“Interests” and Accounting Standard Setting in Malaysia

AAAJ 12,3 Interests and accountancy system normal panorama in Malaysia Faculty of Business and accountancy, Univer positiony of Malaya, Kuala Lumpur, Malaysia Keywords moderns report vocation, Malaysia, measuring sticks Abstract This written report offers insights into the conflicts and tensions indoors the Malayan story transaction and the power difference in this to dominate the deliver up modular shot act upon, within the mount of a rapidly devise country.It shows how fill convocations and parochial interests, a massive with jazzs of self-protection, affected the parade of banner place tantrum of use, which was controlled by different interests everyw here the period under story. At ane time the profession dominated. But far from be a monolithic body, it was in turn split according to various interests the skilful-looking six behind the Malayan experience of Certified macrocosm controllers (MACPA) and the small(a) signs behind the Mala ysian mark of Accountants (MIA).At other times big argumentation prevailed. These conflicts and power struggles be snap offed by an abridgment of the causal agent of the grace of God accountancy Standard. Selvaraj D. Susela 358 Introduction This theme offers an sagaciousness of the struggle within the wises report profession for control of the model fastenting exercise, in the context of a developing nation. The focus on stock shot is supererogatoryly geargond to reveal the restore of that carry protrude on the profession, securities industry, raise and fraternity, and vice versa.Susela (1996) illustrates that because quantitys cl earlier electric shock on practiti sensationrs (the profession), it is hardly surprising that they develop interests around commonplaceised place furbish upting, whether evince through invoice associations or firms. The specimen setting eye socket is pre displace rafted as a site of struggle in the midst of interest g roups, both(prenominal)(prenominal)(prenominal) within the profession and disclose stance it. To date, no such study has been through of the Malaysian accountancy and warning setting domains. In occurrence, t here has been very(prenominal) little scholarly analysis of events discussed here. The indite up fol paltrys the fakers and institutions conglomerate in setting an story tandard based on produce of grace, through a grounded study of the constitution makers and their loving context. The focus of the analysis is non the technical aspects of put up of grace chronicle but alternatively the process by which the regulation was presumeed. The analysis beneath extravagantlylights conflict within the profession, in powericular the power struggle amidst vested interest groups the jumbo hexad and the small firms, or rather the contract (including CPAs) and the non-chartered comptrollers. The author would interchangeable to thank the anonymous review art icleers and the guest editor of this special edition for foot n integritys and suggestions that improved this article substantially.I similarly ac kip downledge the helpful comments of set forthicipants at the Fifth Interdisciplinary Perspectives in write up Conference, University of Manchester, UK, 7-9 July, 1997. The views uttered in this account ar solely the responsibility of the author. score Auditing & Accountability Journal, Vol. 12 no(prenominal) 3, 1999, pp. 358-387. MCB University Press, 0951-3574 The saving grace Standard is an eminently suitable vehicle for empirical explanation analysis. First, it is an pop knocked out(p) which has been of anxiety to trite setters and warning setting regulators in Malaysia since 1971.Second, it is likewise intimately linked with the in Malaysia dynamic growth of the Malaysian thrift and the shift in the states designs over the last 20 to 30 old age. As these assimilate recently relate bring on aheadment of the i ntegrated empyrean, a right group affected by, and 359 impinging upon, standard setting, tracking the thanksgiving yield is a itinerary of analysing the corporate firmaments entry into the standard setting process. Third, the diachronic analysis captures the changing attitudes to local anaesthetic anaesthetic anaesthetic initiatives versus overseas influences over time.Fourth, this is the l one(a)(prenominal) standard which was considered controversial at the time of the study. The existence of two accountancy bodies, the Malaysian arrive at of Accountants (MIA) set up in 1967 by the state as a statutory body to regulate the invoice profession, and the Malaysian Association of Certified national Accountants (MACPA) set up as a hugger-mugger association in 1958, complicates the notion of interests. The conflicts surrounding the two major captain person bodies became the focal luff as each strove to dominate the standard setting process. For a time, the MIA and MACPA collaborated on the Good exitStandard. The outcome was the Malaysian chronicle system Standard (MAS) 6, which call for the amortisation of blessing over 25 years. However, MIA tangleed the standard in 1993, whereas MACPA deferred its approval. Further much(prenominal), other gypers lobbied the state, and MIA was asked to defer its borrowing of the standard. This paper analyses these events with a view to identifying the interests convoluted and the dynamic relationship mingled with these interests. The discussion is organised as follows the contiguous section discusses briefly the notion of interests and the view of standard setting engraft in the empirical analysis.Then follows a brief review of the historical and institutional context in Malaysia, the object of which is to identify relevant features of the Malaysian context which whitethorn be unfamiliar to non-Malaysian readers. A historical analysis of the dis ratement fortunes of, and arguments put forward by, the various constituenticipants in the standard setting process appears in succeeding sections. The contribution of the paper is summarised in the conclusion. Interests Watts and Zimmerman (1978) heralded their study of the lobbying behaviour of companies as the beginnings of a theory that ability explain the endeavor of accounting standards.Similar studies (Haring, 1979 McKee et al. , 1984 Watts and Zimmerman, 1986) too analysed the association between characteristics of respondents lobbying on circumstantial accounting issues. The model utilize was a rational choice/rational actor model. The concern in this section is not directly with the epistemological claims of the writers, although these claims stick out been subject to penetrating criticisms (Chua, 1986 Hines, 1988 Whitley, 1988 Robson, 1993). Rather, the aim is to contrast the approach taken here with the rational choice model employed by positive accounting theorists.AAAJ 12,3 360 Cl early(a), in that reparation a r definite connections between actors affable locations and the interests they acknowledge or act upon, but at that place is no simple correspondence between the two (Hindess, 1989, p. 83). Actors atomic number 18 not mere creatures of their positions in sets of social relations, or their class, gender, or group. The forms of assessment available to them be rarely so bounciness as to be attached uniquely by their social location. The conclusions of their deliberations numerate on complex internal and discursive processes.They are not laid solely by the forms of assessment employed. This implies that interests do not break d consume as a mere transmission device between social complex body part, on the one hand, and individual action, on the other. Interests cannot determine the intend whereby the structure of family produces its effects. In other words, social structure is by no means a given entity operating outside of and above actors, manipulating them to produce its undeniable effects. But this does not negate the cognizance of the existence of relatively pervasive and enduring social conditions.Instead, it volunteers a view of interests as beliefions. If they are to take away consequences, it mustiness be possible for them to be formulated by rough actor or actors, and in this or whatsoever other way, to provide them with reasons for action. thitherfore, the interests and reasons for action essential by actors depend on how they assess the contextual resources they are in a position to employ. Robson (1993) uses this mode of inquiry in his study of SSAP 13 on Research and Development.Being attentive to the forms of assessment utilise by actors in the standard setting process, he suggests not single that interests are an outcome of a historical process but that the credit of a particular accounting issue as a paradox is also the outcome of a historical process. The conditions under which an accounting issue is conceived as a puz zle at a specific lay of time are seen as matters for investigation (Hindess, 1988, 1989 Robson, 1993). In other words, each accounting standard contains a representation of a specific social and policy-making context.Cooper and Sherer (1984, p. 208) contend that . researchers should be aware of the possibility that actual polity outcomes may be an imperfect match with the underlying intentions and motivations and . the strategic consensus and patterns of outcomes (in this case the accounting standards) may more or slight consistently set up some specific interest above others. These tenets pick out guided the analysis of interests presented below. One of the essence(predicate) implication is that analysis of standard setting must not be restricted to key actors in isolation.Instead, an overall taste of the domestic political parsimony and the global political miserliness is necessary. haoma 1 shows that the interaction of the four organising principles the state, the p rofession, the food market and the residential area has to be analyze within the local and global context, with due emphasis on the specific historical and DOMESTIC POLITICAL ECONOMY Interaction of State, Profession, Market and conjunction Constituencies of Regulation Interaction of Various Interest Groups Standard-setting Accounting standard setting in Malaysia 361DOMESTIC POLITICAL ECONOMY Stages of Economic Development Colonial story Socio-political sparing systems GLOBAL POLITICAL ECONOMY Impact of Transnational Corporations world(prenominal) Trade International Accounting Standards International Accounting Firms Figure 1. theoretical account for experienceing the accounting standard setting process institutional environs of the society in which accounting operates. It must be recognised that the economy is now dominated by large corporations, and that the state is officiously involved in managing the economy (Jesudason, 1990).The historical and institutional context Brief account statement of the accounting profession in Malaysia Since its formation, the MACPA has been spryly involved in providing its peniss with technical guidance and component of life as well as setting the passe-partout examinations. The dominant force behind the MACPA is the chartered accountants (CAs) from the UK and Australia. During the period 1958 to 1967, in that location was no legislation to regulate the accountancy profession.There were in Malaysia galore(postnominal) accountants trained through various overseas bodies, with the balance trained through local examinations and training conducted by the MACPA, the however active local accountancy body during this period. Its social station consisted mainly of immaterial qualified accountants, specifically CAs from the UK and Australia, and a handful of local CPAs. Membership of the Association of Certified Chartered Accountants (ACCA) in Malaysia was also growing. The double sextette1 back up the MACPA a nd locals training in the monolithic Six firms were promote to sit the MACPA examinations.However, ACCA and Australian Society of Accountants (ASA) members received little halt from heavy(a) Six firms (Susela, 1996). The ACCA and ASA AAAJ 12,3 362 graduates found it difficult to gain MACPA membership2. The state was persuaded by disgruntled ACCA and ASA members to set up a local ascendence to regulate the accountancy profession. The Accountancy Act 1967 provided for the registration of accountants and the try outment of the MIA. The MIA recognised ten headmaster bodies for adit purposes the ASA and ACCA included.However, MACPA continued to dominate the development of the accountancy profession as the MIA was content with the statutory function of registering accountants practising in the country (MIA, 1987). Since 1973 at that place arrest been several(prenominal) attempts by the two bodies to form a single national body through merger (MACPA, 1974). The state was keen t o see the two bodies merge. At one stage the and so Deputy acme Minister (currently the Prime Minister) supported the formation of a unified profession (MACPA, 1980). Finally, the two bodies arrived at a merger aim which was submitted to Cabinet but was rejected in 1985 (MACPA, 1985).The reasons for the failure of the merger are examined below, at the empirical stage. When the merger proposal failed, the Ministry of Finance in 1986 appointed a practising accountant (formerly a Council member of MACPA, and partner of a bear-sized Six firm) to give-up the ghost MIA electric chair, replacing the Accountant- normal who had serve welld as President since 1967. At the first Annual General Meeting of MIA held in September 19873, 700 out of over 2,500 ACCA members attended and voted in a new Council committed into turning MIA into an active regulatory professional body (De Freitas, 1992).The history of standard setting (focussing on thanksgiving) MACPA was at the forefront of develo ping and put out accounting standards forward to the activation of MIA in 1987. Standard setting activities commenced during the early 1970s. The relatively laissez-faire atmosphere of the 1960s was replaced by greater state intervention with the introduction of the unsanded Economic Policy in 1970, which seek to increase the Bumiputras4 protestership of the corporate domain to 30 percent by 1990.Part of the effort to restructure the society was say at reducing foreign ownership of assets in Malaysia. The New Economic Policy created an surroundings contributive to corporate mergers and takeovers ( false topaz, 1981, p. 9). Several foreign-owned companies were acquired by local corporations and by cosmos enterprises operated by the state. The Malaysian government set up various government-controlled organisations to acquire interests in the corporate sector in trust for Bumiputras.In raft such as these, the intention of such planned acquisitions was to achieve socio-polit ical rather than corporate objectives. In this process, huge numerates of thanksgiving were recorded by big conglomerates. A skillful commission was set up by MACPA in 1971, its immediate function being to act on a letter dated 10 September 1971 sent by Bank Negara Malaysia (the Central Bank) to the past President of MACPA5, which pointed out, amongst other things, that there was a need for . . rofessional standards to guide reporting by the accounting profession Accounting guidance on specific accounting matters, including revaluation of assets, standard setting the creation of goodwill, and the criteria by which accountants would be in Malaysia prepared to recognise such items, and the treatment of stock in per centum out (MACPA technological charge, 1971). In that letter the Governor also urged that MACPA take stairs to engraft for its members a statement of generally real accounting principles and a statement of generally accepted auditing standards.In the same lett er, the Governor referred to the issue of goodwill as follows F F F these analyses give rise to unspoilt reservations close the upward revaluations of trustworthy assets and the creation of goodwill by companies prior to offering their shares to the public or applying for listing on the Stock alternate Generally, our delegacy tends to view goodwill with scepticism and I would like to save the assurance that the auditing profession would not support the valuation placed on goodwill without full confidence that it is fairly stated. 63 After 1976, the MACPA Technical Committee undertook the review and consideration of international accounting standards (IASs) for possible local adoption, as well as studying the accounting policy of industries of particular importance to the Malaysian economy, or otherwise of interest to Malaysia. During this phase (1970-1980), standard setting was very over often an ad hoc activity as radical infrastructure was being put in place.The Central B ank, the Capital Issues Committee (CIC part of the Ministry of Finance) and the Kuala Lumpur Stock Exchange (KLSE) were setting the standard setting order of craft in a context where the proliferation of IASs was state and welcomed, particularly as IASs were regarded as a means for achieving international recognition (Susela, 1996)6. However, beginning from 1980, the focus of the standard setters was on developing guidelines on issues that were peculiar to the Malaysian environment and for which there were no IASs, or where the IAS treatment was contrary to local legislation.Hence the emphasis was directed towards developing technical bulletins and recommendations which were later issued as definitive Malaysian Accounting Standards (MAS). When the International Accounting Standards Committee (IASC) issued IAS 22 on Business Combinations in 1985, two issues were found to be contentious in the Malaysian environment (1) merger accounting and (2) accounting for goodwill. MACPA had t o consider two separate accounting standards to vie with these issues adequately. MAS 2 on Accounting for Acquisitions and Mergers was issued in 1989.Goodwill was the other issue. wherefore goodwill was a particularly snarled issue is clarified in the empirical section. Until 1986, MACPA issued its own standards (or adapted IAS standards) for adoption by its members. There was no other standard setting process. When the MIA was reactivated in 1987, it select all the standards antecedently AAAJ 12,3 364 adopted by MACPA. On 14 April 1986, a Joint MIA/MACPA working Committee had been form to discuss possible co-operation between the two bodies.From may 1987 until 1992, all technical standards were developed joinly by MIA and MACPA and issued as joint statements. The efforts of the Joint MACPA/MIA Working Committee military issueed in the establishment of a habitual Working Technical Committee in March 1989, consisting of members of MACPA and MIA. This also label an important era in the standard setting history where both bodies worked jointly on the standards, especially addressing issues pertinent to the local environment, for example, MAS 1 on Earnings Per Share MAS 2 on Mergers and Acquisitions and MAS 5 on Accounting for Aquaculture.One of the standards that resulted from this joint effort was the Goodwill Standard. Although the Goodwill Standard had been on the order of business of the MACPA Technical Committee since 1971, it was not abide byd until much later. It is not lay subject why this was so7. The issue was raised several times by the CIC and the MIA was approached to develop a standard in 19878. This prodded both bodies to work jointly, as by this time MACPA had immense expertise in standard setting.The MIA, in its frenzy to take over the leadership of the accountancy profession and maintain its privileged corporatist arrangement with the state, and MACPA, in its eagerness to uphold the self-regulatory circumstance quo, seized this opportunity to institute their responsiveness to the call from the state and the prevailing public interest rhetoric. On 1 July 1987, the Presidents of the MIA and MACPA signed a circular to members which contained a questionnaire inviting comments on a discussion paper on goodwill accounting.The views received were so several(a) that the issuance of a standard was deferred. While the debate continued, the need to establish an acceptable method of goodwill became more crucial. However, the two bodies did not pursue the matter until there was promote prompting from the CIC. The CIC headstrong to take matters into its own hands by including in its guidelines subsection 17. 51 (CIC, 1991), which specifically states intangible asset asset assets downfall into two (2) broad categories as follows (i) (ii) goodwill and identifiable intangible assets, such as patents, franchises, etc.The first category should be treated in accordance with the relevant accounting guidelines or account ing standards acceptable to the CIC. The min category should be amortised systematically over its useful economic life. It should not be re fosterd or defy preceding(prenominal) amortisation reversed and it should be written off immediately in respect of some(prenominal) ageless diminution in value. The promulgation of the CIC guidelines was considered to be timely (Tan, 1991, p. 3). However, it left wing some(prenominal) issues unanswered, such as the recognition and measurement criteria for intangibles.It was recommended that these issues be addressed victimisation a holistic approach, and that the local professional bodies were most qualified to deal with the issues. This led to the next line of action by MACPA and the MIA the Accounting outfit of a study by an academic to determine the extant class period of standard setting goodwill accounting in Malaysia. A pile of published annual reports of 276 in Malaysia companies listed on the main board of the KLSE was conduct ed in 1991. It was found that 155 of the 276 companies had a goodwill accounting policy.The treatments used were as shown in give in I. 365 The analysis clearly predictd a diversity of goodwill accounting treatments adopted by publicly listed companies in Malaysia. In fact, there was quite an even spread of companies between the three major approaches to goodwill. The MIA/MACPA afterwards jointly reissued another discussion paper on goodwill to notice views from members and user groups on the preferred treatment of purchased goodwill. The revised discussion paper was issued in August 1991. A total of 112 responses were received.An analysis of their preferences is shown in Table II. feel that Table II refers to the preferred method of accounting for goodwill rather than the actual method used by listed companies. Of the respondents, 69 percent were elderly officers of commercial, industrial and financial institutions. The preference for the amortisation method at that time contr asts both with the diversity of practice and antipathy shown to this method later9. found on the comments obtained, MAS 6 was issued as an exposure draft by the MIA in September 1992.MAS 6 was based on the UK ED 47, which had raised extensive statement in the UK and had been shelved by then. However, based on the same responses to the survey, MACPA decided that existing views were too diverse and decided to defer MAS 6 until the delegate of the UK ED 47 was determined. MAS 6 required that goodwill be amortised over 25 Treatment of goodwill amortisation Permanent item warm write-off another(prenominal)s nub Source Tan (1991) Number of companies 55 52 42 6 155 Percent 35 34 27 4 100 Table I. Treatment of goodwill 1990 surveyTreatment of goodwill Amortisation Permanent item Immediate write-off perfect Source Tan (1991) Number of companies 85 25 2 112 Percent 76 22 2 100 Table II. Treatment of goodwill preferences AAAJ 12,3 366 years. Although the standard was the result of the joint effort of both professional bodies, MACPA decided to defer adoption of the standard until the IASC issued its revised standard on goodwill. Due to the disagreement over the adoption of the final standard (MAS 6), the Common Working Technical Committee was dissolved in 1992 and the MACPA/MIA collaboration accordingly ceased.It has been hinted (by most respondents from the profession and market, in particular, from both MIA and MACPA committees) that the goodwill issue contributed world-shakingly to the cooperative gesture on the part of both the bodies, as well as to the subsequent licentiousness of the co-operative charade. After the Committee was dissolved, both professional bodies pursued separate ship canal of developing standards. The now separate accounting standards committee of the MIA recommended that the MIA Council adopt MAS 6 in 1993 as a definitive standard to be useful commencing on or after 1 January 1995, whereas MACPA deferred its adoption.This led to co nfusion. It also peril MACPAs control over standard setting and over the profession more generally10. The adoption of MAS 6 raised objections from certain big corporations, and the Federation of Public Listed Companies (FPLC)11 decided to take the matter up with the Minister of Finance, who referred the matter to the MIA. A memorandum, submitted to the MIA by the FPLC, was delivered by hand to the MIA on 6 December 1993. The MIA intemperately initially stood by its decision to implement the Standard.However, towards the end of 1994, faced with change magnitude state shove, the MIA deferred implementation of the standard to 1 January 1997. In July 1997, the monetary account Act 1997 was passed and the Malaysian Accounting Standards Board (MASB) was formed to issue legally binding accounting standards12. Apparently, standard setting activity was taken out of the hands of the profession. Subsequently, the Companies Act 1965 was amended to require compliance with approved account ing standards13. Until the establishment of MASB, enforcement of standards had been undertaken by the professional bodies.However, this mechanism was felt to be less effective as the profession could only take action against their own members rather than the directors responsible for financial statements. MACPA and MIA members were likely to be auditors or employees rather than directors of non-complying companies (Susela, 1996). With accounting standards now enforceable by law, the stakes for players affected by the tug along of accountants were raised, intensifying the contested personality of standard setting. Interaction of state, profession, market and community Puxty et al. 1987) identify three organising principles of accounting regulation. Within each principle, there are actors. Puxty et al. (1987) refer to diverse state managers such as politicians and senior civil servants representing the state agents of factions of crownwork representing the market, and representati ves of organised interest groups representing the community. An explicit corporatist Accounting theorising is built into Streeck and Schmitter (1985), which raises the standard setting possibility of a fourth organising principle, the corporative-associative.This in Malaysia implies an acknowledgment of a substantial degree of self-sufficiency on the part of the state from the business sector (market). In Malaysia, the state has shown that it is capable of pursue interests other than that related directly to the 367 economic sphere (Jesudason, 1990). Most notably for our purposes, the state intervened in accounting regulation in 1967 by setting up the MIA, a move seen as aiming to achieve social objectives. In particular, with the implementation of the New Economic Policy, the state sought to ad full the economic inequality among the various races.The setting up of the MIA was viewed as a note to increase the number of Bumiputra accountants in the country. Under the Accountants A ct 1967, accounting graduates from local universities were given recognition by the MIA, thereby significantly increasing the accountant population, especially amongst Bumiputras (Susela, 1996). Under the corporative-associative arrangement devised in Malaysia some power and autonomy of the state was delegated to the MIA. It was this arrangement that an activist MIA used some 20 years later to attempt to usurp the standard setting authority of MACPA.This paper views institutions and practices as an outcome of interactions between parties who are positioned within a structure of politico-economic relations that is simultaneously united and divided by internal contradictions, tensions and struggles. Accordingly, the actions and accounts of these parties are theorised as an expression of the fusing of the principles of market, state, association14, and community. Actors As state earlier, certain modes of analysis only recognise human individuals as actors (for example, rational choice liberal political economy).However, the importance of actors other than human individuals, such as capitalist enterprises, churches, political parties, state agencies, trade unions, and professional associations, has been recognised. Hindess (1989, p. 92) calls these social actors and argues that they clear a place in social inquiry. On the other hand, Puxty et al. (1987) note that it is a slide to stress the explanatory power of structural conflict if the effect is to forswear or neglect the critical portion of agents in the reproduction of social systems.They argue that although the agents are clearly conditioned by the location of their positions within the class structure, the inventive responses by the agents to the manifestation of contradictions that are continuously propel up are not programmed by this location. The state, profession, market and community mixture is not used here to suggest that predetermined interests are thereby created or presumed. It is against th is background that the conceptions of interest formed by individual actors are discussed below.However, it is necessary first to identify the actors whose conceptions will be analysed. AAAJ 12,3 368 Constituencies of standard setting in Malaysia At various times, different institutions and interested parties direct capture involved with the standard setting process. These parties, referred to here as constituencies15 in the standard setting process, form the target group for the empirical study. Through the review of the annual reports of both MACPA and MIA during the period 1971 to 1995, a listing of all persons involved in the accounting standards committees of both bodies was constructed.A total of 101 persons were involved. This represented the initial research sample and a total of 101 letters were sent out. The breakdown of the respondents is provided in Table III. The sample has been categorised16 according to the social location of the actors as follows State (1) Ministry of Finance. (2) Treasury. (3) Accountant General. (4) Bank Negara Malaysia. (5) Securities Commission. (6) Inland Revenue Department17. (7) theater director General of Insurance. (8) Auditor General. (9) Registrar of Companies.Profession (1) The Big Six public accounting firms. (2) Small and medium public accounting firms. Market (1) Listed corporations. (2) Unlisted corporations. (3) Investors association. result Initial sample State Profession Market Community Total 19 45 23 14 101 Percent 19 45 23 14 100 Number 12 26 16 11 65 Percent 18 40 25 17 100. 0 Table III. Analysis of responses (4) (5) (6) (7) (8) (9) (10) (11) The Kuala Lumpur Stock Exchange. The Federation of Public Listed Companies. Multinational companies.Financial institutions. Merchant and Commercial Banks. Tax and Management Consultancy firms. Federation of Financial Analysts. Association of Merchant Bankers. Accounting standard setting in Malaysia 369 Community (1) Institutions of Higher Learning. (2) Other insti tutions such as the Institute of Strategic Issues (ISIS), Malaysian Institute of Economic Research (MIER), Malaysian Economic Association (MEA), Institute of Surveyors. (3) Consumers Association. (4) Trade Unions. (5) Environmental groups.The responses of the above 65 actors to follow-up in-depth interviews provide the important basis for the empirical analysis below. In order to maintain the namelessness of the respondents in this paper, the respondents are quoted by reference to the interview number, that is interview number 1 to 65 (i-no-1 to ino-65). A brief overview of the constituencies and actors involved in goodwill standard setting is provided below, prior to the discussion below of the conceptions of interests brought into play in that arena.From Table III, it can be noted that participants from the profession (45 percent) and market (23 percent) formed the biggest group of players in the standard setting process. With regard to the professional accounting bodies, up unt il the formation of the MASB, the standard setting machinery operated under the auspices of MACPA and the MIA (from 1987). They were the standard setters. As late as 1995, one practician noted that the way standards are set today and what it was, in the last ten years, has not changed dramatically as to who are the key players doing it (i-no-18).However, as argued below, the corporate sector had lately been adopting an active role and the autonomy of MACPA and the MIA from the corporate sector were later on questioned, or compromised, or both. The accounting firms were identified as players in the process (i-no-18), but they did not speak with one voice. Most respondents emphasised that it was the Big Six (predominantly CAs and CPAs) that were the major players in the standard setting process in the MACPA camp, whereas the smaller firms drove the show in the MIA (predominantly ACCA members). However, until the AAAJ 12,3 370 ormation of the MASB, the significance of this division d erived from the fact that standards issued by MIA were influential with respect to all accountants, whereas standards issued by MACPA wedged only on its own members. The participation of the major publicly listed companies, including multinationals, in standard setting increased in tempo with the rapid growth in the country. In 1992, MACPA set up a Commerce and Industry Committee to ensure that the interests and views of members in commerce and industry are properly reflected in the Associations policies and activities (MACPA, 1992, p. ). The involvement of commerce and industry came to the fore with the MIAs adoption of MAS 6. The business sector had previously been quite content with the standard setting regime until a standard was adopted that appeared unfavourable to a pile of the publicly listed companies. dismantle then, the FPLC only became involved when MACPAs request to the MIA to defer the standard was turned down (i-no-8). Multinationals had various representatives, acc ounting and others, participating in the regulatory authorities and also in the profession.As one multinational respondent explained I am in MACPA, we have got passel in MIA, we have got sight in MIT (Malaysian Institute of Taxation), MAICSA (the Malaysian Association of The Institute of Chartered Secretaries and Administrators), CIMA (Chartered Institute of Management Accountants) we encourage hoi polloi to participate in local regulatory bodies. Our chief executive director used to sit in the CIC (Capital Issues Committee) before the present SC (Securities Commission) was set up (i-no-64).While some respondents welcomed the involvement of multinationals in standard setting because of the resources they great power contribute to the process, others were also aware that the multinationals had their own agendas (i-no-64 i-no-9). Many respondents (e. g. i-no-34 i-no-13 i-no-3) claimed MACPA was stalling on the goodwill standards because of objections from industry There was a lo t of objections from industry and might be MACPA in some ways fore truism that and it did not lack to get involved in that sort of hassles. But MIA did they are new? ecause they new to the game and did not take it will be a problem. They apprehension they can make a rule and impose it (i-no-34). The Accountant General was seen by some respondents (i-no-7 i-no-10 i-no-22 i-no-28 i-no-35 i-no-37 i-no-51) as the intermediary between the profession and the state and was believed to be on the MIA Council in order to represent the national interest. The result of the Accountant Generals involvement in standard setting was unclear. Although not a member of the Accounting Standards Committee, he was a member of the MIA Council that approved the Goodwill Standard.The Accountant Generals view was that due consideration was not given to the views of all parties potentially affected by the Goodwill Standard. The states views on the standard were not considered before the adoption of the s tandard, as one might expect in a corporatist context. This view was supported by one respondent from the Accountant Generals office, who tell that the state only reacted after the Goodwill Standard had been issued (i-no-35). Subsequently, however, the state called a meeting of the MIA nd the other parties to discuss the objections to the standard and the Ministry Accounting of Finance requested the MIA to defer MAS 6. standard setting As previous sections have noted, regulatory bodies such as the Bank Negara in Malaysia and the CIC18 compete a significant role in getting goodwill onto the standard setting agenda of the professional bodies in the 1970s and 1980s. In addition, the perception that accountancy might become an occupation to which 371 Bumiputras could be directed was part of the New Economic Policy.By the 1990s, however, with the corporate sector and the Big Six lobbying strenuously against MAS 6, the state did not feel inclined to defend the standard. Accounting stand ard setting and interests Perceptions about the professional bodies As shown in Appendix, respondents were asked six unrestricted questions. The third question was aimed at understanding perceptions regarding the existence of the two professional bodies. The question was as follows The proposal for a merger of MIA and MACPA is again being pursued.Why do you think this issue is currently being pursued in spite of failures of such attempts in the past? Do you consider that circumstances have changed now? Certain themes have been extracted from the transcripts of interviews on grounds of their relevancy to issues raised in this paper. As noted earlier, the professional bodies had discussed merging in the early 1970s. Eventually, a merger proposal was submitted to Cabinet in 1985 in order to amend the Accountants Act 1967 accordingly. In fact the merger was encouraged by the Deputy Prime Minister at that time.However, the proposal was rejected. A common understanding from the accounts of respondents within the profession was that the merger was seen by some groups as contrary to their interests. For example, the Institute of Cooperative Auditors, which had approximately 40 members at that time, wanted to be included in the merger, a demand not acceded to by other key players (i-no-3). Following successful lobbying of the Ministries bear on, the opposition of a key Minister to the merger was sufficient to derail it19.One respondent recounted the blot when the merger proposal was rejected. There was rising discontent within the ACCA regarding its lose of activity vis-a-vis MACPA. This inevitably led to strong support for the A reactivation of the MIA. The efforts of the newly appointed President (a discontented former MACPA Council member) to revive the MIA and establish it as the one and only national professional body were supported by the ACCA camp (i-no-24 i-no-33). One ACCA member noted just that those who got into MIA from ACCA then had a bit of missionar y zeal (i-no-29).He reasoned that when MIA was resuscitated, the ACCA members feared that if they did not take an active role in running the MIA, then it would become another MACPAcontrolled body. In 1994, the two bodies were subtly forced20 to sign a memorandum of understanding to work towards a merger. At the time of the field study, the AAAJ 12,3 372 negotiations between the two bodies were in earnest. However, by the end of 1995, the talks were called off. Most respondents (from the profession and the market) alluded to the existence of friction and professional jealousy between MIA and MACPA.This dynamic was seen to contribute to the intensity of the struggle over standard setting, as that arena was one where the dominance of one body over the other could be sought and resisted, and the outcome make more or less visible. Contributing to the struggle was the fact that both bodies were supported by powers seen to be equally dominating (i-no-19 i-no-16 ino-17 i-no-48). Respondent s also noted that MACPA supporters were concerned about the withdrawal of government recognition if it did not get in with MIA (i-no-23).It was felt that the rivalry between the two bodies extended to the arena of standard setting. As noted previously, MACPAs Accounting Standards Committee was viewed by respondents in the profession as dominated and supported by the Big Six, and it was said to have the advantage in terms of technical support and resources. On the other hand, MIAs Standards Committee was dominated by small firms. As noted by a former Chairman of the Committee, its concern was with parochial interests (i-no-13).This comment from a practitioner typified the cutaneous finds F F F in truth MIA in all respects has done a lot for the smaller accountants but they have lost a sense of perspective in dealing with MACPA. I know there have been lots of excitation on both sides and that has all mucked up the standard setting process (i-no-43). Views about the profession Resp ondents from the state revealed mixed perceptions about the profession. On one hand, those who had been in close contact with the profession (i-no-14) had reservations about its ability to set standards.On the other hand, those who were mere observers (not in touch with the developments in accounting circles) slake held onto the image of the professional as being somewhat neutral (i-no-22 i-no-59). The views of practitioners differed between the Big Six and others. On one hand, the Big Six practitioners were of the view that the profession needed to be more proactive and responsive to change, to be flexible and visionary (i-no-18 ino-29 i-no-57). It seems the profession was beginning to acknowledge other players in the standard setting arena.There was also a willingness to allow market forces to play a role. On the other hand, the small practitioners emphasised the notion of guardianship onto the ideals of sanctity and independence. However, they conceded that accounting might not be as objective as it has make itself out to be (i-no-8 i-no-24). The market respondents (mostly businessmen who were also accountants and members of the professional bodies) stressed the need for a unified profession (i-no-47 i-no-15) and they axiom themselves as important players in the standards setting process (i-no-2 i-no-3 i-no-15).The perception amongst the business community was clearly that accounting standards should facilitate business, and that the accounting professions role was to serve the business community. There was unanimous agreement that accounting Accounting standards should not be the monopoly of the accountants and that the standard setting profession should not be left to regulate standards because of vested interests in Malaysia (i-no-12 i-no- 52). The community respondents emphasised the ethical foundations of the profession.There was still a sense of respect accorded to the profession. In 373 particular, the moral obligation associated with being accord ed the status of a profession was emphasised by such respondents, who further saw the involvement of the state in accounting regulation as being limited to achieving socio-political goals. Some respondents held that the MIA was set up to partly ensure the New Economic Policy objectives were met in terms of ethnic composition of professionals.Their feeling was that the state should be involved in the development of the profession as a whole, but at the same time they supported self-regulation. A clear message comes through from the analysis of the perspectives of the four groups. The state respondents had become aware that the profession had internal conflicts and vested interests. They gave the impression that although the state might have an interest in the development of the profession, they preferred to keep an eye from a distance.That is, division within the profession had not seriously disrupted the trueness of state agencies to corporatism. The profession and market responden ts were also aware of the internal struggles and conflicts and and then wanted to be actively involved in the regulatory process. However, the community respondents, whilst acknowledging conflict within the profession, preferred to hold onto the notion that the profession knows outperform. To summarise the internal conflicts and tensions within the profession impacted on the standard setting process.The MIA, the national accountancy body with the advantage of being officially constituted as the accounting player in corporatist arrangements, became a problem for MACPA when the MIA was reactivated in 1987. Because of the close links between MACPA and the Big Six, the MIAs adoption of an active stance was a threat to the Big Six and the foreign accountants employed by them. MIA, representing quite different constituencies, became a vehicle through which small, innate firms could become involved in standards setting.In particular the authority inherent in corporatism gave the MIA co nstituents the opportunity to usurp the authority of their MACPA counterparts in an important arena of professional activity. It was precisely the Goodwill Standard that provided the first opportunity to exercise that authority. However, the respondents comments shew that the struggle between MIA and MACPA was conditioned by and a function of the authority of other powerful players, for example the state and, most particularly, the business sector, as will be shown below.Accounting for goodwill analysis of discourses Analysis of responses to question 6 (in Appendix) is discussed in this section. The question was What are your feelings about the Goodwill Standard issue? AAAJ 12,3 374 The aim in this section is not to validate or dispute these claims but rather to draw attention to the conceptions of interest they reveal. The issues raised fall into three categories (1) those concerned with the technical and professional rivalry (2) those concerned with socio-economic consequences (3) those concerned with the need to study the problem in relation to the specifics of the Malaysian environment.Concerns about technical and professional rivalry An MIA Council member (i-no-58) believed the Goodwill Standard was objected to because it was perceived that MIA was trying to lead the world. The respondent admitted there was a lack of understanding of the issues F F F in fact the FPLC people were with us too. The secretary was surprised that amortisation of goodwill you can still requital out dividends. It is just at group consolidation only. Just affects group accounts does not affect the companies accounts There was a lack of understanding of accounting.Because everybody panorama that goodwill here is mostly brands, patents and those sort of things we are not lecture about that it is just goodwill on consolidation. This position focuses on the impact of MAS 6 on dividend policy. Opponents of the standard even the FPLC, cited here in support later criticised i t on the basis of its socio-economic consequences. As well as illustrating further the shifting of positions throughout the goodwill controversy, the MIA Council members statement could be seen as part of the MIAs concern with technical purity.Those arguing on the basis of generally accepted accounting principles also supported the implementation of the standard because the amount of describe goodwill was rising as intercorporate acquisitions proceeded hence the need to implement a standard (i-no-20 i-no-42 i-no-33). Another argument used by the proponents of MAS 6 (especially the MIA Council) was that the standard, aside from allowing a longer maximum amortisation period (25 years or else of 20), was similar to overseas standards and therefore should apply to Malaysia. However, it appears that there were other concerns as well.In particular, the then Chairman of the MIA Standards Committee recounted I was Chairman I had no role in so far as structuring the Goodwill Standard I w as chairman of the committee which passed a resolution to say we adopt it and recommend the Council to adopt it We were not concerned with the technical aspect of the Goodwill Standard were concerned with the administrative aspect and I did an administrative role MIA cant be subservient to MACPA (i-no-8). The link between professional rivalry and standard setting is apparent here.Socio-economic and political issues Opponents of MAS 6 attacked the MIAs technical arguments. Those concerned with the socio-economic consequences argued that the accountants concept of goodwill is merely a meaningless balancing figure, the result of an accounting treatment which produces meaningless information (i-no-2 i-no-3, i-no-15). In Accounting 1992 scathe Waterhouse circulated a document to clients which stated standard setting The proposals as set out in the exposure draft on accounting for goodwill would, if adopted, have a major impact on the earnings record of many Malaysian Groups.We, there fore, encourage you to consider the proposals carefully and write to the MIA and MACPA (Price Waterhouse, 1992). in Malaysia 375 in short after, the FPLC produced a memorandum (1993, p. 8) which claimed that MAS 6 ignores business and economic realities. Echoing the Price Waterhouse position, it claimed that goodwill amortisation reduces postacquisition earnings and is a disincentive to businessmen and entrepreneurs who take for granted significant risks in their investments, thereby discouraging the growth of companies through mergers and acquisitions (FPLC, 1993).A practitioner from a Big Six firm simply said there is a broader depiction to it (i-no-19). Another respondent expanded on this broader picture F F F we are arguing that we are in the stage of experiencing growth and therefore, it might be too early to adopt the goodwill standard as it might have a solemn impact upon the profit of listed companies (i-no-20). Other opponents also made similar arguments, adding that goo dwill amortisation would, in the absence of associated tax relief, hamper development of capital markets through its impact on reported earnings.The other concern expressed was that Malaysian companies would be placed at a competitive prejudice by the standard. A practitioner from a Big Six firm explained F F F they actually said look why dont we just ride for a while first, given that IAS 22 was then under revision let us look where, which direction they are moving and when that standard comes we can look at our standard, I think also looking at UK, there isnt a need why should Malaysian companies be put at a competitive damage? (i-no-33). Another respondent (an analyst) remarked F F F some of us are able to see beyond accounting policies the significance of it if you are really looking at the economic worth of the company, you know that whether you write off goodwill over 40 years or one year or whatever, the economic worth of the company is the same it is just an accou nting policy (i-no-11). In the analysts view greater discussion should have ensued among the various interest groups on the economic consequences of the standard.The economic consequences discourses cited here indicate how the interests of the corporate sector were now being constructed and represented through a vision of commercial reality standing in contrast to the esoteric technical discourses of accountants21. Whatever the validity of these claims, the interests of the sector were now firmly implant in debates about standard setting. Consideration of the specific nature of the economy Some respondents appealed for a consideration of the specific nature of the Malaysian economy, pointing out that Malaysia was a developing economyAAAJ 12,3 376 with particular state policies in place. The result was a unique socio-economic context that required consideration before any standard on goodwill was imposed. For example, a former banker pointed out that it was the peculiar modulate en vironment in Malaysia that created huge goodwill accounting numbers, some portion of which might be represented by identifiable intangibles. MAS 6s amortisation requirements were problematic because they did not acknowledge that Malaysia was different F F F my concern now is the user ow I am on the other side when I look at some standards, I say, it is not serviceable then I would have to structure the business deals in such a manner so I can overcome this problem For example, the goodwill issue you are going to have a lot of problems one of which is the peculiarities of listing in the country because in Australia, you can go up and get the cost of listing, say $250,000 and merchant bankers fees, that is it.In Malaysia, because of the restricted nature and a premium allowed for listing there is a value sometimes if it is a loss-making company, there is a bigger value so, you actually have this value concern that is there is being created because of the supply and demand may be until such a time as the premium dusk (i-no-3). A corporate director, also involved in the standard committee, made a similar observation F F F perchance in a developed country like the UK and Australia and all that ot much goodwill paid anyway when you acquire a company because their markets are very matured, their businesses are very matured, so maybe their purchase expense is very close to their NTAs, but in a country like Malaysia, where there is high growth and lots of growth prospects, very frequently the valuation is on the basis of price-earnings capabilities and on that basis, you find that a high portion of the purchase price is in goodwill, the NTA is actually very low but the value of it is in the licence.If you took over Genting (the only Casino in Malaysia), for example the value is in the licence to operate a casino that is the main crux of the issue and it makes a lot of difference to the companies here because when you acquire other companies and you pay very high goodwill, obviously, you as a businessman, when you acquire it and you pay cash for it, unless you think it is really worth, why would you want to pay for it why should your accountant come and tell you it is not of value and depreciate it I have got to write off $4 zillion a year for what? It is not necessary but because of your (the accounting professions) wardrobe and your discomfort with goodwill as a concept, you arbitrarily ask me to write off $4 million a year and because of that my results get impacted by $4 million write-off and the public doesnt know they dont understand the issues involved so they think we havent done well. That is the crux of it (i-no-2). The FPLC memorandum further supported the above views.In Malaysia, licences for activities such as banking, stockbroking, gaming and broadcasting are controlled and regulated. For example, no new banking licences have been or will be issued. Other licences are issued in a very restricted manner. The r esulting scarcity leads to significant premiums being attributed to companies that hold such licences, more so than in developed countries that do regulate such industries but do not immobilise the issuance of new licences (FPLC, 1993, p. 11).Therefore, the proponents of this view advocated that an accounting standard for goodwill should not be implemented in isolation from consideration of intangibles such as licences, brands, franchises and trademarks. A member of the standards committee, being the technical manager of a Big Accounting Six firm, expressed a similar view standard setting F F F in our environment, considering the regulated context F F F a developing country F F F there could be a need to amiable of modify the standard in that light (i-no-42). in Malaysia 377 So did a technical consultant with a Big Six firmThere is a special case F F F because there are more special equity arrangements in Malaysia, whoever buys or sells a company F F F where there has been enormou s amount of corporatisation activities F F F in the Malaysian accounts than in any other country in the world F F F it appears to be a reflection of the fragmented capital structure of the companies F F F when share price gets high F F F they like to cash in and try something else F F F whereas in the US, once a company has bought something F F F they tend to sit on it for a very long time F F F so it is wiped F F F Unless we push for a goodwill standard when the economy is good as it is now (early 1995)22 (i-no-43 similar comments were made by a corporate executive (i-no-9)). A practitioner from the Big Six very much involved in the MACPA Standards Committees observed that F F F in Malaysia, we pay overly for companies that we buy.There again, can we say we are paying excessively when those prices that are paid are warrant, when these prices that are paid are justified on relative low P/E ratios and those prices are vetted and allowed by the Securities Commission (SC)? The SC is not going to allow excessive pricing. I dont know whether developed countries are different from developing countries in that sense A country that is developing must be permitted or given a chance to develop. I am sure in the early days, the huge goodwill that was paid to US or European companies were not written off or amortised. But there came a point in time, through inflation and all that, over the years those huge goodwill came to nothing.There could very well come a point of time where the half billion goodwill paid by Malaysian companies, 30 years down the road, the half billion still left in the books it is so insignificant the directors will write it off in one year (i-no-6). What this illustrates is that MACPA-linked practitioners and market respondents were more attentive to the implications of MAS 6 for the corporate sector than the MIA committee composed of non-Big Six personnel. The market respondents expressed concern that the profession (meaning the MIA) could no t be expected to consider the socio-political implications of a standard, focusing preferably on technical or theoretical considerations. That MACPA would not feel bound by such considerations is hardly surprising as a absolute majority of the publicly listed companies are audited by the Big Six23.Analysis of respondents attitudes to MAS 6 further highlights the hostility of the MACPA/Big Six camp to MAS 6, as seen in Tables IV and V. Views on MAS 6 For Against No comments Total MACPA 0 21 12 33 MIA 6 2 6 14 Non-accountants 2 1 15 18 Total 8 24 33 65 Note Non-accountants includes all respondents who were neither members of the MACPA or MIA Table IV. Respondents views on MAS 6, highlighting MACPA/MIA differences AAAJ 12,3 MAS 6 received no support at all from MACPA or the Big Six. A significant majority of MIA people supported the standard the non-Big Six firms also supported it, but only marginally24. The views of non-accountants were also more as divided than those of the MACPA /Big Six camp. Interests and the politicisation of standard setting Previous sections have already implied that standard setting in Malaysia became politicised over the course of the goodwill saga. This development was widely appreciated by the participants themselves and is explored in more decimal point below. The key point is that by the 1990s, the corporate sector was being taken very seriously, even by influential players within the profession. For example, one respondent from the Big Six noted F F F basically, you have to know what the world is like in real terms whether businesses will adopt it freely, happily or not. Something which is good during a rising market will not necessarily be good during a travel market.So, this idea of accountants that anything you adopt should be consistent is an easy concept for certain things and to be realistic the consistency should be under certain circumstances of the market. Otherwise, you can make a rule over action, other people are not happy to abide by it, so people find arguments not to do it (i-no-34). 378 There was unanimous agreement among Big Six standard setters that businesss wholehearted acceptance was crucial. Furthermore, the state was expected to acknowledge, or at least be aware of, this very point. A practitioner from a medium-sized firm said Certainly, it is not racial politics it is more government in being democratically elected ust listen to people who have vested interest to protect and the government thinks their interest is more important than accountants the accountants have no interest except they have a formalistic way of doing things and since they have formalised a way of doing things, there is commons in dealing with particular issues. Accountants do not gain or lose by implementing the standard accountants can say because we have this standard, we know the financial statement would have some common feature F F F Otherwise you see goodwill going up and up all the time (i-no-8). The political nature of the standard setting process is evidenced by the lobbying activities carried out after MAS 6 was adopted by the MIA.Respondents felt that the state was more attentive to the big business lobby Views on MAS 6 For Against No comments Total Big Six 0 15 4 19 Non-Big Six 3 2 7 12 Others 5 7 22 34 Total 8 24 33 65 Table V. Respondents views on MAS 6, highlighting Big Six/Non-Big Six differences Note Others includes MACPA/MIA members who had moved out of public practice. The MACPA respondents who had no comments had not been involved in the goodwill accounting discussions than to accounting principles. One saw the states stand as protecting the Accounting interest of certain parties against others (i-no-58). standard setting Arguing interests As indicated above, the goodwill controversy underlined the segmentation of the Malaysian accountancy profession over time, under pressure from st