Are you aware about MPERS? Maybe you have heard about it but don’t know what it is? Or perhaps you have questions like what is a Private Entity and how will MPERS affect your business? In this post we help you understand what MPERS is and in how it might affect your business.
As all entities will be required to adopt these new accounting standards, it is advisable that companies do not delay in their evaluation and adoption of the standards as failure to do so may constitute a breach of the Companies Act 1965.
Meaning of Private Entity
A Private Entity is a private company incorporated under the Companies Act 1965 that is not itself required to prepare or lodge any financial statements under any law administered by the Securities Commission or the Bank Negara Malaysia and is not a subsidiary or associate of, or jointly controlled by, an entity which is required to prepare or lodge any financial statements under any law administered by the Securities Commission or the Bank Negara Malaysia.
MPERS Overview
MPERS replaces the current financial reporting framework, the Private Entity Reporting Standards (PERS). MPERS contains some significant changes to accounting policies and is based on the International Financial Reporting Standards (IFRS) for SMEs.
All entities in Malaysia will be required to produce financial reports compliant with the requirements set by MPERS. However, entities can choose to adopt the Malaysian Financial Reporting Standards (MFRS), instead of MPERS, should it be more beneficial to do so.
MPERS Effective Date and Date of Transition
The ‘effective date’ is the start of the first financial report in which a company adopts the MPERS standards, while the ‘date of transition’ is the start date of the prior-year (known as the comparative year).
To help clarify, here are few examples:-
- The first set of MPERS financial statements for an entity with a 31 December year-end will be presented for the year beginning 1 January 2016 and the date of transition will be 1 January 2015.
- The first set of MPERS financial statements for an entity with a 31 March year-end will be presented for the year beginning 1 April 2016 and the date of transition will be 1 April 2015.
MPERS requires that all financial statements with periods beginning on or after the 1st of January 2016 must be MPERS compliant.
Comparing PERS with MPERS and MFRS
A common question that arises is how different are PERS and MPERS?
While these differences cannot be covered comprehensively here, some of the significant areas of changes and their impact to the financial statements are illustrated below. The corresponding accounting treatments under MFRS are highlighted here as well.
| PERS | MPERS | MFRS | |
| Property, Plant and Equipment (PPE)
|
Subsequent expenditure on the asset can be capitalised if it enhances the asset beyond its original performance. Any replacement parts or components should be expensed. | Replacement of significant parts or components can be capitalised so long as the old components or parts are derecognised. | Replacement of significant parts or components can be capitalised so long as the old components or parts are derecognised. |
| Goodwill on consolidation | Subsequent to initial recognition, Goodwill is measured at cost less impairment and amortisation (amortisation is optional). | Subsequent to initial recognition, Goodwill is measured at cost less impairment and amortisation (amortise over maximum 10 years). | Subsequent to initial recognition, Goodwill is measured at fair value and not amortised as it has indefinite life. |
| Investment Property (IP)
|
IP can be classified as PPE (measured at depreciated cost or depreciated revalued amount) or as a long-term investment (measured at cost or revalued amount). | IP is measured at fair value without undue cost or effort or if this is not possible then IP measured at depreciated cost model. | IP can be measured at fair value or depreciated cost model. |
| Research and Development (R&D) | R&D is capitalised upon meeting recognition criteria. | R&D and Internally generated assets are expensed off in Profit and Loss. | R&D is capitalised upon meeting recognition criteria. |
| Financial instruments | No equivalent standard. | There are 2 measurement models for financial assets and liabilities. | There are 4 measurement models for financial assets and liabilities. |
| Borrowing Costs
|
Can be capitalised as asset cost if related to that qualifying asset. | Expensed off in Profit and Loss. | Must be capitalised as asset cost if related to that qualifying asset. |
| Related Parties’ Balances and Transactions | No disclosure is required. | Disclosure is required in the Notes to Financial Statements. | Disclosure is required in the Notes to Financial Statements. |
Undue Cost or Effort Exemption
This exemption is included to assist companies with first time adoption and is deliberately not defined under MPERS. The exemption provides that the entity need not comply with certain requirements of MPERS if compliance results in undue cost or effort to the management. This is specific to the entity’s circumstances and will involve the management’s judgment in assessing the costs and benefits.
First Time Adoption of MPERS
When adopting MPERS for the first time, entities must apply the framework retrospectively; this could result in adjustments to opening balances and retained earnings.
MPERS includes some guidance for first-time adoption under Section 35. This includes exemptions that entities can elect to apply on first-time adoption of MPERS. These exemptions are designed to facilitate the transition to MPERS and entities may elect to apply any, all or none of the exemptions.
The following example is a necessary disclosure in the financial statements which reconciles the effect of the transition to MPERS on equity and profit.
| 31.12.15 | 1.1.2015 | |
| RM | RM | |
| Total equity under PERS | 120,000 | 100,000 |
| Write-off of deferred charges that do not meet the MPERS definition of an
intangible asset |
30,000 | 25,000 |
| Fair value adjustment to biological assets | 2,000 | – |
| Total equity under MPERS | 152,000 | 125,000 |
| 2015 | ||
| RM | ||
| Profit for the financial year under PERS | 15,000 | |
| Write-off of deferred charges that do not meet the MPERS definition of an intangible asset | 5,000 | |
| Fair value adjustment to biological asset | 2,000 | |
| Profit for the financial year under MPERS | 22,000 |
Summary
In summary, financial statements with periods beginning on or after the 1st of January 2016 must comply with the MPERS financial reporting framework and contain at least one year of comparative information. There are significant changes between PERS and MPERS and entities will need to revise their accounting policies, which could result in adjustments to opening balances and retained earnings. To assist with the transition, optional exemptions are available for entities to apply.
Remember that an entity may weigh the benefits of adopting MFRS instead of MPERS, in view of certain differences which may significantly impact the results of the entity.
It is advisable that entities evaluate both MPERS and MFRS without any further delay, by analysing the implications of changing to MPERS or MFRS and adopting the new reporting framework in its entirety.
Credits: Image courtesy of Pansa at FreeDigitalPhotos.net
