Financial statements disclosures and presentation...© 2016 KPMG, a partnership established under...

© 2016 KPMG, a partnership established under

Malaysian law and a member firm of the KPMG

network of independent member firms affiliated with

KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved.

Printed in Malaysia.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual

or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is

accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information

without appropriate professional advice after a thorough examination of the particular situation.

What’s next for Private Entities – MPERS or MFRS?

September 2016

Financial

statements

disclosures

and

presentation

1© 2016 KPMG, a partnership established under Malaysian law and a member firm of the KPMG network of

independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

All rights reserved. Printed in Malaysia.

MPERS Conversion steps

Determine functional currency

Restate opening

balances and comparatives

MPERS-compliant financial

statements

Step 1 Step 2 Step 3 Step 4 Step 5

Select accounting

policiesIdentify gaps

Apply transitional provisions

where applicable

(Section 35)












September 2016

Agenda

Foreign currency translation

and presentation currency

Related party disclosures

Events after the end of the

reporting period

First MPERS financial

statements




Foreign currency translation and presentation currencyKey changes in MPERS

Presentation &

disclosures

Treatment of foreign currency transaction with the concept of functional currency.

Recognition &

measurement

MPERS

MPERS does not permit the use of forward exchange contract rate to translate monetary items.

Translation of functional currency to presentation currency.












September 2016





Presentation &

disclosures

Treatment of foreign currency transaction with the concept of functional currency.

Recognition &

measurement

MPERS




Functional currency: Foreign currency transaction

Entity A Entity B

Sells goods

USD debtor of USD10,000

Exchange rate 1USD = RM

1/1/X1 31/1/X1 15/2/X1

3.0 3.1 3.2

MPERS: Presentation currency = RM

Statement of financial position as at 31/1/X1

USD debtor USD10,000 3.1 RM31,000

Retained earnings USD10,000 (RM30,000)

Forex reserve - (RM1,000)

Profit or loss for period ended 31/1/X1

Revenue USD10,000 3.0 RM30,000

MPERS: Functional currency = USD

1/1/X1 Dr USD debtor USD10,000

Cr Sales USD10,000

(Record sales in functional currency of USD)

31/1/X1 No Entry

15/2/X1 Dr Bank USD10,000

Cr USD debtor USD10,000

(Received cash from debtors)

No forex difference Forex differences on presentation












September 2016




Change of functional currency on date of transitionTranslation of opening balance sheet

Balance sheet at 1 Jan 2015

31.12.2014 : Reporting currency – RM

1.1.2015 : Functional currency – USD

RM Rate USD

PPE 130,000

Debtors 30,000

160,000

Payables (45,000)

Long-term borrowings (75,000)

Share capital (35,000)

Retained earnings (5,000)

Cumulative exchange

reserve -

(160,000)

Date of transition to MPERS

1 Jan 2015 31 Dec 2015

1 Jan 2015: 1USD = RM3.0




PPE RM Rate at date of

transaction

USD

Acquisition 50,000 3.1 16,129

Depreciation Y1 (5,000) 3.2 (1,562)

Depreciation Y2 (5,000) 3.1 (1,613)

Addition 100,000 3.3 30,303

Depreciation Y3 (10,000) 3.2 (3,125)

130,000 40,132

Change of functional currency on date of transition (cont’d)Historical rate of non-monetary item

Historical rate of PPE movements

Option 1

Option 2

1 Jan 2015: 1USD = RM3.0

Using exchange rate at the date of transition

RM130,000 / RM3.0 = USD43,333 Which option

is

appropriate?

Option 2












September 2016




Change of functional currency on date of transition (cont’d)Translation of opening balance sheet

Balance sheet at 1 Jan 2015



RM Rate USD

PPE 130,000

Debtors 30,000

160,000

Payables (45,000)

Long-term borrowings (75,000)

Share capital (35,000)

Retained earnings (5,000)

Cumulative exchange

reserve 0

(160,000)


1 Jan 2015 31 Dec 2015

1 Jan 2015: 1USD = RM3.0

40,132

10,000

50,132

(15,000)

(25,000)

(11,290)

1,158

0

50,132

Historical rate

3.0

Deemed to be zero at the date of transition

Balancing

Historical rate

3.0

3.0




Change of functional currency on date of transition (cont’d)Restatement of profit or loss




Profit or loss for FYE 2015

1 Jan 2015

Restate profit or loss in

functional currency (e.g.

depreciation, forex

gain/loss)

31 Dec 2015












September 2016





Presentation &

disclosures

Recognition &

measurement

MPERS

MPERS does not permit the use of forward exchange contract rate to translate monetary items.




Using forward exchange contract (“FEC”) rate

Entity A Entity B

Sells goods

USD Debtor of USD10,000

Exchange rate 1USD = RM

1/1/X1 31/1/X1 15/2/X1

3.0 3.1 3.2

PERS

1/1/X1 Dr USD Debtor RM32,000

Cr Sales RM32,000

(Record sales in reporting currency of RM

based on FEC rate)

15/2/X1 Dr Bank RM32,000

Cr USD Debtor RM32,000

(Received cash from debtors)

Entered into forward exchange

contract

1USD = RM3.2

MPERS

1/1/X1 Dr USD Debtor RM30,000

Cr Sales RM30,000

(Record sales at spot rate)

Forward exchange contract is accounted for separately

and needs to be fair valued at period end because it is

not a basic financial instrument.












September 2016





Presentation &

disclosures

Recognition &

measurement

MPERS

Translation of functional currency to presentation currency.




Translation to presentation currency

Balance sheet

USD Rate RM

PPE 10,000 3.0 30,000

Debtors 5,000 3.0 15,000

15,000 45,000

Payables (4,000) 3.0 (12,000)

Long-term borrowings (8,000) 3.0 (24,000)

Share capital (1,000) 3.0 (3,000)

Retained earnings (2,000) (6,200)

Forex reserve 0 200

(15,000) (45,000)

Entity A maintains its accounts in functional currency USD.

Due to statutory requirement, Entity A presents its financial

statements in RM.

Exchange rate1USD = RM

Closing Average

3.0 3.1

Assets and

liabilities for each

statement of

financial position

presented (i.e.

including

comparatives) shall

be translated at the

closing rate at the

date of that

statement of

financial position.












September 2016




Translation to presentation currency (cont’d)

Profit or loss

USD Rate RM

Revenue 30,000 3.1 93,000

Cost of sales (18,000) 3.1 (55,800)

Admin exp (4,000) 3.1 (12,400)

Other

operating exp (5,000) 3.1 (15,500)

Profit 3,000 9,300

Tax (1,000) 3.1 (3,100)

Profit after tax 2,000 6,200

Entity A maintains its accounts in functional currency USD.

Due to statutory requirement, Entity A presents its financial

statements in RM.

Income and expenses shall be

translated at exchange rates at the

dates of the transactions.

For practical reasons, an entity

may use a rate that approximates

the exchange rate at the dates of

the transactions, e.g. an average

rate for the period.

Exchange rate1USD = RM

Closing Average

3.0 3.1

Agenda





reporting period


statements












September 2016




MPERS widens the disclosure net

Typical related parties CA 1965 MPERS

Holding companies

Subsidiaries

Associates

Joint ventures

Associates or joint ventures of holding

companies

Directors

Other key management personnel




Minimum disclosures for related parties

Minimum disclosure requirements

Transaction amount

Outstanding balance

Provision for uncollectible

receivables

Expenses recognised for bad or

doubtful debts

Entities with control, joint control or significant

influence over the entity

Entities over which the entity has control, joint control or

significant influence

Key management personnel of the entity or its parent (in

the aggregate)

Other related parties

A government related entity (control, joint control or

significant influence) is exempted from these

minimum disclosures when transacting with other

government related entities












September 2016




MPERS widens the disclosure netDefinition of related parties – application tips

C (entity)Reporting entity

Entity or

Person

Entity or

Person

Reporting entity A (entity)

Entity or

Person

Reporting entity B (entity)

Related to each other Related to each other

NOT related to each other




Definition – Key management personnel

Key management personnel are those persons having

authority and responsibility for planning, directing and

controlling the activities of the entity, directly or indirectly,

including any directors (whether executive or otherwise) of

that entity.

Incorporates a requirement to disclose

compensation to key management personnel in total

only (no need by category or type of benefits).












September 2016




Minimum disclosures for related parties

Significant related party

transactions

Key management personnel

Note 30

Page 107 - 109




Key differences between MPERS and MFRS

MFRS also requires disclosures of related party transactions in the following

situations:

Government Related EntityManagement Entity

Disclose management service fee

paid to Management Entity

Disclose other transactions with

the Management Entity e.g. loans

Name of government and nature of relationship

Nature and amount of each individually significant

transaction

A qualitative or quantitative indication of the extent of other

transactions that are collectively, but not individually, significant

2015 A

Aligned definition related party

with regards to Management

Entity with MFRS












September 2016

Agenda





reporting period


statements




Breaches of covenants Unconditional right to defer settlement of liability

Date of financial statements

31 May 2017

Company X breached a loan covenant

in respect of a long-term loan from a

bank on 1 Dec 2016.

Due to the breach, the bank is entitled

(but not obliged) to demand immediate

repayment of loan.

End of reporting period

31 Dec 2016

PERS

MPERS Current liabilityCurrent

liability

Non-current liability

Bank formally agreed to

waive the covenant and

not to demand early

repayment of loan after

the end of the reporting

period and before the

financial statements were

approved for issue.

Non-current

liabilityNon-current liability












September 2016

End of

Steps 3 and 4




MPERS Conversion steps


Select accounting



where applicable

(Section 35)


statements


Restate opening













September 2016

Agenda





reporting period


statements




Components of financial statements

Statement of changes in

equity

Other notes and

explanatory information

Summary of significant

accounting policies

Cash flows statement

Balance sheet

Income statement

PERS

Statement of changes in

equity

Other notes and

explanatory information

Summary of significant

accounting policies

Statement of cash flows

Statement of financial

position

Statement of

comprehensive income

MPERS












September 2016




Statement of financial position

Page 13

Note3.7, Page 59

Non-controlling interest is presented

within equity

Disclosure relating to binding sale

agreement for a major disposal of assets, or

a group of assets and liabilities

What’s new in MPERS

Non-current assets held for sale and

disposal group classified as “current” in

MFRS

Key differences between

MPERS and MFRS




Statement of comprehensive income

Other comprehensive income

Combined statement of income and

retained earnings:

where there are only profit or loss,

dividends, correction of error and

change in accounting policy

Two-statement approach

Where expenses are classified by

“function”, MPERS requires minimum

disclosure of “cost of sales”


Appendix 1, Page 115

Appendix 2, Page 116












September 2016




Statement of comprehensive income (cont’d)

Gains and losses arise from translation of financial statements

of foreign operations

Actuarial gains and losses

Changes in fair value of hedging instruments

Example of other comprehensive income items




Statement of comprehensive income (cont’d)

Segregate items of other

comprehensive income (“OCI”)

between:

items that might be

reclassified subsequently to

profit or loss

items that will not be

reclassified subsequently to

profit or loss

There are more disclosure

requirements

Key differences between

MPERS and MFRS

Face of income statement:

results of operating

activities

profit or loss from ordinary

activities

Present/describe an item as

“extraordinary item”

Where expenses are classified

by “function”, PERS also

requires additional disclosure by

“nature” of expenses (i.e. less

disclosure in MPERS but still

subject to Ninth Schedule of

the Companies Act 1965)

PERS disclosures no longer

required or permitted

2015 A

Additional requirements

to group items

presented in OCI












September 2016




Statement of compliance with MPERS

If comply with MPERS, make an “explicit and

unreserved statement of compliance” in the

notes.

Extract from WSME (page 29)




Explanatory note on effect of transition to MPERS

Description of each change in accounting

policy

Reconciliation of equity

at the date of transition

at the end of comparative period

Reconciliation of profit or loss

at the end of the comparative period

Distinguish correction of error from change in

accounting policy See note 34 of WSME

MPERS does not require presentation of opening statement of

financial position at the date of transition.

Main difference compared to MFRS












September 2016




Accounting policies and explanatory notes

Disclose judgements made in applying accounting policies

Disclose key assumptions concerning the future, and other sources of

estimation uncertainty at reporting date


Disclosure of capital management objectives, policies and strategies

Key differences between MPERS and MFRS

Number of employees at the end of the period or average for the period

Closing rates used in the translation of foreign currencies

PERS disclosures no longer required or permitted




MFRS standards not addressed by MPERS

MFRS 4, Insurance Contracts

MFRS 5, Non-current Assets Held for

Sale and Discontinued Operations

MFRS 8, Operating Segments

MFRS 133, Earnings per Share

MFRS 134, Interim Financial Reporting

MFRS standards not address by MPERS












September 2016




Consider opportunities

1. Selective fair value as deemed cost.

2. Carrying amount RM10mil, value in use

RM12mil, fair value RM7mil. Use fair value as

deemed cost?

3. Others ... provided you know the rules!

Other opportunities you may

consider …




Consider opportunitiesOptional exemption: Cost of investment

JCESubsidiary Associate

At the date of transition, an investment may be stated at:

– cost as determined per MPERS (Section 9); or

– deemed cost:

fair value; or

previous GAAP carrying amount.

Parent Co.

Exemption available on investment-by-investment basis.

If deemed cost exemption is elected, adjustments are

taken to retained earnings.












September 2016




Restating opening balances and comparativesThings to watch out

Correction of errors

Not part of transition to MPERS.

Separately identified and disclosed.

Estimates

No hindsight!

Change in estimate accounted for

prospectively, e.g. provision for

litigation not revised at the date of

transition due to subsequent

settlement. Deferred tax and NCI

implications

Adjustments to assets and liabilities

affect deferred tax and NCI.

Tax base is not affected.

Use of fair value

Availability of fair value report.

Date of fair value.

Impairment of non-financial

assets

Re-assess impairment for goodwill

and CGU where higher fair value is

used as deemed cost.




Re-assess impairment of assets

Date of transition

Net assets

of CGU

Goodwill

Net assets

of CGU

Goodwill

Fair value as

deemed cost

Fair value less

costs to sell

Value in use

Impairment

of goodwill












September 2016

End of

Financial

statements

disclosures and

presentation

End of

Step 5












September 2016




Recap: MPERS Conversion steps


Select accounting



where applicable

(Section 35)

Restate opening



statements





KPMG in Malaysia publications

Illustrative Financial

Statements for MPERS

Upcoming publication












September 2016




Is MPERS a simpler standard?

Perhaps to use

MFRS?

© 2016 KPMG, a partnership established under Malaysian law and a member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed

in Malaysia.

The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular

individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such

information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon

such information without appropriate professional advice after a thorough examination of the particular situation.

http://www.google.com.my/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=7w93zmHXDdH1xM&tbnid=DopZS7jbTV6jRM:&ved=0CAUQjRw&url=http://oxybloc.com/&ei=mnUFVOPOO4WJuATFgoLACQ&bvm=bv.74115972,d.c2E&psig=AFQjCNE63FACWcQ9hE4tLPhDyyV7TYEHIQ&ust=1409730286158509

http://www.google.com.my/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=7w93zmHXDdH1xM&tbnid=DopZS7jbTV6jRM:&ved=0CAUQjRw&url=http://oxybloc.com/&ei=mnUFVOPOO4WJuATFgoLACQ&bvm=bv.74115972,d.c2E&psig=AFQjCNE63FACWcQ9hE4tLPhDyyV7TYEHIQ&ust=1409730286158509

Financial statements disclosures and presentation...© 2016 KPMG, a partnership established under...

Documents

Transcript of Financial statements disclosures and presentation...© 2016 KPMG, a partnership established under...