Technical Update
April 2008
The Malaysian Institute of Accountant's (MIA) Financial Reporting Standards Implementation Committee (FRSIC) recently issued two implementation guidances relating to accounting standards to provide assistance to both preparers and auditors of financial statements.
The first consensus deals with a common issue on whether fixed deposits held on lien for bank guarantee facilities granted to subsidiaries meet the definition of cash and cash equivalents, and form part of the component of cash and cash equivalents pursuant to FRS 107 (equivalent to IAS 7).
In considering the issue, the committee acknowledged that fixed deposits held on lien for bank guarantee facilities are not available for general use by the parent or other subsidiaries due to restriction over the use of such cash for specific purposes. However, the fact that they are not available for general use does not necessarily mean that they are not eligible to be part of the components of cash and cash equivalent of an entity.
Paragraphs 48 and 49 of FRS 7 states that there are various circumstances in which cash and cash equivalent balances held by an entity are not available for use by the group and requires an entity to disclose the amount, together with a commentary by management. FRS 107, paragraph 46, states that, in view of cash management practices and banking arrangements around the world, and in order to comply with FRS 101 (IAS 1), Presentation of Financial Statements, an entity is required to disclose the policy that it adopts in determining the composition of cash and cash equivalents.
Based on the above provisions, the committee decided that an entity may adopt the policy of including fixed deposits held on lien for bank guarantee facilities in determining the composition of cash and cash equivalents, provided there are adequate disclosures. However, appropriate disclosures, including the policy adopted by the entity and the amount of cash and cash equivalent balances that are not available for use by the group in the financial statements, together with a commentary by management that provides a clear explanation of the nature of the restrictions, should be made in the financial statements to enable users in understanding the financial position and liquidity of the entity.
The second consensus informs that the Central Bank, in a letter to FRSIC, has confirmed that MSC Malaysia status companies are no longer required to submit their audited annual financial statements to the Central Bank.
Both the above consensuses are already effective. FRSIC Consensus is guidance issued by the MIA, and is to be regarded as best practice and should be read in conjunction with the respective applicable accounting standards.
Jennifer Lopez, head of policy and technical development, ACCA Malaysia.
The Malaysian Institute of Accountant's (MIA) Financial Reporting Standards Implementation Committee (FRSIC) recently issued two implementation guidances relating to accounting standards to provide assistance to both preparers and auditors of financial statements.
The first consensus deals with a common issue on whether fixed deposits held on lien for bank guarantee facilities granted to subsidiaries meet the definition of cash and cash equivalents, and form part of the component of cash and cash equivalents pursuant to FRS 107 (equivalent to IAS 7).
In considering the issue, the committee acknowledged that fixed deposits held on lien for bank guarantee facilities are not available for general use by the parent or other subsidiaries due to restriction over the use of such cash for specific purposes. However, the fact that they are not available for general use does not necessarily mean that they are not eligible to be part of the components of cash and cash equivalent of an entity.
Paragraphs 48 and 49 of FRS 7 states that there are various circumstances in which cash and cash equivalent balances held by an entity are not available for use by the group and requires an entity to disclose the amount, together with a commentary by management. FRS 107, paragraph 46, states that, in view of cash management practices and banking arrangements around the world, and in order to comply with FRS 101 (IAS 1), Presentation of Financial Statements, an entity is required to disclose the policy that it adopts in determining the composition of cash and cash equivalents.
Based on the above provisions, the committee decided that an entity may adopt the policy of including fixed deposits held on lien for bank guarantee facilities in determining the composition of cash and cash equivalents, provided there are adequate disclosures. However, appropriate disclosures, including the policy adopted by the entity and the amount of cash and cash equivalent balances that are not available for use by the group in the financial statements, together with a commentary by management that provides a clear explanation of the nature of the restrictions, should be made in the financial statements to enable users in understanding the financial position and liquidity of the entity.
The second consensus informs that the Central Bank, in a letter to FRSIC, has confirmed that MSC Malaysia status companies are no longer required to submit their audited annual financial statements to the Central Bank.
Both the above consensuses are already effective. FRSIC Consensus is guidance issued by the MIA, and is to be regarded as best practice and should be read in conjunction with the respective applicable accounting standards.
Jennifer Lopez, head of policy and technical development, ACCA Malaysia.
posted by Toyers at
8:45 AM
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