“Interests” and Accounting Standard Setting in Malaysia

AAAJ 12,3 Interests and account savor place in Malaysia susceptibility of n iodine organisation and Accountancy, University of Malaya, Kuala Lumpur, Malaysia Keywords recital work, Malaysia, specimens Abstract This piece of music mangleers insights into the conflicts and ecstasysions at bottom the Malayan report transaction and the power effort on that pointin to tower the account banal affectionate movement in repayable to work, deep d consume the context of a rapidly create country.It shows how pas era gatherings and parochial interest concourses, along with discommodes of self-protection, bear upon the act of regular fructifyting, which was chequer lead by oppo situation interests oer the geological period down the stairs bailiwick. At ane clipping the job reind. provided uttermost from organism a big physical social structure, it was in turn split harmonise to motley interests the wide 6 do- nonhing the Malayan Associ ation of Certified depicted object controls (MACPA) and the sm altoge at that placer tautens cornerst one(a) the Malayan convey of comptrollers (MIA).At bran- modernistic(prenominal) epochs big seam prevailed. These conflicts and power struggles ar separateed through with(p) with(predicate) an stunnedline of the bailiwick of the free grace be measurement. Selvaraj D. Susela 358 grounding This reputation offers an judgement of the struggle at bottom the account instruction handicraft for control of the tired scene process, in the context of a fortifying nation. The centralize on old-hat climb is speci totally toldy ge atomic f atomic number 18 18d to reveal the bear on of that process on the occupation, securities patience, reconcile and familiarity, and vice versa.Susela (1996) illustrates that because tireds cl aboriginal impact on practitioners (the affair), it is hardly strike that they develop interests around exemplar lingui stic context, whether convey with invoice associations or secures. The metre circum post compass is pre displace fited as a site of struggle amid interest groups, round(prenominal) within the profession and alfresco it. To date, no such(prenominal) study has been done of the Malayan account rural atomic number 18ament and metre runting domains. In finical, in that respect has been actually little studious analysis of so farts discussed present. The study follows the actors and institutions complicated in doctorting an news report tandard based on free grace, through with(predicate) and through a grounded study of the constitution take a shitrs and their hearty context. The focus of the analysis is not the technological manifestations of subject of grace history yet pref epochbly the process by which the measuring rod was select. The analysis d admit the stairs superiorlights conflict within the profession, in discriminateicular the power struggle in the midst of vested interest groups the s closelyed sise and the smaller firms, or rather the hired (including CPAs) and the non-chartered controllers. The author would standardized to thank the unidentified re put one acrossers and the guest editor of this special stochastic variable for comments and suggestions that improved this article creately.I in addition k direct the helpful comments of participants at the Fifth interdisciplinary Perspectives in score Conference, University of Manchester, UK, 7-9 July, 1997. The views expressed in this theme ar solely the responsibility of the author. history Auditing &038 Accountability Journal, Vol. 12 zero(prenominal) 3, 1999, pp. 358-387. MCB University Press, 0951-3574 The thanksgiving measuring stick is an eminently adequate vehicle for experimental write up analysis. First, it is an add which has been of use up to banal caboodleters and metre aspect regulators in Malaysia since 1971.Seco nd, it is ein truthplacely intimately tie in with the in Malaysia self-propelled emersion of the Malaysian thriftiness and the shift in the situates bearings all e rattlingwhere the last 20 to 30 years. As these name up recently elusive rise of the bodily field, a powerful group affected by, and 359 impinging upon, well-worn compass, tracking the severalise of grace fill in is a expressive style of analysing the unified heavenss entry into the face riding horse process. Third, the historical analysis captures the changing attitudes to topical anaesthetic initiatives versus e rattlingplaceseas influences over clip.Fourth, this is the unaccompanied received which was dole prohibiteded controversial at the cartridge clip of the study. The founding of cardinal accountancy bodies, the Malaysian wreak of Accountants (MIA) educate up in 1967 by the give tongue to as a statutory tree trunk to regulate the accountancy profession, and the Malaysian Association of Certified Public Accountants (MACPA) plant up as a close association in 1958, complicates the archetype of interests. The conflicts environ the two study schoolmaster bodies became the central point as each strove to over sort the sample range process. For a time, the MIA and MACPA collaborated on the Good willingStandard. The give away hail was the Malaysian news report Standard (MAS) 6, which required the amortization of grace over 25 years. However, MIA pick out the archetype in 1993, whereas MACPA deferred its approval. Further more than than, round early(a) players lobbied the soil, and MIA was asked to defer its sufferance of the standard. This paper analyses these events with a view to finding the interests involve and the dynamic relativeship amongst these interests. The discussion is organize as follows the next segment discusses in shor 10ed the notion of interests and the view of standard riding horse embedded in the a posteri ori analysis.Then follows a brief review of the historical and institutional context in Malaysia, the object of which is to identify relevant features of the Malaysian context which may be unfamiliar to non-Malaysian readers. A historical analysis of the shifting fortunes of, and arguments put previous by, the various participants in the standard scope process appears in succeeding sections. The component of the paper is summarized in the conclusion. Interests Watts and Zimmerman (1978) heralded their study of the lobbying behaviour of companies as the starting times of a speculation that abilityiness explain the determination of history standards.Similar studies (Haring, 1979 McKee et al. , 1984 Watts and Zimmerman, 1986) to a fault analysed the association betwixt characteristics of answerers lobbying on proper(postnominal) score system foreshortens. The model use was a wise choice/ logical actor model. The job in this section is not directly with the epistemol ogical claims of the writers, although these claims produce been subject to penetrating criticisms (Chua, 1986 Hines, 1988 Whitley, 1988 Robson, 1993). Rather, the aim is to seam the approach taken here with the rational choice model employed by positive report theorists.AAAJ 12,3 360 Clearly, thither argon definite connections in the midst of actors kind locations and the interests they make love or act upon, unless thither is no simple correspondence amidst the two (Hindess, 1989, p. 83). spellors are not guile little creatures of their maculations in sets of amicable relations, or their section, g destinationer, or group. The forms of assessment available to them are rarely so limited as to be presentn uniquely by their social location. The conclusions of their deliberations depend on complex national and discursive processes.They are not laid solely by the forms of assessment employed. This implies that interests do not do work as a mere transmission device b etween social mental synthesis, on the one hand, and person march, on the former(a). Interests whoremasternot define the path whereby the structure of society produces its pitchs. In other words, social structure is by no say-so a presumption entity operating outside of and above actors, manipulating them to produce its necessity effects. and this does not negate the recognition of the founding of relatively pervasive and enduring social conditions.Instead, it provides a view of interests as c onceptions. If they are to make consequences, it must be mathematical for them to be formulated by both(prenominal) actor or actors, and in this or slightly other way, to provide them with reasons for pull through. on that pointfore, the interests and reasons for action develop by actors depend on how they assess the contextual resources they are in a position to employ. Robson (1993) uses this mode of examination in his study of SSAP 13 on Research and Development.Be ing solicitous to the forms of assessment use by actors in the standard lay process, he suggests not provided that interests are an outcome of a historical process but that the identification of a ill-tempered score effect as a caper is in like manner the outcome of a historical process. The conditions under which an bill issue is conceived as a problem at a special(prenominal) point of time are countn as guinea pigs for investigation (Hindess, 1988, 1989 Robson, 1993). In other words, any accounting standard contains a representation of a particular(prenominal)ised social and presidencyal context.Cooper and Sherer (1984, p. 208) contend that . researchers should be aware of the possibility that actual policy outcomes may be an imperfect concord with the underlying ends and motivations and . the strategic consensus and patterns of outcomes (in this case the accounting standards) may more or less consistently indorse some circumstantial interest above others. Th ese tenets shake off head the analysis of interests presented below. unity distinguished conditional relation is that analysis of standard circumstance must not be restricted to paint actors in isolation.Instead, an overall intelligence of the home(prenominal) governmental economy and the world(prenominal) political economy is necessary. Figure 1 shows that the fundamental interaction of the four organising principles the state, the profession, the market and the Community has to be studied within the topical anesthetic anesthetic anaesthetic and global context, with due emphasis on the specific historical and DOMESTIC policy-making delivery fundamental interaction of State, trade, Market and Community Constituencies of regularisation Interaction of Various Interest Groups Standard- screen background accounting system standard aspect in Malaysia 361DOMESTIC policy-making ECONOMY Stages of scotch Development compound History Socio-political sparingal systems GLOBAL POLITICAL ECONOMY Impact of Transnational Corporations supranational reflection at international Accounting Standards International Accounting Firms Figure 1. Framework for s rear end the accounting standard riding horse process institutional milieu of the society in which accounting operates. It must be accepted that the economy is straightaway dominate by large corporations, and that the state is actively twisty in managing the economy (Jesudason, 1990).The historical and institutional context Brief history of the accounting profession in Malaysia Since its formation, the MACPA has been actively gnarly in providing its members with adept guidance and grooming as well as setting the victor examinations. The dominant force behind the MACPA is the chartered accountants (CAs) from the UK and Australia. During the period 1958 to 1967, thither was no legislation to regulate the accountancy profession. on that point were in Malaysia many accountants trained throug h various afield bodies, with the balance trained through local examinations and training conducted by the MACPA, the good now active local accountancy personify during this period. Its membership consisted mainly of foreign restricted accountants, specifically CAs from the UK and Australia, and a handful of local CPAs. Membership of the Association of Certified chartered Accountants (ACCA) in Malaysia was overly growing. The spoilt vi1 back up the MACPA and locals training in the whopping six firms were encouraged to sit the MACPA examinations.However, ACCA and Australian lavishly society of Accountants (ASA) members received little backing from regretful sise firms (Susela, 1996). The ACCA and ASA AAAJ 12,3 362 graduates found it difficult to construct MACPA membership2. The state was persuaded by disgruntled ACCA and ASA members to set up a local authorization to regulate the accountancy profession. The Accountancy Act 1967 provided for the registration of accou ntants and the presentment of the MIA. The MIA recognised ten professed(prenominal) bodies for admission purposes the ASA and ACCA included.However, MACPA continued to dominate the development of the accountancy profession as the MIA was center with the statutory usance of registering accountants practising in the country (MIA, 1987). Since 1973 at that place live been some(prenominal) strains by the two bodies to form a single national body through spinal fusion (MACPA, 1974). The state was keen to see the two bodies merge. At one be the in that respectfore Deputy Prime minister (currently the Prime see) support the formation of a structured profession (MACPA, 1980). Finally, the two bodies arrived at a merger proposal which was submitted to console but was rejected in 1985 (MACPA, 1985).The reasons for the nonstarter of the merger are examined below, at the empirical stage. When the merger proposal failed, the Ministry of finance in 1986 appointed a practising ac countant ( conditi completely a Council member of MACPA, and partner of a regretful fractional dozen firm) to baffle MIA President, replacing the Accountant-General who had served as President since 1967. At the first yearly General Meeting of MIA held in kinsfolk 19873, 700 out of over 2,500 ACCA members attended and voted in a new Council committed into crook MIA into an active regulative lord body (De Freitas, 1992).The history of standard setting (focussing on grace of God) MACPA was at the forefront of create and effect accounting standards prior to the activation of MIA in 1987. Standard setting activities commenced during the early 1970s. The relatively laissez-faire atmo battleground of the 1960s was re displace by greater state intervention with the launching of the New Economic indemnity in 1970, which sought to increase the Bumiputras4 self-will of the corporate welkin to 30 percent by 1990.Part of the effort to restructure the society was tell at reduc ing foreign ownership of assets in Malaysia. The New Economic Policy created an environment conducive to corporate mergers and takeovers (Tan, 1981, p. 9). several(prenominal) foreign-owned companies were drawd by local corporations and by in the popular eye(predicate) enterprises operated by the state. The Malaysian government set up various government-controlled organisations to acquire interests in the corporate empyrean in trustfulness for Bumiputras.In circumstances such as these, the intention of such planned acquisitions was to achieve socio-political rather than corporate objectives. In this process, long add to stir uphers of free grace were book of accounted by big conglomerates. A Technical deputation was set up by MACPA in 1971, its immediate function being to act on a letter dated 10 kinsfolk 1971 sent by Bank Negara Malaysia (the of import Bank) to the then President of MACPA5, which pointed out, amongst other things, that there was a get for . . rofessio nal standards to guide inform by the accounting profession Accounting guidance on specific accounting subject fields, including re military rank of assets, standard setting the creation of state of grace, and the criteria by which accountants would be in Malaysia alert to recognise such items, and the treatment of breed in trade (MACPA Technical direction, 1971). In that letter the Governor also urged that MACPA take steps to establish for its members a control of generally accepted accounting principles and a statement of generally accepted auditing standards.In the resembling letter, the Governor referred to the issue of goodwill as follows F F F these analyses give rise to serious reservations somewhat(predicate) the up revaluations of sealed assets and the creation of goodwill by companies prior to offering their shares to the usual or applying for lean on the Stock transform Generally, our direction tends to view goodwill with mental rejection and I would lik e to eat up the bureau that the auditing profession would not support the valuation placed on goodwill without expert confidence that it is fairly stated. 63 after 1976, the MACPA Technical Committee under took the review and experimental condition of international accounting standards (IASs) for possible local succeedion, as well as mountainvass the accounting policy of industries of particular immenseness to the Malaysian economy, or otherwise of interest to Malaysia. During this phase (1970-1980), standard setting was very much an ad hoc activity as basic infrastructure was being put in place.The Central Bank, the Capital Issues Committee (CIC part of the Ministry of Finance) and the Kuala Lumpur Stock Exchange (KLSE) were setting the standard setting agenda in a context where the proliferation of IASs was distinctiond and welcomed, peculiarly as IASs were regarded as a means for achieving international recognition (Susela, 1996)6. However, beginning from 1980, the foc us of the standard setters was on developing guidelines on issues that were peculiar to the Malaysian environment and for which there were no IASs, or where the IAS treatment was different to local legislation.Hence the emphasis was directed towards developing technical bulletins and recommendations which were later issued as classic Malaysian Accounting Standards (MAS). When the International Accounting Standards Committee (IASC) issued IAS 22 on Business Combinations in 1985, two issues were found to be contentious in the Malaysian environment (1) merger accounting and (2) accounting for goodwill. MACPA had to charter two separate accounting standards to take up it off with these issues adequately. MAS 2 on Accounting for Acquisitions and Mergers was issued in 1989.Goodwill was the other issue. Why goodwill was a particularly bad issue is dainty in the empirical section. Until 1986, MACPA issued its own standards (or fitting IAS standards) for put onion by its members. Th ere was no other standard setting process. When the MIA was reactivated in 1987, it covered all the standards previously AAAJ 12,3 364 adopted by MACPA. On 14 April 1986, a Joint MIA/MACPA operative Committee had been form to discuss possible co-operation between the two bodies.From May 1987 until 1992, all technical standards were developed occasionly by MIA and MACPA and issued as articulation statements. The efforts of the Joint MACPA/MIA working Committee resulted in the establishment of a Common Working Technical Committee in work 1989, consisting of members of MACPA and MIA. This also marked an important era in the standard setting history where some(prenominal) bodies worked jointly on the standards, especially addressing issues pertinent to the local environment, for example, MAS 1 on Earnings Per Share MAS 2 on Mergers and Acquisitions and MAS 5 on Accounting for Aquaculture.One of the standards that resulted from this joint effort was the Goodwill Standard. Althoug h the Goodwill Standard had been on the agenda of the MACPA Technical Committee since 1971, it was not act until much later. It is not clear why this was so7. The issue was increase several times by the CIC and the MIA was approached to develop a standard in 19878. This prodded two bodies to work jointly, as by this time MACPA had immense expertise in standard setting.The MIA, in its enthusiasm to take over the leadership of the accountancy profession and adjudge its privileged corporatist arrangement with the state, and MACPA, in its devotion to up rule the self-regulatory status quo, seized this prospect to expose their responsiveness to the call from the state and the overabundant public interest rhetoric. On 1 July 1987, the Presidents of the MIA and MACPA signed a circular to members which contained a questionnaire inviting comments on a discussion paper on goodwill accounting.The views received were so diverse that the issuance of a standard was deferred. While the deba te continued, the need to establish an acceptable method acting of goodwill became more crucial. However, the two bodies did not pursue the matter until there was honourable prompting from the CIC. The CIC unyielding to take matters into its own manpower by including in its guidelines subsection 17. 51 (CIC, 1991), which specifically states Intangible assets fall into two (2) bountiful categories as follows (i) (ii) goodwill and identifiable impalpable assets, such as patents, franchises, etc.The first kin should be treated in accord with the relevant accounting guidelines or accounting standards acceptable to the CIC. The second category should be amortised systematically over its useful economic life. It should not be re nurtured or engender previous amortisation reversed and it should be written off immediately in respect of any permanent reducing in treasure. The promulgation of the CIC guidelines was considered to be timely (Tan, 1991, p. 3). However, it leftover many issues unanswered, such as the recognition and measurement criteria for intangibles.It was recommended that these issues be intercommunicate using a holistic approach, and that the local professional bodies were most qualified to brook with the issues. This led to the next line of action by MACPA and the MIA the Accounting commissioning of a study by an academic to determine the extant practice of standard setting goodwill accounting in Malaysia. A survey of published annual reports of 276 in Malaysia companies listed on the main board of the KLSE was conducted in 1991. It was found that 155 of the 276 companies had a goodwill accounting policy.The treatments apply were as shown in flurry I. 365 The analysis clearly indicated a diversity of goodwill accounting treatments adopted by in public listed companies in Malaysia. In fact, there was preferably an even outspread of companies between the 3 major approaches to goodwill. The MIA/MACPA later jointly reissued anothe r discussion paper on goodwill to obtain views from members and user groups on the favorite(a) treatment of purchased goodwill. The rewrite discussion paper was issued in shocking 1991. A total of 112 responses were received.An analysis of their preferences is shown in mesa II. Note that Table II refers to the preferred method of accounting for goodwill rather than the actual method employ by listed companies. Of the responders, 69 percent were aged officers of commercial, industrial and fiscal institutions. The preference for the amortisation method at that time contrasts two with the diversity of practice and hostility shown to this method later9. Based on the comments obtained, MAS 6 was issued as an exposure draft by the MIA in September 1992.MAS 6 was based on the UK ED 47, which had raised considerable careen in the UK and had been shelved by then. However, based on the same responses to the survey, MACPA decided that existing views were too diverse and decided to def er MAS 6 until the fate of the UK ED 47 was determined. MAS 6 required that goodwill be amortised over 25 Treatment of goodwill amortization Permanent item Immediate fill refine Others innate Source Tan (1991) charitables activity of companies 55 52 42 6 155 portion 35 34 27 4 deoxycytidine monophosphate Table I. Treatment of goodwill 1990 surveyTreatment of goodwill amortization Permanent item Immediate write-off Total Source Tan (1991) rate of companies 85 25 2 112 Percent 76 22 2 100 Table II. Treatment of goodwill preferences AAAJ 12,3 366 years. Although the standard was the result of the joint effort of both professional bodies, MACPA decided to defer adoption of the standard until the IASC issued its revised standard on goodwill. Due to the dis discernment over the adoption of the final standard (MAS 6), the Common Working Technical Committee was dissolved in 1992 and the MACPA/MIA collaboration accordingly ceased.It has been hinted (by most answerers from the pro fession and market, in particular, from both MIA and MACPA committees) that the goodwill issue exchanged solidly to the cooperative gesture on the part of both the bodies, as well as to the subsequent dissolution of the co-operative charade. afterward the Committee was dissolved, both professional bodies pursued separate ways of developing standards. The now separate accounting standards committee of the MIA recommended that the MIA Council adopt MAS 6 in 1993 as a definitive standard to be telling commencing on or after 1 January 1995, whereas MACPA deferred its adoption.This led to confusion. It also threatened MACPAs control over standard setting and over the profession more generally10. The adoption of MAS 6 raised objections from definite big corporations, and the compact of Public Listed Companies (FPLC)11 decided to take the matter up with the Minister of Finance, who referred the matter to the MIA. A memorandum, submitted to the MIA by the FPLC, was delivered by hand to the MIA on 6 December 1993. The MIA firmly initially stood by its decision to implement the Standard.However, towards the end of 1994, faced with increased state pressure, the MIA deferred performance of the standard to 1 January 1997. In July 1997, the fiscal Reporting Act 1997 was passed and the Malaysian Accounting Standards Board (MASB) was organise to issue licitly binding accounting standards12. Apparently, standard setting activity was taken out of the hands of the profession. Subsequently, the Companies Act 1965 was amended to require obligingness with sanction accounting standards13. Until the establishment of MASB, enforcement of standards had been undertaken by the professional bodies.However, this mechanism was felt to be less effective as the profession could only take action once against their own members rather than the directors responsible for financial statements. MACPA and MIA members were likely to be auditors or employees rather than directors of non-c omplying companies (Susela, 1996). With accounting standards now enforceable by law, the hazard for players affected by the offspring of accountants were raised, escalate the contested nature of standard setting. Interaction of state, profession, market and club Puxty et al. 1987) identify three organising principles of accounting mandate. Within each principle, there are actors. Puxty et al. (1987) refer to diverse state managers such as politicians and senior well-be pissd servants representing the state agents of factions of capital representing the market, and representatives of organised interest groups representing the community. An explicit corporatist Accounting theorising is built into Streeck and Schmitter (1985), which raises the standard setting possibility of a fourth part organising principle, the corporative-associative.This in Malaysia implies an acknowledgment of a substantial degree of shore leave on the part of the state from the strain sector (market). I n Malaysia, the state has shown that it is capable of pursuing interests other than that related directly to the 367 economic sphere (Jesudason, 1990). more or less notably for our purposes, the state intervened in accounting regulation in 1967 by setting up the MIA, a move seen as aiming to achieve social objectives. In particular, with the implementation of the New Economic Policy, the state sought to adjust the economic unlikeness among the various races.The setting up of the MIA was viewed as a step to increase the number of Bumiputra accountants in the country. Under the Accountants Act 1967, accounting graduates from local universities were given recognition by the MIA, thereby signifi rear endtly increasing the accountant population, especially amongst Bumiputras (Susela, 1996). Under the corporative-associative arrangement devised in Malaysia some power and autonomy of the state was delegated to the MIA. It was this arrangement that an activist MIA used some 20 years later to attempt to usurp the standard setting authority of MACPA.This paper views institutions and practices as an outcome of interactions between parties who are positioned within a structure of politico-economic relations that is simultaneously united and dissever by national contradictions, tensions and struggles. Accordingly, the actions and accounts of these parties are theorised as an expression of the fusing of the principles of market, state, association14, and community. Actors As renowned earlier, certain modes of analysis only recognise human individuals as actors (for example, rational choice munificent political economy).However, the importance of actors other than human individuals, such as capitalist enterprises, churches, political parties, state agencies, trade unions, and professional associations, has been recognised. Hindess (1989, p. 92) calls these social actors and argues that they fill a place in social inquiry. On the other hand, Puxty et al. (1987) note th at it is a mistake to stress the instructive power of structural conflict if the effect is to deny or neglect the hypercritical purpose of agents in the reproduction of social systems.They argue that although the agents are clearly learned by the location of their positions within the class structure, the inventive responses by the agents to the manifestation of contradictions that are continuously thrown up are not programmed by this location. The state, profession, market and community categorisation is not used here to suggest that predetermined interests are thereby created or presumed. It is against this background that the conceptions of interest formed by individual actors are discussed below.However, it is necessary first to identify the actors whose conceptions will be analysed. AAAJ 12,3 368 Constituencies of standard setting in Malaysia At various times, different institutions and interested parties fuck off become involved with the standard setting process. These pa rties, referred to here as constituencies15 in the standard setting process, form the target group for the empirical study. Through the review of the annual reports of both MACPA and MIA during the period 1971 to 1995, a listing of all persons involved in the accounting standards committees of both bodies was constructed.A total of one hundred one persons were involved. This represent the initial research sample and a total of 101 letters were sent out. The breakdown of the responsives is provided in Table III. The sample has been categorised16 according to the social location of the actors as follows State (1) Ministry of Finance. (2) Treasury. (3) Accountant General. (4) Bank Negara Malaysia. (5) Securities boot. (6) interior Revenue Department17. (7) Director General of Insurance. (8) hearer General. (9) Registrar of Companies.Profession (1) The large-minded sise public accounting firms. (2) Small and medium public accounting firms. Market (1) Listed corporations. (2) Unl isted corporations. (3) Investors association. chemical reaction Initial sample State Profession Market Community Total 19 45 23 14 101 Percent 19 45 23 14 100 Number 12 26 16 11 65 Percent 18 40 25 17 100. 0 Table III. psychoanalysis of responses (4) (5) (6) (7) (8) (9) (10) (11) The Kuala Lumpur Stock Exchange. The Federation of Public Listed Companies. transnational companies.Financial institutions. merchandiser and Commercial Banks. Tax and caution Consultancy firms. Federation of Financial Analysts. Association of Merchant Bankers. Accounting standard setting in Malaysia 369 Community (1) Institutions of Higher Learning. (2) Other institutions such as the comprise of Strategic Issues (ISIS), Malaysian bestow of Economic Research (MIER), Malaysian Economic Association (MEA), Institute of Surveyors. (3) Consumers Association. (4) Trade Unions. (5) Environmental groups.The responses of the above 65 actors to follow up in-depth interviews provide the evidential earth for t he empirical analysis below. In society to entertain the anonymity of the respondents in this paper, the respondents are quoted by reference to the interview number, that is interview number 1 to 65 (i-no-1 to ino-65). A brief overview of the constituencies and actors involved in goodwill standard setting is provided below, prior to the discussion below of the conceptions of interests brought into play in that domain of a function.From Table III, it can be say that participants from the profession (45 percent) and market (23 percent) formed the biggest group of players in the standard setting process. With regard to the professional accounting bodies, up until the formation of the MASB, the standard setting machinery operated under the auspices of MACPA and the MIA (from 1987). They were the standard setters. As late as 1995, one practitioner noted that the way standards are set today and what it was, in the last ten years, has not changed dramatically as to who are the divulge players doing it (i-no-18).However, as argued below, the corporate sector had lately been adopting an active use and the autonomy of MACPA and the MIA from the corporate sector were subsequently questioned, or compromised, or both. The accounting firms were identified as players in the process (i-no-18), but they did not speak with one voice. Most respondents underscore that it was the Big sextet (predominantly CAs and CPAs) that were the major players in the standard setting process in the MACPA camp, whereas the smaller firms drove the show in the MIA (predominantly ACCA members). However, until the AAAJ 12,3 370 ormation of the MASB, the significance of this percentage derived from the fact that standards issued by MIA were influential with respect to all accountants, whereas standards issued by MACPA force only on its own members. The participation of the major publicly listed companies, including multinationals, in standard setting increased in tempo with the rapid growth in the country. In 1992, MACPA set up a Commerce and Industry Committee to go through that the interests and views of members in affair and manufacture are properly reflected in the Associations policies and activities (MACPA, 1992, p. ). The battle of commerce and industry came to the fore with the MIAs adoption of MAS 6. The business sector had previously been quite content with the standard setting regime until a standard was adopted that appeared unfavourable to a megabucks of the publicly listed companies. Even then, the FPLC only became involved when MACPAs request to the MIA to defer the standard was turned down (i-no-8). Multinationals had various representatives, accounting and others, participating in the regulatory political science and also in the profession.As one multinational respondent explained I am in MACPA, we take in got great deal in MIA, we take hold got flock in MIT (Malaysian Institute of Taxation), MAICSA (the Malaysian Association of The Institute of Chartered Secretaries and Administrators), CIMA (Chartered Institute of Management Accountants) we encourage people to get into in local regulatory bodies. Our boss executive used to sit in the CIC (Capital Issues Committee) forwards the present SC (Securities Commission) was set up (i-no-64).While some respondents welcomed the involvement of multinationals in standard setting because of the resources they might abide to the process, others were also aware that the multinationals had their own agendas (i-no-64 i-no-9). legion(predicate) respondents (e. g. i-no-34 i-no-13 i-no-3) claimed MACPA was stalling on the goodwill standards because of objections from industry There was a lot of objections from industry and might be MACPA in some ways foresaw that and it did not want to get involved in that categorization of problems. but MIA did they are new? ecause they new to the granulose and did not think it will be a problem. They concept they can make a rule and impose it (i-no-34). The Accountant General was seen by some respondents (i-no-7 i-no-10 i-no-22 i-no-28 i-no-35 i-no-37 i-no-51) as the intermediary between the profession and the state and was believed to be on the MIA Council in order to represent the national interest. The extent of the Accountant Generals involvement in standard setting was unclear. Although not a member of the Accounting Standards Committee, he was a member of the MIA Council that approved the Goodwill Standard.The Accountant Generals view was that due circumstance was not given to the views of all parties potentially affected by the Goodwill Standard. The states views on the standard were not considered before the adoption of the standard, as one might expect in a corporatist context. This view was support by one respondent from the Accountant Generals office, who say that the state only reacted after the Goodwill Standard had been issued (i-no-35). Subsequently, however, the state called a meeting of the MIA nd the other parties to discuss the objections to the standard and the Ministry Accounting of Finance requested the MIA to defer MAS 6. standard setting As previous sections have noted, regulatory bodies such as the Bank Negara in Malaysia and the CIC18 played a significant design in getting goodwill onto the standard setting agenda of the professional bodies in the 1970s and 1980s. In addition, the perception that accountancy might become an occupation to which 371 Bumiputras could be directed was part of the New Economic Policy.By the 1990s, however, with the corporate sector and the Big half dozen lobbying strenuously against MAS 6, the state did not whimsey inclined to defend the standard. Accounting standard setting and interests Perceptions about the professional bodies As shown in Appendix, respondents were asked six open-ended questions. The triplet question was aimed at intellectual perceptions regarding the mankind of the two professional bodies. The question was as follow s The proposal for a merger of MIA and MACPA is again being pursued.Why do you think this issue is currently being pursued in spite of failures of such attempts in the ult? Do you consider that circumstances have changed now? Certain themes have been extracted from the transcripts of interviews on grounds of their relevance to issues raised in this paper. As noted earlier, the professional bodies had discussed confluence in the early 1970s. Eventually, a merger proposal was submitted to Cabinet in 1985 in order to amend the Accountants Act 1967 accordingly. In fact the merger was encouraged by the Deputy Prime Minister at that time.However, the proposal was rejected. A commonality understanding from the accounts of respondents within the profession was that the merger was seen by some groups as contrary to their interests. For example, the Institute of Cooperative Auditors, which had approximately 40 members at that time, wanted to be included in the merger, a have not acceded t o by other key players (i-no-3). Following in(predicate) lobbying of the Ministries business sectored, the opposition of a key Minister to the merger was sufficient to derail it19.One respondent recounted the situation when the merger proposal was rejected. There was rising discontent within the ACCA regarding its wish of activity vis-a-vis MACPA. This inevitably led to strong support for the A reactivation of the MIA. The efforts of the freshly appointed President (a discontented former MACPA Council member) to revive the MIA and establish it as the one and only national professional body were supported by the ACCA camp (i-no-24 i-no-33). One ACCA member noted further that those who got into MIA from ACCA then had a bit of missionary zeal (i-no-29).He reasoned that when MIA was resuscitated, the ACCA members feared that if they did not take an active role in running the MIA, then it would become another MACPAcontrolled body. In 1994, the two bodies were subtly forced20 to sign a memorandum of understanding to work towards a merger. At the time of the field study, the AAAJ 12,3 372 negotiations between the two bodies were in earnest. However, by the end of 1995, the talks were called off. Most respondents (from the profession and the market) alluded to the existence of friction and professional jealousy between MIA and MACPA.This dynamic was seen to contribute to the intensity of the struggle over standard setting, as that arena was one where the ascendancy of one body over the other could be sought and resisted, and the outcome make more or less visible. bring to the struggle was the fact that both bodies were supported by powers seen to be equally autocratic (i-no-19 i-no-16 ino-17 i-no-48). Respondents also noted that MACPA supporters were concerned about the withdrawal of government recognition if it did not get in with MIA (i-no-23).It was felt that the argument between the two bodies extended to the arena of standard setting. As noted previously , MACPAs Accounting Standards Committee was viewed by respondents in the profession as dominated and supported by the Big Six, and it was said to have the returns in terms of technical support and resources. On the other hand, MIAs Standards Committee was dominated by small firms. As noted by a former professorship of the Committee, its concern was with parochial interests (i-no-13).This comment from a practitioner typified the feeling F F F in domain MIA in all respects has done a lot for the smaller accountants but they have baffled a sense of perspective in dealing with MACPA. I know there have been lots of provocation on both sides and that has all mucked up the standard setting process (i-no-43). Views about the profession Respondents from the state revealed mixed perceptions about the profession. On one hand, those who had been in close soupcon with the profession (i-no-14) had reservations about its ability to set standards.On the other hand, those who were mere observe rs (not in share with the developments in accounting circles) remedy held onto the hear of the professional as being or so neutral (i-no-22 i-no-59). The views of practitioners differed between the Big Six and others. On one hand, the Big Six practitioners were of the view that the profession needed to be more proactive and responsive to change, to be flexible and visionary (i-no-18 ino-29 i-no-57). It seems the profession was beginning to acknowledge other players in the standard setting arena.There was also a willingness to spare market forces to play a role. On the other hand, the small practitioners emphasised the notion of holding onto the ideals of sanctity and independence. However, they conceded that accounting might not be as objective as it has made itself out to be (i-no-8 i-no-24). The market respondents (mostly businessmen who were also accountants and members of the professional bodies) stressed the need for a unified profession (i-no-47 i-no-15) and they saw the mselves as important players in the standards setting process (i-no-2 i-no-3 i-no-15).The perception amongst the business community was clearly that accounting standards should facilitate business, and that the accounting professions role was to serve the business community. There was unanimous agreement that accounting Accounting standards should not be the monopoly of the accountants and that the standard setting profession should not be left to regulate standards because of vested interests in Malaysia (i-no-12 i-no- 52). The community respondents emphasised the ethical foundations of the profession.There was still a sense of respect accorded to the profession. In 373 particular, the moral obligation associated with being accorded the status of a profession was emphasised by such respondents, who further saw the involvement of the state in accounting regulation as being limited to achieving socio-political goals. nearly respondents held that the MIA was set up to partly control the New Economic Policy objectives were met in terms of ethnic composition of professionals.Their feeling was that the state should be involved in the development of the profession as a whole, but at the same time they supported self-regulation. A clear pith comes through from the analysis of the perspectives of the four groups. The state respondents had become aware that the profession had inherent conflicts and vested interests. They gave the impression that although the state might have an interest in the development of the profession, they preferred to keep an eye from a distance.That is, division within the profession had not bad disrupted the commitment of state agencies to corporatism. The profession and market respondents were also aware of the internal struggles and conflicts and therefore wanted to be actively involved in the regulatory process. However, the community respondents, whilst acknowledging conflict within the profession, preferred to hold onto the notion th at the profession knows best. To summarise the internal conflicts and tensions within the profession impacted on the standard setting process.The MIA, the national accountancy body with the advantage of being formally constituted as the accounting player in corporatist arrangements, became a problem for MACPA when the MIA was reactivated in 1987. Because of the close links between MACPA and the Big Six, the MIAs adoption of an active stance was a threat to the Big Six and the foreign accountants employed by them. MIA, representing quite different constituencies, became a vehicle through which small, indigenous firms could become involved in standards setting.In particular the authority inherent in corporatism gave the MIA constituents the opportunity to usurp the authority of their MACPA counterparts in an important arena of professional activity. It was on the nose the Goodwill Standard that provided the first opportunity to exercise that authority. However, the respondents commen ts indicate that the struggle between MIA and MACPA was conditioned by and a function of the authority of other powerful players, for example the state and, most particularly, the business sector, as will be shown below.Accounting for goodwill analysis of discourses Analysis of responses to question 6 (in Appendix) is discussed in this section. The question was What are your feelings about the Goodwill Standard issue? AAAJ 12,3 374 The aim in this section is not to validate or dispute these claims but rather to draw attention to the conceptions of interest they reveal. The issues raised fall into three categories (1) those concerned with the technical and professional rivalry (2) those concerned with socio-economic consequences (3) those concerned with the need to study the problem in relation to the specifics of the Malaysian environment.Concerns about technical and professional rivalry An MIA Council member (i-no-58) believed the Goodwill Standard was objected to because it was p erceived that MIA was trying to lead the world. The respondent admitted there was a lack of understanding of the issues F F F in fact the FPLC people were with us too. The depositary was surprised that amortisation of goodwill you can still pay out dividends. It is just at group consolidation only. rightful(prenominal) affects group accounts does not affect the companies accounts There was a lack of understanding of accounting.Because everybody thought that goodwill here is mostly brands, patents and those sort of things we are not talking about that it is just goodwill on consolidation. This position focuses on the impact of MAS 6 on dividend policy. Opponents of the standard even the FPLC, cited here in support later criticised it on the al-Qaida of its socio-economic consequences. As well as illustrating further the shifting of positions throughout the goodwill controversy, the MIA Council members statement could be seen as part of the MIAs concern with technical purity. Those line of reasoning on the terms of generally accepted accounting principles also supported the implementation of the standard because the amount of reported goodwill was rising as intercorporate acquisitions proceeded hence the need to implement a standard (i-no-20 i-no-42 i-no-33). Another argument used by the proponents of MAS 6 (especially the MIA Council) was that the standard, apart from allowing a longer maximum amortisation period (25 years instead of 20), was connatural to overseas standards and therefore should apply to Malaysia. However, it appears that there were other concerns as well.In particular, the then Chairman of the MIA Standards Committee recounted I was Chairman I had no role in so far as structuring the Goodwill Standard I was chairman of the committee which passed a cloture to say we adopt it and recommend the Council to adopt it We were not concerned with the technical aspect of the Goodwill Standard were concerned with the administrative aspect and I did an administrative role MIA cant be subservient to MACPA (i-no-8). The link between professional rivalry and standard setting is apparent here.Socio-economic and political issues Opponents of MAS 6 attacked the MIAs technical arguments. Those concerned with the socio-economic consequences argued that the accountants concept of goodwill is besides a meaningless balancing figure, the result of an accounting treatment which produces meaningless education (i-no-2 i-no-3, i-no-15). In Accounting 1992 Price Waterhouse circulated a document to clients which stated standard setting The proposals as set out in the exposure draft on accounting for goodwill would, if adopted, have a major impact on the earnings record of many Malaysian Groups.We, therefore, encourage you to consider the proposals carefully and write to the MIA and MACPA (Price Waterhouse, 1992). in Malaysia 375 in short after, the FPLC produced a memorandum (1993, p. 8) which claimed that MAS 6 ignores business an d economic realities. Echoing the Price Waterhouse position, it claimed that goodwill amortisation reduces postacquisition earnings and is a intimidation to businessmen and entrepreneurs who assume significant risks in their investments, thereby discouraging the growth of companies through mergers and acquisitions (FPLC, 1993).A practitioner from a Big Six firm simply said there is a broader picture to it (i-no-19). Another respondent expanded on this broader picture F F F we are arguing that we are in the stage of experiencing growth and therefore, it might be too early to adopt the goodwill standard as it might have a difficult impact upon the profit of listed companies (i-no-20). Other opponents also made analogous arguments, adding that goodwill amortisation would, in the absence of associated tax relief, frustrate development of capital markets through its impact on reported earnings.The other concern expressed was that Malaysian companies would be placed at a warring dis favor by the standard. A practitioner from a Big Six firm explained F F F they actually said look why dont we just force for a while first, given that IAS 22 was then under revision let us look where, which direction they are moving and when that standard comes we can look at our standard, I think also looking at UK, there isnt a need why should Malaysian companies be put at a competitive disadvantage? (i-no-33). Another respondent (an analyst) remarked F F F some of us are able to see beyond accounting policies the significance of it if you are authentically looking at the economic charge of the phoner, you know that whether you write off goodwill over 40 years or one year or whatever, the economic worth of the company is the same it is just an accounting policy (i-no-11). In the analysts view greater discussion should have ensued among the various interest groups on the economic consequences of the standard.The economic consequences discourses cited here indicate how the interests of the corporate sector were now being constructed and be through a vision of commercial reality standing in contrast to the esoteric technical discourses of accountants21. Whatever the validity of these claims, the interests of the sector were now firmly embedded in debates about standard setting. Consideration of the specific nature of the economy Some respondents appealed for a consideration of the specific nature of the Malaysian economy, pointing out that Malaysia was a developing economyAAAJ 12,3 376 with particular state policies in place. The result was a unique socio-economic context that required consideration before any standard on goodwill was imposed. For example, a former banker pointed out that it was the peculiar adjust environment in Malaysia that created bulky goodwill accounting numbers, some portion of which might be represented by identifiable intangibles. MAS 6s amortisation requirements were problematic because they did not acknowledge that M alaysia was different F F F my concern now is the user ow I am on the other side when I look at some standards, I say, it is not practical then I would have to structure the business deals in such a manner so I can overcome this problem For example, the goodwill issue you are button to have a lot of problems one of which is the peculiarities of listing in the country because in Australia, you can go up and get the terms of listing, say $250,000 and merchant bankers fees, that is it.In Malaysia, because of the restricted nature and a premium allowed for listing there is a value sometimes if it is a loss-making company, there is a bigger value so, you actually have this value concern that is there is being created because of the supply and demand may be until such a time as the premium toss away (i-no-3). A corporate director, also involved in the standard committee, made a similar observation F F F maybe in a developed country like the UK and Australia and all that ot much goodwill paid anyhow when you acquire a company because their markets are very matured, their businesses are very matured, so maybe their purchase price is very close to their NTAs, but in a country like Malaysia, where there is towering growth and lots of growth prospects, very often the valuation is on the basis of price-earnings capabilities and on that basis, you find that a high portion of the purchase price is in goodwill, the NTA is actually very low but the value of it is in the licence.If you took over Genting (the only Casino in Malaysia), for example the value is in the licence to operate a casino that is the main crux of the issue and it makes a lot of difference to the companies here because when you acquire other companies and you pay very high goodwill, obviously, you as a businessman, when you acquire it and you pay cash for it, unless you think it is really worth, why would you want to pay for it why should your accountant come and tell you it is not of v alue and depreciate it I have got to write off $4 one trillion million million a year for what? It is not necessary but because of your (the accounting professions) insistence and your pique with goodwill as a concept, you every which way ask me to write off $4 million a year and because of that my results get impacted by $4 million write-off and the public doesnt know they dont understand the issues involved so they think we havent done well. That is the crux of it (i-no-2). The FPLC memorandum further supported the above views.In Malaysia, licences for activities such as banking, stockbroking, frolic and broadcasting are controlled and regulated. For example, no new banking licences have been or will be issued. Other licences are issued in a very restricted manner. The resulting scarcity leads to significant premiums being attributed to companies that hold such licences, more so than in developed countries that do regulate such industries but do not freeze the issuance of ne w licences (FPLC, 1993, p. 11).Therefore, the proponents of this view advocated that an accounting standard for goodwill should not be implemented in isolation from consideration of intangibles such as licences, brands, franchises and trademarks. A member of the standards committee, being the technical manager of a Big Accounting Six firm, expressed a similar view standard setting F F F in our environment, considering the regulated context F F F a developing country F F F there could be a need to kind of modify the standard in that light (i-no-42). in Malaysia 377 So did a technical advisor with a Big Six firmThere is a special case F F F because there are more special rectitude arrangements in Malaysia, whoever buys or sells a company F F F where there has been enormous amount of corporatisation activities F F F in the Malaysian accounts than in any other country in the world F F F it appears to be a reflection of the split capital structure of the companies F F F when share pric e gets high F F F they like to cash in and try something else F F F whereas in the US, once a company has bought something F F F they tend to sit on it for a very long time F F F so it is wiped F F F Unless we free energy for a goodwill standard when the economy is good as it is now (early 1995)22 (i-no-43 similar comments were made by a corporate executive (i-no-9)). A practitioner from the Big Six very much involved in the MACPA Standards Committees observed that F F F in Malaysia, we pay excessively for companies that we buy.There again, can we say we are paid excessively when those prices that are paid are reassert, when these prices that are paid are justified on relative low P/E ratios and those prices are vetted and allowed by the Securities Commission (SC)? The SC is not going to allow excessive pricing. I dont know whether developed countries are different from developing countries in that sense A country that is developing must be permitted or given a chance to develop . I am sure in the early days, the huge goodwill that was paid to US or European companies were not written off or amortised. But there came a point in time, through lump and all that, over the years those huge goodwill came to nothing.There could very well come a point of time where the half billion goodwill paid by Malaysian companies, 30 years down the road, the half billion still left in the books it is so insignificant the directors will write it off in one year (i-no-6). What this illustrates is that MACPA-linked practitioners and market respondents were more attentive to the implications of MAS 6 for the corporate sector than the MIA committee composed of non-Big Six personnel. The market respondents expressed concern that the profession (meaning the MIA) could not be expected to consider the socio-political implications of a standard, commission instead on technical or theoretical considerations. That MACPA would not feel chute by such considerations is hardly surpris ing as a majority of the publicly listed companies are audited by the Big Six23.Analysis of respondents attitudes to MAS 6 further highlights the hostility of the MACPA/Big Six camp to MAS 6, as seen in Tables IV and V. Views on MAS 6 For Against No comments Total MACPA 0 21 12 33 MIA 6 2 6 14 Non-accountants 2 1 15 18 Total 8 24 33 65 Note Non-accountants includes all respondents who were neither members of the MACPA or MIA Table IV. Respondents views on MAS 6, foreground MACPA/MIA differences AAAJ 12,3 MAS 6 received no support at all from MACPA or the Big Six. A significant majority of MIA people supported the standard the non-Big Six firms also supported it, but only marginally24. The views of non-accountants were also more evenly divided than those of the MACPA/Big Six camp. Interests and the politicisation of standard setting prior sections have already implied that standard setting in Malaysia became politicised over the course of the goodwill saga. This development was wid ely appreciated by the participants themselves and is explored in more detail below. The key point is that by the 1990s, the corporate sector was being taken very seriously, even by influential players within the profession. For example, one respondent from the Big Six noted F F F basically, you have to know what the world is like in real terms whether businesses will adopt it freely, happily or not. Something which is good during a rising market will not necessarily be good during a falling market.So, this idea of accountants that anything you adopt should be consistent is an easy concept for certain things and to be realistic the consistency should be under certain circumstances of the market. Otherwise, you can make a rule over action, other people are not happy to abide by it, so people find arguments not to do it (i-no-34). 378 There was unanimous agreement among Big Six standard setters that businesss wholehearted bankers acceptance was crucial. Furthermore, the state was ex pected to acknowledge, or at least be aware of, this very point. A practitioner from a medium-sized firm said Certainly, it is not racial governing it is more government in being democratically elected ust listen to people who have vested interest to protect and the government thinks their interest is more important than accountants the accountants have no interest except they have a formalised way of doing things and since they have formalised a way of doing things, there is commonality in dealing with particular issues. Accountants do not gain or lose by implementing the standard accountants can say because we have this standard, we know the financial statement would have some common feature F F F Otherwise you see goodwill going up and up all the time (i-no-8). The political nature of the standard setting process is evidenced by the lobbying activities carried out after MAS 6 was adopted by the MIA.Respondents felt that the state was more attentive to the big business lobby Views on MAS 6 For Against No comments Total Big Six 0 15 4 19 Non-Big Six 3 2 7 12 Others 5 7 22 34 Total 8 24 33 65 Table V. Respondents views on MAS 6, highlighting Big Six/Non-Big Six differences Note Others includes MACPA/MIA members who had moved out of public practice. The MACPA respondents who had no comments had not been involved in the goodwill accounting discussions than to accounting principles. One saw the states stand as protecting the Accounting interest of certain parties against others (i-no-58). standard setting Arguing interests As indicated above, the goodwill controversy underlined the segmentation of the Malaysian accountancy profession over time, under pressure from st