In this article, we compare the financial reporting differences in relation to provisions, contingent liabilities and contingent assets. For this, we compare and contrast the requirements in MPSAS 19, MFRS 137 and Section 21 of MPERS.
MPSAS, MFRS and MPERS are the three financial reporting frameworks used by entities for financial reporting purposes. MFRS and MPERS are developed by the Malaysian Accounting Standards Board while MPSAS is developed by the Accountant General’s Department of Malaysia. If you wish to understand further on these frameworks and which framework should entities use, head out to Financial Reporting Frameworks in Malaysia.
Let us now see the financial reporting differences between the three standards.
Scoping
In general, there are no scoping differences between MPSAS 19, MFRS 137 and Section 21 of MPERS. MPSAS 19 provides additional clarification with regard to social benefits obligations. These benefits may include:
- Delivery of health, education, transport and other social services to the community
- Payment of benefits to facilities, unemployed, disabled and others.
In some cases, social benefits give rise to a liability for which there is:
- Little or no uncertainty as to amount; and
- The timing of the obligation is uncertain.
Social benefits obligations
The obligation to provide those benefits comes from a government’s commitment. This commitment is to undertake particular activities on an ongoing basis over a long-term period. MPSAS 19 excludes from its scope the provision or contingency arising from social benefits. However, an entity may elect to recognise a provision for such obligations. When this is the case, entities disclose the basis on which the provisions have been recognised and the measurement basis adopted.
Onerous contracts
MPSAS 19 scopes in onerous contracts. A contract is an onerous contract when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits or service potential expected to be received under it. Entities need to account for a provision for onerous contracts. The principle is similarly applicable in MFRS 137 and Section 21.
MPSAS 19 however, excludes contracts to provide social benefits entered into with the expectation that the entity will not receive consideration that is approximately equal to the value of goods and services provided.
Disclosure requirements
The disclosure requirements are generally the same in MPSAS 19, MFRS 137 and Section 21 of MPERS.
However, we noted some slight differences as follows:
- MPSAS 19 encourages entities to disclose information relating to the valuation of provision. This is only if entities use external valuation to measure a provision. It is, however, not explicitly available in MFRS 137 and Section 21 of MPERS.
- MPSAS 19 and MFRS 137 require entities to disclose a brief description of the nature of the contingent assets at the end of the reporting date and an estimate of their financial effect. Section 21 of MPERS, however, allows entities not to disclose the financial effect if it involve undue cost or effort to obtain such information.
Other than above, we do not observe other significant differences in the financial reporting requirements in MPSAS 19, MFRS 137 and Section 21 for provisions, contingent liabilities and contingent assets. Note that the International Public Sector Accounting Standards Board (“IPSASB”) has issued IPSAS 42 Social Benefits to govern the financial reporting requirements for social benefits. Malaysia has yet to adopt this standard. If you wish to understand more on the key principles for provisions, contingent liabilities and contingent assets, head out to IAS 37 Provisions, Contingent Assets and Contingent Liabilities.
We will continue to bring you a comparison for other standards in future articles. In the meantime, you can read other relevant articles in the Financial Accounting section.