Nur Hidayah Laili

Goodwill Accounting in Malaysia and the Transition to IFRS : A Compliance Assessment of Large First Year Adopters

Prior to the adoption of an IFRS based reporting framework in Malaysia, no binding standard governing goodwill had ever been implemented. After several decades in which a laissez faire approach to the problem represented the dominant paradigm, the highly prescriptive and technical provisions of FRS 136 – Impairment of Assets represent a very substantial variation from past practice. This in turn gives rise to questions about the extent to which Malaysian companies and their auditors have fared during the process of transition to a complex new reporting regime and in consequence to the quality and consistency of reports produced pursuant to that new regime. Thus, FRS 136 presents an opportunity to interrogate the level of compliance and disclosure quality exhibited by first‐time reporting entities – and by extension, yield insights into the implications of and challenges associated with transition to new and complex reporting regimes. Focussing specifically on compliance and disclosure quality relating to the highly detailed requirements set out in FRS 136, this paper finds evidence that the quality of the responses by large listed Malaysian firms has indeed been mixed, with many firms producing financial reports that have failed to meet the mark of the new standard. While the move by MASB to adopt IFRSs is a reflection of Malaysia’s commitment to align with global accounting standards in order to achieve harmonization with international practice, these findings suggest that continued improvement will be required by Malaysian companies and their auditors before Malaysian practice is truly aligned to the international standard.

Investigating audit quality among Big 4 Malaysian firms

Purpose - The purpose of this paper is to contemplate the degree to which technical expertise in Malaysian Big 4 auditing practice survives periods of material regulatory inflexion sufficiently to underpin quality financial reporting outcomes. Design/methodology/approach - The adoption of IAS in Malaysia in 2006 introduced a highly technical standard (financial reporting standards – FRS 136) which impacted not only preparers but also auditors of financial statements. This transition period represents a unique opportunity to interrogate the content of financial statements drawn up under new and complex standards, with a view to gaining insight into the quality of oversight offered by the audit profession. Findings - Contrary to the view within the extant literature that there is homogeneity in audit quality among Big 4 firms, this paper reports substantial cross-sectional variation among the sample of Big 4 Malaysian audit firms and reports on distinctly poor compliance levels. Research limitations/implications - The research focuses on compliance with various requirements under FRS 136 – Practical implications - The results raise questions about audit quality among the sample firms and the robustness of regulatory oversight institutions operating within Malaysia. Originality/value - This research illustrates a novel approach to examining the issue of audit quality by introducing a compliance quality approach focusing on note-form disclosures.

Questioning the Big 4 Audit Quality Assumption: New Evidence from Malaysia

Audit quality can be defined as relating to the probability that financial statements contain no material omissions or misstatements. Previous research on the subject of audit quality relies on the assumption that large audit firms (Big 4) are homogenous in providing higher audit quality than small audit firms (non-Big 4). However, there is little evidence in extant literature supportive of quality differentials between Big 4 firms, except that the collapse of Arthur Anderson certainly undermines this assertion that large auditors are associated with higher audit quality. In this study, we develop a methodology to distinguish audit quality among Big 4 audit firms and attempt to question the homogenous audit quality assumption. In exploring this theme, this paper examines the audited disclosures made during the transition period under FRS 136 - Impairment of Assets (the Malaysian equivalent to IAS 36) of a sample of large Malaysian listed corporations who each have engaged Big 4 auditors. The results of this study are alarming, finding systemic failure on the part of Big 4 auditors in Malaysia to comply with even the most basic elements of the FRS 136 disclosure framework in relation to goodwill impairment testing.

Investigating the Early Implementation of MFRS 136 Disclosure among Top 50 Firms in Malaysia

The highly prescriptive and technical provisions of MFRS 136 – Impairment of Assets represent a very considerable variation from past practices. This in turn raises questions about the span to which Malaysian businesses and their auditors have fared during the method of transition to a convoluted new reporting regime. Malaysia through Malaysian Accounting Standards Board (MASB) made the requirements of the MFRS 136 - Impairment of Assets mandatory progressively since 1 January 2006 for some or all listed firms in Malaysia. Since then, Malaysian companies are required to comply with the standard. The purpose of this paper is to investigate the compliance level of approved companies on the Bursa Malaysia main market towards the disclosure requirement of MFRS 136 - Impairment of Assets. This study also aims to identifying some factors associated with the level of compliance. The unweighted index was established by constructing the index checklist. The checklist was based on the requirement of disclosure of MFRS 136 (amended in 2009) and the annual reports of 50 sampled firms from 2010 to 2012 were examined. Then, we establish dependent variables and construct econometrical model to test the hypothesis in the research using Estimated Generalized Least Squares (EGLS) weights regression using cross-section weights. The result shows that 28 firms (56%), 27 firms (54%) and 24 firms (48%) out of 50 firms in 2010, 2011 and 2012 respectively failed to comply with requirement of FRS 136 pertaining to goodwill impairment. This study suggests that the performance of the top 50 listed companies should improve before Malaysian practice can attain a truly international standard. This study also found that firm size, profitability and auditor type are associated with the extent of compliance with MFRS 136. However, only firm size and profitability were positively associated with the level of compliance while auditor type were negatively associated with the level of compliance. This indicates that bigger and more profitable firms were more motivated to exhibit greater transparency of MFRS 136.