Why the Need for a Financial Reporting Foundation and Malaysian Accounting Standards Board?

Although the accounting profession has done a commendable job in the past, there are limitations in the existing standard-setting arrangements, compliance and enforcement that have curtailed the effectiveness and integrity of the current financial reporting process. For instance, the lack of authority to ensure compliance by company directors who are not members of the accounting profession.

In his keynote address at the opening ceremony of the CAPA (Confederation of Asian and Pacific Accountants) Conference in October 1996, the Finance Minister noted that as capital markets develop, in a world of increasingly complex and innovative business practices, the potential for controversy facing the accounting profession has increased substantially and placed tremendous pressure and strain on existing arrangements for standard-setting. He added that as the regulation of capital markets in Malaysia moves towards disclosure-based regulation with greater emphasis on high standards and level of disclosure, financial reporting will take on greater role and significance. Within such an environment, the need for wider acceptance and compliance with financial reporting standards becomes a cornerstone of a successful disclosure-based environment.

In order for accounting standards to be widely accepted and given the appropriate recognition, the relevant parties must be involved and have a direct say in the development and setting of standards. Therefore, there needs to be a mechanism in place that would give ÒownershipÓ of the standards to all relevant parties involved in the financial accounting and reporting process. The burden of securing sound financial reporting and the development of financial reporting standards must not be borne entirely or mainly by the accounting profession. The primary responsibility for the preparation of financial statements is not that of the accountants but that of the directors.

All relevant parties in the financial reporting process including...