Extension of transitional period for transitioning entities by MASB

On 30 June 2012, MASB issued a statement that it is extending the transitional period for transitioning entities to 1 January 2014. For those who are new to the MFRSs, MASB sets a full-convergence target to the International Accounting Standards (the IFRSs system) for financial year end 1 January 2012 and thereafter. However, the MASB provide for a one year 'transitional period' for the companies involve in the real estate and agricultural industries also known as transitioning entities. This means companies in these industries only need to adopt the MFRSs framework for financial year end 1 January 2013 and thereafter. However with recent further extension, the new adoption date for this entities only starts on 1 January 2014 and thereafter.

WHY THE EXTENSION TO 1 JANUARY 2014? 

REAL ESTATE INDUSTRY
In brief, the current IFRS system (IFRIC 15 Agreements for the Construction of Real Estate) requires real estate developers to recognise revenue only when the project is completed. This is in contrast to the current method adopted by Malaysian property developers which recognise revenue on the percentage-of-completion method. As Malaysian property developers adopts the sell-then-build model, this means that these companies would be reporting costs over the period of the project (potentially losses) and only recognising the revenue at the end of the project period. This would hit the developers bottom line pretty hard. The extension by  MASB is in anticipation of the much awaited new Revenue standard which would recognise percentage-of-completion method for most revenue streams. This new standard is expected to supersede IFRIC 15. However, IASB has postpone the issue of this standard to mid 2013. Thus, the MFRSs adoption extension by MASB for Malaysian developers to 2014. 


AGRICULTURAL INDUSTRY
The agricultural industry in Malaysia finds it difficult to adopt IAS 41 Agriculture which has many elements which are foreign to the industry here including the fair value measurement of biological assets. With the diversity of the agriculture industry in Malaysia including oil palm,rubber, timber harvesting, the list goes on and on, the implementation of this standard remains to be the most controversial in Malaysia. The extension by MASB is to wait for IASBs further amendments to IAS 41. This will be a temporary relief for both industries until come 2014.