The Impact of an Enforceable Standard in Malaysia: Assessing the Compliance of Disclosures for Large First-Time Adopters Under FRS 136

MGSM Working Paper No. 2008-12

24 Pages Posted: 14 Oct 2008  

Tyrone M. Carlin

The University of Sydney Business School

Nigel Finch

Saki Partners

Nur Hidayah Laili

Macquarie Graduate School of Management

Date Written: October 13, 2008

Abstract

After many years of debating the appropriate treatment for goodwill, Malaysia finally has an enforceable accounting standard on this topic. Applicable for business combinations with reporting dates commencing on or after 1 January 2006, FRS 136 - Impairment of Assets requires that goodwill acquired in a business combination is allocated to cash generating units and tested for impairment at least annually.

This new requirements is a radical departure to the existing practice of goodwill reporting in Malaysia, with financial statement prepares now having to deal with complex and rigorous techniques for assessing impairment, and the added disclosure requirements in relation to goodwill allocation and the estimate of recoverable amounts. Given the change in the reporting requirements, there exists the possibility of inconsistent compliance and varying levels of disclosure quality by companies as they transition into the new reporting regime.

Thus, the purpose of this paper is to examine the level of compliance with the provisions of FRS 136 - Impairment of Assets and assess the quality of disclosures made in accordance with this new standard. Using a sample of 36 of the largest Malaysian listed corporations as at 2006, we find significant levels of non-compliance and substantial variation in the quality of note-form disclosures pertaining to impairment testing.

Keywords: Goodwill Accounting, Financial Reporting Standard, FRS 136, Impairment, Malaysia

JEL Classification: M41, M44, M45, M47, G24, G38

Suggested Citation

Carlin, Tyrone M. and Finch, Nigel and Laili, Nur Hidayah, The Impact of an Enforceable Standard in Malaysia: Assessing the Compliance of Disclosures for Large First-Time Adopters Under FRS 136 (October 13, 2008). MGSM Working Paper No. 2008-12. Available at SSRN: https://ssrn.com/abstract=1283648 or http://dx.doi.org/10.2139/ssrn.1283648

Tyrone M. Carlin

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+ 61 2 9036 7230 (Phone)
+61 2 9351 7471 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/tyronec

Nigel Finch (Contact Author)

Saki Partners ( email )

Australia

Nur Hidayah Laili

Macquarie Graduate School of Management ( email )

99 Talavera Road
Sydney, NSW 2113
Australia

HOME PAGE: http://www.mq.edu.au

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