ACCOUNTING is a subject that most people dread, for fear of its dry and lengthy text. Nonetheless, it is of utmost importance in the business world for without it, businesses would have no proper and standardised system to run on.
Having studied the subject at high school, which then led to graduating with a bachelor's degree in accounting and finance, I have to admit that the subject was not one of my favourites. I was one of those, mentioned earlier, who feared the subject because of its lack of obvious colour.
At university, I took a paper on financial accounting principles, which included the study of financial reporting standards. Trust me, it was one where my memory skills were tested and fully put to good use.
Don't get me wrong. It's not that I didn't like the subject at all. It was probably more of a frustration because I lacked the understanding then. I only truly began to understand it when I started my working career.
The Malaysian Accounting Standards Board (MASB) enforced the International Financial Reporting Standards (IFRS) created by the International Accounting Standards Board (IASB) last year. As a result, many companies had implemented IFRS as at January 2012.
Although most have not been burdened too much by the change, several parties are dealing with issues of implementing the IFRS as doing so would result in a huge variance in financial reporting.
The implementation of IFRS has left both property developers and plantation operators in a sticky situation. Both parties' issues have to do with International Financial Reporting Interpretation Committee (IFRIC) Interpretation 15, and IFRS 13.
IFRIC Interpretation 15 deals with revenue recognition, and under this interpretation, property developers would recognise revenue only upon completion and handover of the properties to the buyers. This is different from the more common method of revenue recognition used in Malaysia, which is the sell-then-build method.
This could gravely affect the smaller developers that have less construction projects, which would take several years to complete.
Then, there's IFRS 13 which is the standard dealing with fair value measurement. If implemented, it could mean that the fair value of land for non-plantation use could be higher than the fair value of the same land with existing crops on it.
Technically, the result would be that a zero value is assigned to the agricultural crops on the land. This is due to the interaction between IFRS 13 and International Accounting Standards 41, which allows a residual approach in fair value determination of land and assets. At times, the best use for the land varies from its current use, which means that using a residual approach could result in a minimal or zero value given to the crops.
The MASB has given property developers and plantation owners until January 2014 to implement IFRIC Interpretation 15 and IFRS 13 in view of the issues that will arise if it should be implemented now.
Meanwhile, the issues have been raised to the IASB and the IFRS Interpretations Committee.
Seeing that there's still some time for a compromise to be reached, let's keep our fingers crossed that an amicable arrangement can be achieved.
By WONG WEI-SHEN
weishen.wong@thestar.com.my
weishen.wong@thestar.com.my
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