Introduction of new accounting standards for listed companies

Advice to ignore 'bumpy accounting surprises'
Published: 2009/08/31

In the run-up to the introduction of new accounting standards for listed companies, HwangDBS Vickers Research Sdn Bhd has advised investors to ignore "bumpy accounting surprises" in locally listed companies' earnings or book value.


Instead, they should focus on the companies' core operating performance and its implication on valuation models.

"As it gets increasingly hard to project the (com-panies') accounts due to the presence of erratic accounting distortions, investors are expected to ignore bumpy accounting surprises in earnings or book value," the research house said in its report to clients last week.

Regulators have set January 2012 as the deadline for listed companies to migrate to the Financial Reporting Standards (FRS) to be in line with international accounting standards.

While HwangDBS believes that there is a possibility that the more complex standards may be pushed back from their initial effective dates due to a generally low sense of awareness in the corporate world, full implementation is still expected to meet its given deadline.



HwangDBS singled out eight standards that could have material implications on locally listed companies: FRS 139, IFRIC 12, IFRIC 15, FRS 141, IFRIC 4, IFRIC 13, FRS 7 and FRS 8.

It said that while FRS7 and FRS8 were expected to improve transparency in all companies, other standards might see greater volatility in reported earnings for airlines, exporters, conglomerates and plantation companies; a distortion in earnings stream for concessionaires; and lumpy profit recognition for property developers.

Banks, however, might see a slight positive earnings impact upon initial adoption, while power firms could see their balance sheet items reshuffled and retail consumers might have marginally lower revenue recognition initially.

"FRS will result in reported earnings and book values being more volatile and harder to project because of greater application of fair value accounting. However, there will be no immediate effect on cash flow positions," HwangDBS said.

In addition, the financial statement covering a wider scope will report accounting changes in a more transparent and timely manner.

It will also involve more judgement calls as many assumptions must be made when preparing the accounts.

"Our best bets for Malaysian equities are Public Bank Bhd, IJM Corp Bhd and Genting Malaysia Bhd, while Sime Darby Bhd remains our top sell idea," HwangDBS said.