24/11/2011 (The Star) - The proposed changes to the MFRS141 Agriculture and IC Interpretation 15 Agreements for the Construction of Real Estate (IC15) are currently under deliberation due to concerns raised by property and agriculture companies.

Companies affected by MFRS141 and IC15 have been given a one-year period to comply with the new standards due to potential changes in the standards and interpretations.

In an e-mail reply to StarBiz, the chairman of MASB, Mohammad Faiz Azmi said MASB was hoping that the proposed changes would address the concerns of the two sectors but it was too premature to elaborate on the final effects.

“There is still much work to be done to explain and clarify the conceptual basis of our arguments,” he said.

The Malaysian Accounting Standards Board (MASB) has recently announced the issuance of new MASB-approved accounting standards, which will be effective by Jan 1, 2012.

IC15, which is the equivalent of International Financial Reporting Interpretation Committee 15 (IFRIC15) states that revenue is recognised when the property is completed. Only when significant risks and rewards, and managerial control of the work-in-progress are continuously transferred to the buyer of the property, the revenue can be recognised using the stage of completion method.

KPMG Malaysia audit partner Thong Foo Vung said that in Malaysia, the interpretation had not been able to reach a consensus on the accounting treatment for property developers due to a different understanding of the operations of the housing development.

This change could be a concern as it was common practice in Malaysia to develop houses on a sell-then-build basis, said Thong. Under the old framework, revenue had been recognised on a percentage of completion method.

Azmi said the International Accounting Standards Board (IASB) had issued a revised Exposure Draft on Revenue, which when finalised, will supersede IFRIC15 (which is the equivalent of IC15).

MFRS 141, which is the equivalent of IAS 41, states that biological assets such as palm oil trees for a palm oil plantation should be measured at its fair value less cost to sell. Its changes will be recognised under profit or loss for that reporting date. Under the current framework biological assets are predominantly accounted for using the cost model.

The requirement to measure biological assets as fair value would mean that agriculture companies would have to employ a valuator to value their biological assets regularly.

The IASB has fully noted the view that does not support this measurement and has included a limited amendment to IAS 41 as part of the project suggestions in their Agenda Consultation 2011 which is currently being released for public comment.

According to Azmi, MASB has highlighted its concerns on IFRIC15 and IAS41 to the IASB for review. “The board has given companies within the scope of IFRIC15 and IAS41 the option of remaining under the current framework in view of the pending finalisation of these proposed changes.”

Thong said if there were no changes to the MFRS 141, agriculture companies adopting the MFRS in 2012 might find their results very volatile and sensitive to commodity prices.