ETHICS STANDARDS

BOARDInaugural Report

June 2009 - December 2010

Copyright© May 2011 by the Malaysian Institute of Accountants (MIA). All rights reserved. Permission is granted to make copies of this work provided that such copies are for use in academic classrooms or for personal use and are not sold or disseminated and provided that each copy bears the following credit line: “Copyright © (Month and Year) by the Malaysian Institute of Accountants (MIA). All rights reserved. Used with permission of MIA. Contact communications@mia.org.my for permission to reproduce, store or transmit this document.” Otherwise, written permission from MIA is required to reproduce, store or transmit, or to make other similar uses of, this document, except as permitted by law. Contact communications@mia.org.my

ContentsPage

• EthicsStandardsBoard(“ESB”) 2

• ReportoftheChairperson 3

• ESBintheInstitute’sEnvironmentandStructure

4

• ESBMembersandObservers 5

• ReviewofKeyActivities 7

• AdoptionofIESBA’sRevisedCodeofEthicsforProfessionalAccountantsintheMIABy-LawsissuedinDecember2010

9

2EthicsStandardsBoard

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The Ethics Standards Board (“ESB”)The Ethics Standards Board (“ESB”) is a standard setting body designated by, and operating independently under the auspices of the Council of the Malaysian Institute of Accountants (“the Institute”). The ESB was officially launched on 9 June 2009 taking after the former Ethics Committee, to promote adherence to high quality professional and ethical standards, and convergence with international standards.

TheInstitutetookonthisimportantinitiativetofurtherenhancethequalityandconsistencyofservicesprovidedbyprofessionalaccountants inMalaysia. This in turn should strengthenpublicconfidence in theaccountingprofessionandinbusinessesaswellasthecapitalmarketinMalaysia.

The objectives of ESB are:-• To serve the public interest and strengthen the accounting profession by issuing high quality professional and

ethical standards for the Institute’s members;• To promote adherence to high quality professional and ethical standards and furtherance of international

convergence of standards, review exposure drafts issued by IFAC’s International Ethical Standards Board for Accountants and to submit comments thereon;

• To develop and issue guidance or clarification to assist with the implementation of the Institute’s By-Laws;• To support efforts of the Institute in promoting greater awareness and understanding of the Institute’s By-

Laws; and • To speak out on public interest issues where professionalism and ethical conduct of accountants is required

and relevant.

The ESB comprises a chairman and eight (8) members representing various sectors such as accounting firms, academia and public interest groups. Members are appointed by the Institute’s Council, based on recommendations from the Institute’s Nominating Committee. They serve for a term of up to three (3) years. There are also 3 observers appointed to the ESB representing regulatory body, government agency and public interest group. All ESB members and observers are volunteers and are required to sign a members’ Code of Conduct declaring that they will act in the public interest and with integrity in discharging their roles. For the period reported, the ESB has met 5 times.

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Report of the Chairperson of ESB

Foremost, I would like to express my gratitude to the late Dato’ Nordin Baharuddin, the inaugural Chairman of ESB whose guidance and advice was instrumental in the setting up of ESB. Professionally, he was my mentor and a man of integrity whom I have great respect for.

The past 18 months was a significant and meaningful period for the Institute as well as for ESB. The Institute successfully organized and hosted the World Congress of Accountants (“WCOA”) in November 2010. Then, in December 2010, IFAC’s Revised Code of Ethics for Professional Accountants issued by IESBA was adopted (subject to some localization) by ESB and the Institute. This signals the convergence of global ethical standards and should instill greater confidence in the accountancy profession in Malaysia.

The importance of ethics in the accountancy profession has been renewed in the wake of the recent financial crisis. The distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest; guided by integrity, objectivity, confidentiality, professional behaviour, professional competence and due care. The professional accountant should internalise and practice these principles with pride instead of mere compliance.

Moving forward, ESB is committed to provide the support and guidance towards a successful implementation of the revised Code.

On behalf of ESB, I would like to thank our many stakeholders who have keenly participated and responded to our exposure drafts and those who have participated in forums and seminars promoting ethics in one way or another for the accountancy profession.

I would also like to thank the ESB secretariat team for their support and assistance to the ESB in various initiatives and administrative matters.

The ESB and the management team of the Institute look forward to your continued support in the year ahead.

CHRISTINAFOOChairperson26 May 2011

The importance of ethics in the accountancy profession has been renewed in the wake of the recent financial crisis. The distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest…

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ESB in the Institute’s Environment and Structure

Ministry of Finance Malaysia

Accountant General’s Department of Malaysia

MIA Council

MIA Council supported by

GovernanceCommittees

StatutoryCommittees

TechnicalCommittees

SurveillanceCommittees

RepresentativeofMembership

Organisational/AdministrativeCommittee

• Audit & Risk Management Committee

• Nominating Committee

• Executive Committee

• Investigation Committee

• Disciplinary Committee

• Disciplinary Appeal Board

• Examination Committee

• Auditing and Assurance Standards Board (“AASB”)

• EthicsStandardsBoard(“ESB”)

• Education Committee

• Financial Reporting Standards Implementation Committee (“FRSIC”)

• Taxation Committee

• Islamic Finance Committee

• Financial Statements Review Committee

• Practice Review Committee

• Public Practice Committee

• Professional Accountants in Business

• WCOA 2010 Steering Committee

• MIA Regional Committees

5EthicsStandardsBoardInauguralReport|June2009–December2010

ESB Members and Observersas at 31 December 2010

BOARDMEMBERSAPPOINTEDBYMIACOUNCIL ORGANISATION

TERMENDED/ENDING

MIACouncilMembers

Christina Foo (Chairperson), Vice President of MIA Priority One Consultancy Services Sdn Bhd 2012

(Allahyarham) Dato’ Nordin bin Baharuddin KUB Malaysia Berhad 2009

Prof. Datin Dr. Hasnah binti Hj. Haron Graduate School of Business. University Sains Malaysia, Penang 2012

Datuk Mohd Nasir bin Ahmad ACCA Malaysia / Perbadanan Usahawan Nasional Berhad 2011

Lam Kee Soon K.S. Lam & Co 2010

RepresentationfromAccountingFirms

Shalet Marian KPMG Tax Services Sdn Bhd 2010

Tan Soo Yan Ernst & Young 2012

RepresentationfromPublicMembers

Dr. A Bakar Sarpon Institute Integrity Malaysia 2012

Haji Mustafar Haji Ali Institute Integrity Malaysia 2010

Ravindran Navaratnam Minconsult Sdn Bhd / CPA Australia 2012

Rita Benoy Bushon Minority Shareholder Watchdog Group 2012

Dr. Sharifah Khadijah Syed Agil Faculty of Accountancy, UiTM 2012

Observers

Muhammad Ibrahim Federation of Public Listed Companies Bhd

Selvarany Rasiah Bursa Malaysia Berhad

Hajah Zainun binti Taib Auditor General Malaysia office

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Christina Foo, Chairperson

Dr. A. Bakar Sarpon Ravindran Navaratnam Rita Benoy Bushon Dr. Sharifah Khadijah Syed Agil

Prof. Datin Dr. Hasnah binti Hj. Haron

Datuk Mohd Nasir bin Ahmad

Tan Soo Yan

Muhamad Ibrahim, Federation of Public Listed Companies

Selvarany Rasiah, Bursa Malaysia Berhad

Hajah Zainun binti Taib, Auditor General Malaysia office

ESB Members

ESB Observers

ESB Past Members

The late Dato’ Nordin Baharuddin, Inaugural Chairperson

Lam Kee Soon

*Not pictured: Shalet Marian

Datuk Haji Mustafar Ali

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Review of Key Activities

No. Objective Activity Outcome

1. To promulgate the values of good corporate governance in the Corporate Governance (“CG”) Week at Bursa Malaysia.

The Institute participated in the Bursa CG week on 10 June 2009.

The session was entitled “Strengthening the Financial Reporting Chain in Enhancing Corporate Governance”.

Panelists comprised Nik Mohd Hasyudeen Yusoff, Sukanta Dutt, Dato’ Khalid Ahmad and Jeremy Nasrulhaq.

Participants at Bursa Malaysia were PLC directors, Chief Financial Officers and Finance Directors.

2. Adoption of the Code of Ethics for Professional Accountants issued in July 2009 by IFAC’s IESBA in the Institute’s By-Laws on Professional Ethics.

IESBA’s Code of Ethics for Professional Accountants was reviewed and deliberated by ESB members. The Institute’s By-Laws on Professional Ethics was harmonized with IESBA’s code with certain modifications made to the Institute’s By-Laws.

The revised Code of Ethics for Professional Accountants issued by IESBA was adopted into the Institute’s By-Laws on Professional Ethics with certain modifications.

The revised By-Laws were issued in December 2010 and is effective from 1 January 2011.

3. Championing Human Governance and creating awareness on Human Governance.

A half day forum was conducted in collaboration with the Malaysian Accountancy Research and Education Foundation (“MAREF”) on 4 November 2009.

The forum titled “Profit Maximisation as the Future Way to do Business - A Myth or Reality”.

The session was moderated by Nik Mohd Hasyudeen Yusoff. Panelists comprised 3 prominent speakers: Datuk Dr. Abdul Samad Haji Alias, Professor Dato’ Aziuddin Ahmad and Tan Sri Dato’ Seri Megat Najmuddin bin Dato’ Sri Dr. Haji Megat Khas.

The event was attended by key financial leaders and executives from the public and private sectors.

4. To create awareness and promote adherence to high quality professional and ethical standards.

A one day forum was co-organised by MIA, Universiti Teknologi MARA (“UiTM”), MAREF and Audit Oversight Board (“AOB”).

The forum titled “The Audit Oversight Board & Ethical Dimensions – Credibility of Accountants” was held on 3 March 2010 at the Securities Commission.

The panel of speakers comprised Mr. Goh Ching Yin from the Securities Commission, Ms Shirlyn Loo from Accounting and Corporate Regulatory Authority (“ACRA”) Singapore, Nik Mohd Hasyudeen Yusoff, Tan Sri Arshad Ayub, Ravi Navaratnam, Datin Dr Hasnah Haron, Christina Foo and Prof. Dr Syed Noh Syed Ahmad.

This event was attended by 250 participants, mostly public practitioners.

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No. Objective Activity Outcome

5. Creating awareness of the Institute’s By-Laws on Ethics for Professional Accountants.

Participated in half day forum at the Institut Integriti Malaysia (“IIM”)-Suruhanjaya Syarikat Malaysia’s (“SSM”) Corporate Responsibility & Corporate Integrity forum: “Beyond Compliance – Towards SME & SMI Excellence in the 21st Century” which was held on 18 March 2010 at the IIM.

Christina Foo presented on a topic entitled “The Role of Professional Ethics in SME & SMI Business Excellence”.

The event was attended by various bodies such as the Malaysian Institute of Chartered Secretaries and Administrators (“MAICSA”), the Institute of Internal Auditors Malaysia (“IIAM”), SSM, IIM and members from the commerce.

6. Enhancing Corporate Governance (“CG”) practices amongst listed companies at Bursa Malaysia’s CG Week.

Half Day forum in conjunction with the Securities Commission - Bursa Malaysia CG Week, jointly organized by the Institute and AOB.

The AOB/MIA session on 29 June 2010 was titled “Corporate Governance: Steering Capital Market Towards Financial Reporting Excellence”.

The panel of speakers were Nik Mohd Hasyudeen Yusoff, Boey Tak Kong, Stephen Oong and Christina Foo.

The event was attended by directors and Chief Financial Officers of Public-Listed Companies.

7. Discussion of issues and concerns surrounding the accounting professionals in the construction industry.

On 23 September 2010, MIA presented a session titled “MIA Professional Ethics: Challenges and Best Practices” followed by a roundtable.

The roundtable comprised representative from the Malaysian Anti-Corruption Commission (“MACC”), the Institute, the Construction Industry Development Board (“CIDB”) and accounting professionals from the construction industry.

The panel of speakers were from MACC - Mohd Hafaz bin Nazar, MIA - Rosli bin Abdullah, Contractors Development Division CIDB Malaysia - Sr. Ida Zuraida Binti Mohd Yusoff, and IIM - Mohd Nizam Mohd Ali, Director.

30 participants including Bursa Malaysia attended the roundtable.

Review of Key Activities (continued)

9EthicsStandardsBoardInauguralReport|June2009–December2010

Adoption of IESBA’s Revised Code of Ethics for Professional Accountants in the MIA By-Laws issued in December 2010TheBigPicture...

July 2009 saw a key milestone for The International Ethics Standards Board for Accountants (“IESBA”), an independent standard-setting board within the International Federation of Accountants (“IFAC”) when it released the revised Code of Ethics for Professional Accountants (“Code”). The rational for revising the Code of Ethics is to clarify requirements for all professional accountants significantly and to strengthen the independence requirements of auditors.

The revised Code of Ethics by IESBA had been released following the consideration and approval by the Public Interest Oversight Board (“PIOB”) after due process and extensive public interest consultation.

The changes focus on enhancing the clarity and understandability of the provisions in the Code. The revision was made as IESBA considered the results of International Auditing and Assurance Standards Board’s clarity project and determined that changes made to the International Standards on Auditing would also benefit the Code.

The revised Code by IESBA maintains a principles-based approach supplemented by detailed requirements where necessary in order to be sufficiently flexible to address wide ranging circumstances encountered by professional accountants. This approach also facilitates global convergence.

The revised Code of Ethics by IESBA, which is effective from January 2011, included the following changes to strengthen independence requirements:

• Extending the independence requirements for audits of listed entities to all public interest entities;

• Requiring a cooling off period before certain members of the firm can join public interest audit clients in specified positions;

• Extending partner rotation requirements to all key audit partners;

• Strengthening some of the provisions related to the provision of non-assurance services to audit clients;

• Requiring a pre- or post issuance review if total fees from a public interest audit client exceed 15% of the total fees of the firm for two consecutive years; and

• Prohibiting key audit partners from being evaluated on or compensated for selling non-assurance services to their audit clients.

IFAC as a global organization for the accountancy profession committed to protecting the public interest by developing high quality international standards, promoting strong ethical values, encouraging quality practice, and supporting the development of all sectors of the profession around the world; is cognizant of jurisdiction laws and thus specify that member bodies should not apply less stringent standards than those stated in the Code unless prohibited by the laws in that jurisdiction.

“Strong and clear independent standards are vital in financial reporting. The increase in trust and certainty that flow from familiarity, including a common understanding of what it means to be independent when providing assurance services, will contribute immeasurably to a reduction in barriers to international capital flows”

IESBA ChairRichard George

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TheMalaysianscene…

The ESB was launched on 9 June 2009 and one of its main tasks is to ensure that the revised Code of Ethics for Professional Accountants that was issued by the IESBA is adopted into the MIA By-Laws on Professional Ethics. The IESBA’s revised code was circulated and issued to MIA members, regulators and various stakeholders for comments. The due process on the adoption of the revised Code is set as follows:

DueProcessandWorkingProcedures–MIABy-LawsonProfessionalEthics

ReviewbyESBofExposureDraft(“ED”)onCodeofEthicsforProfessionalAccountants

issuedbyIFAC

RecommenddraftEDtoCouncilforapproval

CollationandanalysisofcommentsonED

RecommendproposedstandardtoCouncilforapproval

IssuanceofEDbytheInstitute

Discuss,review,analyse,andpreparetheproposedstandardbyESB

PreparationoftheapprovedstandardbytheInstituteforcirculationtomembers

Standardapprovedforissuance

Distribution to members, regulatory bodies and interested parties

Comments received

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A series of ESB meetings took place to review the revised Code of Ethics by IESBA vis-à-vis the existing MIA By-Laws that was issued in January 2007. Keeping in mind that member bodies of IFAC should not apply standards that are less stringent than those stated in the Code unless prohibited by the laws in that jurisdiction, the ESB undertook a review of the Code guided by the following principles:

• Maintain existing MIA By-Laws when the existing principles are more stringent than the IESBA’s revised Code of Ethics; and

• Harmonise remaining sections of the MIA By-Laws with the IESBA’s revised Code of Ethics.

A summary of the outcome is highlighted below:

MaintainexistingMIABy-Lawsissuedin2007thataremorestringentthanthe

IESBA’srevisedCodeofEthics

• Cooling off period of 2 years if a KAP or firm’s Senior or Managing Partner joins an audit client which is a PIE as a director or officer or employee in a position to exert significant influence over the accounting records in the MIA By-Laws whilst the cooling off period in IESBA’s code is 1 year.

• Prohibition of lending staff on a temporary basis to an audit client that is a PIEs in the By-laws whilst IESBA’s code allows safeguards to eliminate or reduce the threat to an acceptable level.

• Rotation period of 5 years for KAP of audit clients that are PIE in the By-Laws whilst the IESBA’s code allows a rotation period of 7 years.

• Prohibition of preparing accounting records and financial statements for audit clients that are PIEs in the By-Laws although the IESBA Code allows in emergency situations with safeguards.

• Provision that Internal Audit services are prohibited for audit clients that are PIEs in the By-Laws whilst the IESBA’s code only prohibits Internal Audit services that relate to internal controls over financial reporting or generate information to the accounting system which includes disclosure to the financial statements of a PIE.

• Withdrawal from an audit engagement if total fees earned for 2 consecutive years from an audit client that is a PIE or its related entity exceed 15% of the firm’s total fee; whilst the IESBA code suggest a pre-issuance review or a post issuance review by a professional accountant who is not a member of the firm expressing the opinion.

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SalientchangestoMIABy-LawsonProfessional

EthicsasaresultofharmonisingwiththeRevisedCodeofEthicsissuedby

IESBA

• The word “should” in By-Laws has been replaced with “shall”.

• The phrase “clearly insignificant” has been removed and replaced with “acceptable level” which has been defined.

• Revised description of threats together with modified examples of circumstances which create threats.

• Structure of section 290 (Independence) has been splitted into two sectionsa) section 290, dealing with audit and review engagements; and b) section 291, dealing with other assurance engagements.

• Introduces guidance on what are required to be documented in conclusions regarding compliance with independence.

• Introduces new requirements on client mergers and acquisitions.

• Introduces the term key audit partner (“KAP”) in public interest entities (“PIE”).

• A new section on Management Responsibilities which provides description of activities.

• New provision of threats created by providing taxation services.

• Enhanced description and introduces prohibition if the effect to the financial statement is material by providing Corporate Finance Services.

• No available safeguard on partner rotation where the firm has only few people with necessary knowledge and skill to serve as KAP.

• Non- Assurance services such as valuation services that have a material effect on the financial statements, recruiting services for individual in position to exert significant influence over the financial statements shall not be provided to a PIE.

• Introduces a requirement that KAP shall not be evaluated or compensated based on partner’s success in selling non-assurance services to the audit client.

MIA is a statutory body established under the Accountants Act, 1967 to regulate and develop the accountancy profession in Malaysia. As at the date of this report, MIA has close to 27,100 members. For more information please visit: www.mia.org.my

To be a globally recognised and respected business partner committed to nation building.

To develop, support and monitor quality and expertise consistent with global best practice in the accountancy profession for the interest of stakeholders.

1. To promote & regulate professional & ethical standards

2. To develop & enhance competency through continuous education & training to meet the challenges of the global economy

3. To enhance the status of members

4. To lead R&D for the enhancement of the profession

5. To inculcate a high sense of social responsibility

In Malaysia, the word “accountant” is protected as provided for under the provisions of the Act which states that no one can hold himself out or practise as an accountant unless he is registered as a member of MIA.

Dewan AkauntanNo. 2, Jalan Tun Sambanthan 3Brickfields, 50470 Kuala LumpurMalaysia[phone] +603 2279 9200 [fax] +603 2274 1316[web] www.mia.org.my [email] technical@mia.org.my