Malaysia's Accounting Standards

Why accounting compliance matters for Malaysian companies

Accounting compliance underpins corporate credibility, transparency, and sustainable growth, supporting access to financing and investment by providing reliable audited financial statements.

Contributing Advisor

Quinn Lu

Senior Associate, International Business Advisory

Persistent non-compliance, reflected in public records maintained by the Companies Commission of Malaysia, can impair talent attraction, stakeholder confidence, and may lead to deregistration. Directors face personal liability under the Companies Act 2016, including fines, imprisonment, and disqualification, while proper accounting also safeguards companies during tax audits and regulatory reviews, with the Inland Revenue Board of Malaysia requiring records to be retained for seven years to avoid penalties and extended assessments.

Who regulates accounting in Malaysia

The Malaysian Institute of Accountants (MIA) maintains the professional infrastructure supporting Malaysia's accounting ecosystem. With over 36,000 registered members as of 2025, MIA sets ethical standards aligned with the International Ethics Standards Board for Accountants (IESBA) Code, accredits professional qualification programs, and operates a practice review system ensuring member firms maintain appropriate quality control procedures.

The Malaysian Accounting Standards Board (MASB) develops accounting standards through a consultative process involving exposure drafts, public comment periods, stakeholder roundtables, and impact assessments. MASB's board comprises representatives from the accounting profession, business community, regulatory agencies, and academia, ensuring diverse perspectives inform standard-setting decisions. MASB maintains continuous engagement with the International Accounting Standards Board (IASB) and participates in regional accounting standard-setter forums to coordinate convergence efforts and address implementation challenges.

The Companies Commission of Malaysia (SSM) operates as a statutory body under the Ministry of Domestic Trade and Cost of Living, combining company registry functions with active enforcement capabilities. SSM's digital transformation initiatives have introduced the Malaysian Business Reporting System (MBRS), enabling electronic submission of annual returns, financial statements, and beneficial ownership information. SSM's enforcement strategy for 2025 emphasizes escalating interventions, beginning with educational outreach, progressing through show-cause letters and compound notices, and culminating in prosecution and striking-off actions for persistent violators.

Additional regulatory oversight comes from Bank Negara Malaysia (BNM) for financial institutions, the Securities Commission Malaysia (SC) for listed companies and capital market participants, and the Audit Oversight Board (AOB), which monitors audit quality and inspects audit firms serving public interest entities.

Legal basis under the Financial Reporting Act 1997

The Financial Reporting Act 1997 established the Malaysian Accounting Standards Board (MASB) as an independent authority to issue binding accounting standards. The Act also grants MASB statutory immunity for good-faith actions in standard-setting. Recent amendments expanded MASB’s role to include sustainability reporting, reflecting rising demand for ESG disclosures. MASB operates with full legal backing, aligning local standards with international frameworks through a transparent process that includes 90–120 day public consultations.

The board maintains four principal frameworks:

• Malaysian Financial Reporting Standards (MFRS) aligned with IFRS Standards;
• Malaysian Private Entities Reporting Standards (MPERS) based on IFRS for SMEs;
• Malaysian Public Sector Accounting Standards (MPSAS); and,
• i-MPERS for Islamic financial institutions.

MASB's technical expertise extends beyond standard issuance to include guidance development, implementation support, and stakeholder education. The board publishes implementation guidance addressing complex transactions, industry-specific issues, and emerging reporting challenges. MASB staff regularly conduct outreach programs, workshops, and training sessions helping preparers, auditors, and regulators understand new standards and address practical application questions.

Relationship with IFRS foundation

Malaysia maintains strategic alignment with the International Financial Reporting Standards (IFRS) Foundation through MASB's adoption approach, which creates Malaysian equivalents of IFRS Standards typically within six to twelve months of international issuance.

The relationship involves active participation in IFRS Foundation consultative processes, with MASB and Malaysian stakeholders regularly submitting comment letters on exposure drafts and participating in field tests for proposed standards. Malaysia's engagement extends to regional coordination through the Asian-Oceanian Standard-Setters Group (AOSSG), where standard-setters from across Asia collaborate on technical positions and share implementation experiences.

Types of accounting standards in Malaysia

Malaysian Financial Reporting Standards (MFRS)

Malaysian Private Entities Reporting Standard (MPERS)

MPERS is available to private companies that do not have public accountability, defined as entities whose debt or equity instruments are not traded in public markets and that do not hold assets in a fiduciary capacity for broad groups of outsiders as a primary business activity. Specifically, MPERS can be adopted by:

• Private limited companies (Sdn. Bhd.) Not listed on any stock exchange;
• Subsidiaries of foreign companies operating in Malaysia where the parent does not have public accountability; and,
• Entities that do not conduct banking, insurance, or securities brokerage activities.

Entities eligible for MPERS enjoy substantial flexibility in choosing their reporting framework but must apply the selected standard consistently across all periods presented. An entity that elects MPERS must apply all sections of the standard; selective adoption of certain sections while ignoring others is not permitted. Once an entity adopts MPERS, reverting to MFRS requires justification demonstrating that the entity now has public accountability or that MFRS better serves the entity's reporting needs.

MPERS offers significant simplifications compared to MFRS, reducing both complexity and compliance costs for smaller entities. Key simplifications include:

• Straightforward cost model options for property, plant, and equipment and intangible assets;
• Eliminating fair value measurement requirements that necessitate expensive valuations;
• Simplified approaches to financial instruments avoiding complex hedge accounting and reducing classification and measurement options;
• Reduced disclosure requirements focusing on essential information users need while eliminating disclosures primarily relevant to capital market participants; and,
• Simplified consolidation guidance suitable for uncomplicated group structures.

Islamic Finance Accounting Standards (IFAS)

While comprehensive Islamic accounting standards previously existed, current practice involves applying MFRS or MPERS with additional guidance addressing Islamic finance-specific recognition, measurement, and disclosure issues.

Bank Negara Malaysia has issued comprehensive guidance on accounting for Islamic banking products, covering contracts such as:

• Murabahah (cost-plus financing);
• Musharakah (partnership);
• Mudharabah (profit-sharing);
• Ijarah (leasing); and,
• Istisna (manufacturing finance).

The accounting challenge in Islamic finance involves capturing the economic substance of transactions structured to comply with Shariah prohibitions on interest (riba), uncertainty (gharar), and gambling (maysir).

For example, Islamic financing arrangements often involve purchase and resale transactions or lease structures that economically resemble conventional financing but require specific documentation and legal structures ensuring Shariah compliance.

Entities engaged in Islamic finance face enhanced disclosure obligations addressing the nature of Islamic contracts utilized, Shariah compliance mechanisms and governance structures including Shariah advisory boards, profit equalization reserves and investment risk reserves used to smooth returns, sources of income distinguishing between different Islamic contract types, and zakat calculations when entities have committed to paying zakat from company funds.

Islamic banks and takaful (Islamic insurance) operators must disclose information about restricted investment accounts, profit-sharing ratios, and how investment returns are allocated between shareholders and investment account holders.

Unique aspects of Malaysian accounting

• Malaysia operates both conventional and Islamic banking systems, requiring unique accounting treatments aligned with Shariah principles.
• The Malaysian Accounting Standards Board (MASB) works with Bank Negara Malaysia, the Securities Commission, and industry practitioners to develop Shariah-compliant accounting guidance.
• Key challenge lies in determining whether Islamic contracts (e.g., Murabahah) should be treated as sales, leases, or financial instruments.
• Murabahah Accounting Treatment, typically recognized as financing transactions, with receivables recorded and profit markups amortized over time using the effective profit rate method.
• Under Mudharabah (profit-sharing) structures, fund managers (mudarib) provide expertise while investors (rab-ul-mal) supply capital; profits are shared, and losses borne by investors, unless caused by managerial negligence.

Foreign exchange and transfer pricing considerations

Malaysian companies engaged in cross-border transactions face heightened accounting and tax complexities involving foreign currency translation under MFRS 121 and transfer pricing compliance. Foreign transactions must be translated at spot rates with exchange differences recognized in profit or loss or other comprehensive income, while transfer pricing requires alignment between financial statements and documentation submitted to LHDN. With increased scrutiny under the Transfer Pricing Tax Audit, particularly on intercompany financing, intangibles, and restructurings, robust accounting systems are essential to support arm’s-length pricing and audit readiness.

Industry-specific accounting standards (e.g., plantations, real estate, oil and gas)

Accounting and financial year-end compliance

Determining your first financial year-end

The Companies Act 2016 grants companies flexibility in selecting financial year-ends, without mandating specific dates, though companies must establish a financial year not exceeding 18 months for the first financial period and not exceeding 12 months for subsequent periods.

Common financial year-end:

• Dec 31: Aligns with calendar year; simplifies budgeting and reporting.
• Mar 31: Avoids year-end holiday rush; better audit firm availability.
• Jun 30: Suits academic, agricultural, or tourism cycles.
• Parent company alignment: Eases group consolidation and reporting.

When selecting a financial year-end, companies should consider:

• Choose low-activity periods for easier closing and stock counts.
• Avoid peak audit seasons (Jan–Apr).
• Optimize taxable income, capital allowances, and payment timing.
• Ensure enough time for audit and regulatory filings.

Changing your company's financial year-end

• Convene the board and pass a resolution approving the year-end change; record the business reasons and note impacts on comparative reporting, tax and stakeholders.
• Decide the exact new financial year-end and confirm transitional period (shorter or longer period between old and new dates).
• Ensure the transitional financial period will not exceed 18 months (Companies Act limit).
• Prepare financial statements covering the transitional period (e.g., Dec 31 → Jun 30 creates a 6-month period Jan 1–Jun 30).
• Notify and consult auditors early to adjust audit planning, resources and reporting timelines for the transitional period.
• Notify the Inland Revenue Board (LHDN) separately; assess impacts on tax assessment year, payment deadlines and estimated tax instalments and be ready to justify business purpose.
• Notify the Companies Commission of Malaysia within 30 days using prescribed forms, stating the new year-end and confirming board resolution.
• Communicate changes to shareholders, lenders and other stakeholders; update statutory registers, accounting systems and internal deadlines.
• Revise filing, audit, AGM (if applicable) and tax calendars to reflect new deadlines.
• Watch for threshold breaches, trading resumption (if previously dormant), change of status (e.g., becoming a public-company subsidiary), or shareholder audit demands (≥10 percent voting rights) that could affect or revoke the exemption/plan.

Group consolidation rules

• Determine whether the company has subsidiaries, joint arrangements, or associates.
• Control exists when the investor has power, exposure to variable returns, and ability to influence those returns.

• Usually applies when ownership exceeds 50 percent, but may exist with lower ownership if there are contractual rights, key management appointments, or dominant shareholding positions.
• Combine assets, liabilities, income, and expenses line by line.
• Eliminate intercompany balances and transactions.
• Recognize non-controlling interests for shares held by other parties.
• Determine if the arrangement is a joint operation (direct rights to assets/liabilities) or a joint venture (rights to net assets).
• Recognize the company’s share of assets, liabilities, revenue, and expenses directly in the financial statements.
• Use the equity method to record the investment and adjust for the company’s share of post-acquisition profits or losses.
• Identify significant influence (typically 20–50 percent ownership without control).
• Apply the equity method, recognizing the investment at cost and adjusting for share of profits, losses, dividends, and OCI movements.

• Ensure proper disclosure of group relationships, accounting policies, and key judgments in the financial statements.

Deadlines for annual filings with SSM and LHDN

Financial reporting and audit requirements

Records must be kept on a continuous basis, entries made within 60 days of transaction completion, and records retained for seven years from transaction completion.

Minimum records include financial transaction records documenting all receipts and payments with supporting documentation such as

• Invoices;
• Receipts;
• Bank statements; and,
• Payment vouchers;
  • Asset and liability records tracking acquisition, depreciation, disposal, and current status of property, plant, equipment, inventory, receivables, and payables;
  • Income and expense records supporting revenue recognition, expense classification, and profit determination; and
  • Statutory registers including registers of members, directors, secretaries, and beneficial owners as required by the companies act.

Accounting records may be maintained in physical or electronic form, provided they remain accessible, readable, and capable of conversion to physical form within reasonable timeframes.

Directors face personal liability for bookkeeping failures, with fines up to RM 50,000 (approximately US$ 12,000), imprisonment up to three years, or both on companies and officers in default. Courts have consistently held that directors cannot delegate bookkeeping responsibility to accountants or bookkeepers as delegation does not eliminate director accountability for ensuring systems exist and operate effectively.

What must be included in financial statements

Complete financial statements under MFRS comprise five primary statements:

• A statement of financial position (balance sheet) presenting assets, liabilities, and equity at the reporting date;
• A statement of profit or loss and other comprehensive income presenting financial performance for the period;
• A statement of changes in equity reconciling opening and closing equity balances;
• A statement of cash flows categorizing cash flows into operating, investing, and financing activities; and
• Notes comprising accounting policies, judgments and estimates, and detailed information about line items in the primary statements.

The directors' report, required by Section 258 of the Companies Act 2016, accompanies financial statements and addresses business review and operations, principal activities, financial results and dividends, directors and their interests, auditors, and other matters prescribed by regulation. For listed companies, the directors' report expands to include corporate governance statements, sustainability reports, and risk management disclosures.

Threshold-qualified and dormant company exemptions

Annual audit requirements and auditor responsibilities

Non-exempt companies must appoint approved auditors who meet the Companies Act 2016 requirements—approval by the Ministry of Finance, registration with the Malaysian Institute of Accountants, and independence from the company. Public interest entities must also engage auditors registered with and inspected by the Audit Oversight Board.

Auditors must report whether accounting records are properly kept, financial statements agree with those records, and comply with standards. They must highlight deficiencies and report suspected fraud or dishonesty to the Registrar.

Audit committees, required for public companies and certain large entities, oversee financial reporting, assess auditor performance, review audit findings, and monitor internal controls—enhancing transparency and governance quality.

XBRL and Digital Reporting in Malaysia

What is XBRL (eXtensible Business Reporting Language)?

XBRL is a global XML-based standard that structures financial data into machine-readable formats, tagging each item (e.g., revenue, assets, profit) for automated processing, validation, and analysis. In Malaysia, the Companies Commission (SSM) implements XBRL via the Malaysian Business Reporting System (MBRS), requiring financial statement submissions in XBRL format—phased in from large to smaller entities. As of 2025, both XBRL and PDF filings are accepted, though XBRL is encouraged. Companies use compatible accounting software or service providers to map financial data to the MBRS taxonomy, developed by SSM and MASB. The MBRS portal validates submissions for accuracy and compliance, generating error reports for corrections before acceptance.

Accounting standards for foreign companies and multinationals

Malaysian subsidiaries of foreign multinationals must prepare standalone financial statements under MFRS (for public interest entities) or MPERS (for qualifying private entities) while also providing financial data for group consolidation under the parent’s accounting framework. Although MFRS aligns closely with IFRS, differences in timing, transition rules, and local adaptations often require reconciliation. Many subsidiaries keep records under the parent’s framework for efficiency, then adjust to MFRS or MPERS for statutory reporting. Clear accounting policies, thorough transition documentation, and detailed reconciliations are essential, with Malaysian auditors ensuring compliance and parent company auditors reviewing local audit work for group consolidation.

Reconciling IFRS, US GAAP, and MFRS

Malaysian subsidiaries of US parent companies face major reconciliation challenges due to significant differences between US GAAP and MFRS, particularly in revenue recognition (ASC 606 vs. MFRS 15), lease accounting (ASC 842 vs. MFRS 16), financial instruments (ASC 326 vs. MFRS 9), and consolidation models (US GAAP’s voting/variable interest vs. MFRS 10’s control-based approach).

Common reconciliation methods include:

• Dual-basis accounting, maintaining both MFRS and US GAAP records (accurate but resource-heavy);
• Separate reporting packages, preparing parent GAAP reports and MFRS statutory accounts with periodic reconciliations; or
• Year-end conversion, maintaining US GAAP records and adjusting to MFRS at year-end—efficient for simple entities but complex for active subsidiaries.

Reporting obligations for branches and representative offices

Foreign company branches must file with SSM either their audited home-country financial statements (prepared under IFRS, US GAAP, or another recognized standard) or separate Malaysian branch accounts if required. Separate branch statements are typically needed when Malaysian operations are significant or not clearly shown in the parent accounts; these must follow MFRS, be audited by Malaysian-approved auditors, and filed within 30 days of home-country lodgement or 12 months after year-end, whichever comes first.

Representative offices, limited to non-commercial activities, generally have minimal reporting obligations limited to basic registration and activity reports to MIDA.

How accounting results affect corporate tax filing (LHDN)

Corporate taxation begins with accounting profit under MFRS or MPERS, adjusted to determine chargeable income. Accounting policies and estimates influence tax computations, though tax laws determine final liability.

Add-backs (non-deductible items):

• Depreciation (replaced by capital allowances).
• Entertainment, penalties, fines.
• Non-qualifying provisions.
• Related-party expenses lacking documentation.

Deductions (tax-allowable items):

• Capital allowances under Income Tax Act schedules.
• Additional deductions for RandD, training, and approved investments.
• Exempt income excluded from chargeable income.

Maintain detailed tax computation working papers, cross-referenced to accounts and supporting documents. Adjustments following audits may alter tax liabilities and accounting records if transaction prices are revised.