportunities.

34 accountants today | MARCH 2010

Accountant roles set to strengthen in 2010s

Theyll need to identify relevant lead-

ing performance indicators, collecting
information on business processes and
customers, and taking external factors
into account, he said. They must be
champions of evidence-based decision-
making examining figures past and
present, testing the logic of various fore-
casts, and using their insight to enhance
performance management.
Patrick Fenton, partner in KPMGs
financial management advisory practice,
said the recession highlighted weaknesses
that had previously been masked, calling
for significant renewed investment. He
said: Finance teams will have to take
more of a lead role in ensuring the right
information gets to the right people at the
right time. This will underpin their poten-
tial to do their jobs more effectively.
Traditional techniques for forecasting
demand proved insufficient when the reces-
sion took hold, according to Nick Jarman,
partner at PricewaterhouseCoopers, who
advises clients on finance function effec-
tiveness. Many CFOs had to tear their
budgets up, he said. In future, man-
agement accountants will have to apply
more sophisticated thinking in predicting
performance. This might include taking
into account less obvious but more sec-
tor-specific indicators.
Jarman said a number of CFOs had
found themselves faced with data that
was too poorly organised to offer any real-
istic insight, while others had plenty of
data but no sensible reporting methods.
Greater co-operation between finance, IT
and the business will be needed, so that

MARCH 2010 | accountants today 35

Accountant roles set to strengthen in 2010s

be non-statutory information, it will be of

increasing importance to a wide range of
stakeholders.

Adding appeal to
careers
Management accounting careers may
look somewhat different by the end of
the coming decade. Theres definitely
a trend towards business intelligence
providing management information, said
Simons. Commercial accountants will
need to combine accounting expertise
with business understanding and influ-
encing skills. Management accountants
have traditionally trained in accounts,
before progressing to financial or com-
mercial roles, he said. That may no
longer be the norm, with reporting and
back office functions separating out from
the front line. Accountants will be focused
on management which is a more inter-
esting proposition than one based on
transaction processing.
The accounting profession has been
increasingly vocal in claiming eligibil-
ity for CEO roles. Influencing skills will
still be crucial but Tabor warned that
In future, management accountants will have to apply CEOs also require strategic competence,
more sophisticated thinking in predicting performance. political astuteness, leadership and clar-
ity of vision. Accountants who have
This might include taking into account less obvious but become CFOs will already have devel-
more sector-specific indicators. oped those competences and be ideally
placed to hone their skills, he said. As
to whether more will become CEOs will
data strategy relates to actual require- cess of organisations and external report- depend on how well individuals perform,
ments, he said. He cited working capital ing will grow, with accountants inevitably develop and commit to exercising their
and cash reporting as examples of areas drawn closer in. He said: Their dis- strengths.
where effective reporting tools had been tinctive contribution will be to ensure Jarman concluded: The most success-
sorely missed. integration of CSR issues - along with the ful CFOs will be those who understand not
associated contribution of colleagues in just internal financial issues but also com-
Accounting for other departments - into organisational petitors, customers and the supply chain
corporate responsibility strategy and objective setting; and into and who use all available data to help
mainstream reporting processes. their employers gain competitive advan-
Another strong theme for the next dec- Indeed, the coming decade will see tage. It follows that those CFOs are strong
ade will be corporate social responsibility finance teams assuming greater respon- candidates to be CEOs of the future. n
(CSR). As organisations strive to boost sibility for reporting outside traditional
their CSR credentials, greater empha- domains, predicted Fenton: The chal- Calum Robson is a freelance journalist.
sis will be placed on measurement and lenge for management accountants will be This article first appeared in Insight,
reporting, to give tangibility to good to define sustainability data and its associ- CIMAs online bi-monthly magazine and it
intentions. ated processes, and to collaborate with is published by CIMA (Chartered Institute
Tabor said the importance of environ- other functions to help business leaders of Management Accountants) for its mem-
mental and social issues to both the suc- make better decisions. Although it may bers and students.

36 accountants today | MARCH 2010

accounting | world news
GLOBAL: IASB softens stance the report. It added that elsewhere The growing power of the IASB regulators have blamed the cur-
on accounting convergence in its constitution shake-up, the has sparked concern in some coun- rent system of incurred losses -
The International Accounting IASB will introduce a three-yearly tries -- Tweedie was dubbed the whereby companies may make
Standards Board would no longer public consultation on its technical Accounting Ayatollah in France provision for loan losses only as
pursue convergence with its US agenda. It has also acknowledged -- with the US Congress also leery they occur - for exacerbating the
peer as an objective in itself, its investors are among its target audi- of adopting its rules which would crisis, by encouraging a cyclical
oversight body said recently, in ence for the first time. The chang- involve ceding regulatory sover- approach to risk management.
the latest sign of eroding consen- es, which are the second part of eignty. The EU gave the critical mass But that view is questioned by
sus on accounting rules. The IASB, a five-yearly review by the IASC which helped launch the IASBs many accountants and bankers
which sets standards for most of Foundation, the oversight body of rules on the road to becoming the who say that incurred losses give
the world outside the US, was the IASB, will also include the crea- global benchmark by mid-2011 investors clarity. Accountants and
nominated by the group of 20 tion of vice-chairman positions for and feels the board still owes the bankers are also sceptical about
leading nations to oversee the both the IASB and its oversight bloc a debt of gratitude, it added. the expected loss model, as they
development of a single high- body. This structure is expected However, it noted that with several fear it raises the risk of cookie jar
quality accounting standard by to be established when Sir David Asian countries, Brazil and Canada accounting, whereby executives
mid-2011, reports the Financial Tweedie, IASBs Chairman, retires coming on board, there is discrete put funds aside during good years
Times. In a mid-February report, next year, it added. n lobbying for Asia in particular to only to release them later to cover
the London-based newspaper said have a stronger say to counter EU up bad performance, it noted.n
this was widely assumed to include GLOBAL: Asia may have edge clout. n
convergence of US and interna- in top accounting job KUWAIT: A five-year taxation
tional standards with a view to US The hunt for a new chairman of UK: Deloitte chief reignites agreement with Japan
adoption of International Financial the worlds top accounting stand- debate over accounting for Kuwait and Japan signed in mid-
Reporting Standards, which are ard setter is sparking discrete jos- banks losses February the final five-year agree-
already used or due to be used by tling for a job Asian candidates Two of the worlds biggest ment for avoiding double taxation
more than 110 countries. However, are seen having the edge as eco- accounting firms are reigniting and preventing financial evasion, in
it said increasing politicisation of nomic influence shifts east, reports the dispute over the way that relation to income taxes in the two
the accounting process and ten- Reuters. International Accounting banks account for losses - rais- countries. The Finance Ministry, in
sions over sovereignty have made Standards Board Chairman David ing doubts over the long-awaited a statement, said that the agree-
this harder to achieve, regulators Tweedie stands down in June 2011 convergence of global reporting ment was signed by Kuwaits
and accountants say. In a review after a decade spent transform- standards, reports the Financial Finance Undersecretary Khalifa
of its constitution published on ing an obscure committee into a Times. Hamada and Japans Ambassador
February 15, the report said IASBs board whose rules are effectively Jim Quigley, global head of Big Masatoshi Muto, reports Zawya. It
oversight board addressed this law in over 120 countries, includ- Four accounting firm Deloitte noted that negotiations over the
concern over the convergence ing the European Union, it said. Touche Tohmatsu has proposed agreement began in 1993, and the
project and said it would empha- The London-originating report said that banks account for losses in first round involved a lot of meet-
sise that convergence is a strategy Japan, Canada, India, Korea and two radically different ways, to ings and talks. The agreement aims
aimed at promoting and facilitat- Brazil are also adopting IASB rules, meet the opposing demands to reduce tax burdens on Kuwaiti
ing the adoption of IFRS, but it is with China bringing its domestic of politicians and accountants. investors abroad, as well as on for-
not an objective by itself. standards in line too. The United He has told the Financial Times eign investors in Kuwait, thereby
It added that some regulators States is left increasingly isolated that he is an advocate of banks encouraging the exchange of capi-
and investors in those countries as it decides how to join the club making loan loss provisions for tal and investments.
were frustrated by a perception and when. incurred losses separately from As stipulated by this agreement,
that the IASB board was pursuing It said the Asian crisis of the expected losses - and report- the report said the investor will
convergence with the US ahead 1990s sparked the need for a ing them in two different lines be subjected to single taxation on
of the interests of those parties global approach to accounting in their accounts, the London- activities and profits, such as to
that had already signed up to IFRS. but the credit crunch politicised based newspaper said. However, avoid being taxed twice for share
The report quoted Atsushi Saito , standard setting as policy makers the report said PwC, the worlds profit and interests. This agreement
chief executive of the Tokyo Stock changes after blaming account- largest accounting firm, has previ- will also serve to remove financial
Exchange, as telling the newspa- ing for amplifying fallout from the ously criticised a similar propos- obstacles that may limit the move-
per that Japanese companies did financial crisis. A replacement for al, saying it would muddy the ment of capital and commercial
not want IFRS, which are principle- Britains Tweedie will need to be a waters. Quigleys proposal comes exchange between Kuwait and
based, to draw any closer to US skilled diplomat and comfortable as accountants are grappling with Japan. It is one of the most impor-
standards, which are rule-based. debating the minutia of financial politicians and regulators over tant agreements that Kuwait has
The Securities and Exchange reporting, industry officials said, it how banks make provision for signed because of the tax exemp-
Commission, which oversees the added. their losses, in the wake of the tions and reductions on invest-
Financial Accounting Standards It quoted Stig Enevoldsen, chair- financial crisis. The lack of consen- ments and commercial businesses
Board, the US standard setter, is man of the European Financial sus threatens agreement on a glo- in Kuwait and in Japan, it added.
due this year to give its view on Reporting Advisory Group bal set of accounting standards by Moreover, the agreement includes
convergence, having delayed mak- (EFRAG), as saying: If you look at mid 2011 - an aim of the group of a clause on permanent origin, such
ing a statement twice last year. The requirements for the new chair, 20 nations - and follows disputes that a construction or assembly
loss of US sovereignty that would the only thing that is not included over the use of fair value or mark- point is considered a permanent
come with a move to IFRS is a key is that he should be able to walk to-market accounting, experts say. one if activities continue for more
concern, experts say, according to on water. It added that politicians and than nine months.n

38 accountants today | MARCH 2010

 IFAC The IFAC Update provides

news
summaries of IFAC developments
over the past month.

IAASB Staff Issues Q&As to Raise (IPSASB) has published three new standards that or nominal consideration have been a feature
Awareness of XBRL Uses in Business cover all aspects of the accounting for and disclo- of government interventions during the global
Reporting sure of financial instruments: International Public crisis - often, they are for very large amounts and
(New York/January 19, 2010) - Recognizing the Sector Accounting Standard (IPSAS) 28, Financial could not be provided by private sector guaran-
growing international use of Extensible BusinessInstruments: Presentation; IPSAS 29, Financial tors. IPSAS 29 provides guidance on the account-
Reporting Language (XBRL)--a language for the Instruments: Recognition and Measurement; and ing treatment of such guarantees, both at initial
electronic communication of business and finan- IPSAS 30, Financial Instruments: Disclosures. They recognition and subsequently.
cial data that is changing business reporting fill a significant gap in the IPSASB literature. Concessionary loans are granted or received
around the world - the staff of the International
These new IPSASs provide a coherent set of at below market terms, often for social policy
Auditing and Assurance Standards Board (IAASB) requirements that enhance accountability for objectives. IPSAS 29 provides guidance on the
has developed a new question-and-answer pub- financial instruments in the public sector; this determination of fair value. It also addresses the
lication. It is designed to raise awareness about
need was reinforced by the global financial crisis, treatment of the difference between the fair
how XBRL-tagged data is prepared and how it and the scale and range of interventions made value of a loan and the loan proceeds. IPSAS 30
may affect financial reporting. by governments, states Andreas Bergmann, who requires disclosures relating to such loans.
Entitled XBRL: The Emerging Landscape, the became Chair of the IPSASB on January 1, 2010. The IPSASB recognizes the need to closely
publication explains that the IAASBs current The three new IPSASs are primarily drawn from monitor global developments in the accounting
International Standards on Auditing (ISAs) were the International Accounting Standards Boards for financial instruments and to evaluate such
not developed with XBRL in mind and, accord- standards, but address a number of public sec- changes promptly in a public sector context,
ingly, do not require auditors to perform proce-tor-specific issues: says Bergmann, adding that, together with the
dures on XBRL-tagged data as part of a financial IPSAS 28, Financial Instruments: Presentation, soon-to-be-issued IPSAS on intangible assets,
statement audit. It clarifies how XBRL may lead primarily draws on IAS 32 and establishes prin- IPSASs 28-30 represent the substantial attain-
to a demand for various types of assurance and ciples for presenting financial instruments as ment of IPSAS convergence with IFRSs (dated
related services engagements, and describes the liabilities or equity, and for offsetting financial December 2008). n
scope of the IAASBs planned consultations to assets and financial liabilities.
determine whether to develop a new interna- IPSAS 29, Financial Instruments: Recognition IFAC Posts Notice of Withdrawal of
tional pronouncement addressing XBRL. and Measurement, primarily draws on IAS 39, Report on 2009 Third Annual Global
As more and more financial authorities begin to establishing principles for recognizing and Leadership Survey
require or permit entities to provide financial infor-
measuring financial assets, financial liabilities, (New York/January 22, 2010) - The International
mation in XBRL, now is the time to help educate and some contracts to buy or sell non-financial Federation of Accountants (IFAC) has posted a
users about some XBRL fundamentals, and for items. notice to alert its members, recognized region-
the IAASB to explore whether and how a related IPSAS 30, Financial Instruments: Disclosures, al organizations, acknowledged accountancy
international standard might help address assur- draws on IFRS 7 and requires disclosures for the groupings, and the public of the withdrawal
ance needs, says James Gunn, IAASB Technical types of loans described in IPSAS 29. It enables of the report on the 2009 Third Annual Global
Director. A number of organizations are involved users to evaluate: the significance of the finan- Leadership Survey. The report was issued on
in XBRL initiatives and we look forward to hear- cial instruments in the entitys financial position January 15, 2010.
ing the viewpoints of preparers, users, regulators,and performance; the nature and extent of risks The report has been withdrawn to incorpo-
national standard-setters, auditors, and others on arising from financial instruments to which the rate additional responses and update the list of
this important topic, adds Gunn. n entity is exposed; and how those risks are man- respondents. The report will be re-issued within
aged. the next few weeks.
IPSASB Publishes Three New These IPSASs address some key public sector If you have any questions, please contact Alta
Standards on Financial issues, including financial guarantee contracts Prinsloo, Director, Governance and Operations,
Instruments provided for nil or nominal consideration and at [email protected] or Sylvia Barrett, Acting
(New York/January 19, 2010) - The International concessionary loans. Deputy Director, Communications at sylviabar-
Public Sector Accounting Standards Board Financial guarantee contracts provided for nil [email protected]. n

MARCH 2010 | accountants today 39