Malaysia to switch to accruals accounting in three years

19 Oct 18

Malaysia will shift to accrual accounting within the next three years as part of reforms to stop the “excesses of the past”.

The move is part of wider fiscal reforms within the government, which came to power in May, with the aim to increase revenues, spend public money better and deal with its debts. 

In a speech earlier this month, finance minister Lim Guan Eng confirmed that the country’s government was committed to make the move from cash-based accounting standards to accrual by 2021.

This is a quick turn around for a country to move from a cash-based system as it can often take years to, for example, bring in or train public finance staff with the necessary expertise.

Lim did not specify if he was talking about federal and state governments. But the Association of Chartered Certified Accountants was quoted in April saying federal and state governments in Malaysia were currently transitioning to accrual accounting.

The finance minister said the move to accrual accounting would improve the skills within the current government – as well as future administrations – to ensure that “excesses of the past will not repeat themselves”.

“Our new government is determined to clean-up our accounts and make the public sector more transparent in its finances,” the finance minister said.

When the government took term on 9 May this year the prime minister revealed that the country’s debt and liabilities exceeded 1 trillion ringgit ($251bn), which was higher than disclosed under the previous administration of ousted leader Najib Razak.

This was partly because the state had given guarantees to companies that can't repay their debts, such as the investment fund 1MDB, which was at the centre of a multibillion corruption scandal.

Last month, a row erupted between Malaysia’s former prime minister and the current finance minister over unpaid tax refunds.

Lim claimed the former administration had recorded billions of ringgits in unrefunded taxes as revenue, which could be seen as “falsifying accounts”.

But Razak said Lim has made an error because he does not understand that the government used cash-based accounting – not accrual.

The current government said it will allow taxpayers who have outstanding tax refunds to make an application to off set the amounts against the tax they have to pay this year.

Lim said the previous government had not refunded a total of 16.046bn ($5.3bn) in income tax and real property gains tax, with some being owed refunds for the last six years.

He added in his speech this month: “We believe that institutional reforms will allow the Malaysian economy and investors certainty and confidence in the system.

“This will not be easy, but I believe it can be done. After all it is always darkest just before dawn.”

Read Manj Kalar's 10 tips for countries moving to accrual accounting to ensure success

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