Discuss about the Asymmetry and Regulatory Shortcomings.
The organizations that have been chosen for the understanding and analyzing of BNM/Gp8 are Malayan Banking Berhad Maybank and CIMB bank. Both of these banks come under the category of top 10 banks in Malaysia.
Malayan Banking Berhad maybank is a profit making organization which provides all the banking services to its customers. It has been established in 1960 and now it is one of the largest banks by capitalization of market on the Malaysian Bourse. This bank has been ranked first in Forbes magazine among the top 500 companies of the world.
This bank offers a great range of services and products which includes investment banking, Islamic banking, commercial banking, leasing and hire purchase, factoring, asset management, nominee services etc. the main vision and mission of the bank is to provide all the financial services to its clients in minimum price. Headquarter of the bank is established at Kuala Lumpur, Malaysia. It has been incorporated in May, 1960 and it is providing all the services of commercial banking. This bank has over 1750 offices in 14 countries. It has forced an intention competition in the industry that includes CIMB bank, Hong Leong, Public bank and others. The company has done very well in last few years. The growth rate of company is vastly increasing.
CIMB bank has been incorporate in 1924. This bank has been merged with various other banks in Malaysia and thus finally it has been formed as CIMB bank. It has listed itself on Bursa Malaysia. Currently this bank is one of the largest financial service provider organizations in Malaysia. Headquarter of the bank is established at Kuala Lumpur, Malaysia.
It is providing various financial products and services like customer banking, insurance and asset management, covering corporate, treasury; investment banking etc. this bank has 1100 branches in 18 countries. The intense competitor of the company is Malayan banking berhad, public bank and others. The company has done very well in last few years. The growth rate of company is vastly increasing. This bank falls under the category of commercial banking.
Earlier all the banks of Malaysia used to follow the outdated accounting techniques to know the real worth of their assets and liabilities. They used to follow the guidelines of historical cost accounting to state the asset’s amount in the final documents of the company. Company used to state the amount of the asset in which company had bought that asset. For example company has bought bonds worth of $100 in 1990 (NuHtay & Salman, 2013). The current value of those bonds is $1000. But this accounting technique depicts that the value must be shown only $100 in the books.
So it became mandatory for the country to change these techniques because of its fake values and it was not at all useful for the investors, shareholders, stakeholders, users etc. so Malaysian financial reporting standards thought to make changes in this technique and thus they introduced the new technique named by Fair value accounting (Ameer, Othman & Mahzan, 2012). This technique depicts that the market value of an asset must be stated in the final financial documents of a company. Financial standards launched the new guidelines for it. For presentation and identification of the financial documents BNM/GP8 has been introduced by the bank Negara Malaysia.
BNM/GP8 discloses about the financial reporting of all the Islamic banks to provide a base for disclosure and presentation of financial statements and reports of Islamic banking institutions. The main reason behind this is to provide the good base to analyst and investors to identify the real worth of the organization and invest accordingly.
Comprehensive income statement is a statement of all the expenses and income recognized by an organization during a specified period. This statement includes all the finance cost, tax revenues, revenue, profit share, discounted operations, profit or loss etc. BNM/GP8 guidelines suggest that while preparing the comprehensive income statement a preparer must differentiate the interest income or expense, expenses of bad debts and separately present the non interest income and expenditure (Sarea & Hanefah, 2013). It guides to preparer to present all the other items in statement which follows immediately after the PBT (profit before taxation) to reach on a perfect answer.
At the time of preparing the statements organization must also focus on the 4 principles i.e. classification, liquidity, maturity analysis and concentration. There, classify all the assets and liabilities according to the nature, Check the liquidity of all the assets and liabilities, do a maturity analysis on assets and liabilities and concentrate on all the assets and liabilities. Organization specially banks must also focus on the types of all the credit facilities which have been granted by them, must care about all the maturity structures of the facilities provided by them like credit, should maintain an honest provision for doubtful debts and bad debts and must disclose about the revenue and expenditure type in comprehensive income statement. Before the BNM guidelines it was not easy for the auditors, stakeholders and other users to understand the financial condition of a company. Thus the BNM guidelines were introduced by the regulatory board to make it easy for the users to understand the company’s strength and financial position.
Statement of financial position shows and presents the financial situation and position of a company on a particular date. Mainly, 3 components are comprised while preparing this statement i.e. assets, equity and liabilities.
According to the BNM guidelines, all the assets and liabilities must be valued under fair value accounting technique. Earlier, all the banks at Malaysia were following the historical accounting technique for estimating the real worth of an asset. So that it become easy for the users to understand the real worth of the business and they can work accordingly. BNM suggests that a preparer must follow the requirement of MFRS and use some accounting assumptions and estimates to report the assets and liabilities of the organizations. It suggests that financial statement must be prepared in such a way that it describes the true worth of an organization (Paino, Bahari & Bakar, 2011). Sometimes, because of old techniques it become tough for the users to understand the position of the organization into the market so many accounting standards and assumptions must be used. This helps the directors to make decision regarding dividend and reserve, although all of the estimates depend only on the knowledge of directors and events so sometimes results can be differ also. Still the BNM guidelines are much better than the existing principals.
As discussed earlier, this bank is one of the largest banks in Malaysia. MayBank follows the guidelines of BNM to prepare its financial statements and comprehensive income statement. It has been observed through the financial statements of the MayBank that the presented data is reliable and it has been presented in such a way that any user can understand it easily (Cheah, Ow-Yong, Bala & Nair, 2004). It has been also observed that this bank has followed each and every guideline very smoothly. All the data have been disclosed by the company to present the honest statements (MayBAnk, 2016).
While preparing the comprehensive income statements, company has followed all the guidelines of BNM and prepared its statement accordingly. The extraction of the annual report of MayBank shows that the rules and guidelines of BNM are good for the bank as well as for the stakeholders and other users. While analyzing the income statements of MayBank it has been found that all the interest income and expenditure has been shown differently and presented according to the guidelines of BNM (MayBank, 2016). The structure of this statement is totally according to the rules of GP8. It has also been found that all the data have been disclosed by the bank to make its statements more reliable. All the income and expenditure of the bank has been shown perfectly and the taxation amount has also been presented to deliver a good result to its users. It has been analyzed through the report of MayBank that all the incomes and expenses have been shown in such a way that every stakeholder can easily analysis the data which is required to him or her. The data even described about the dividends a shareholder would get (Ariff & Rosly, 2011). Thus it could be said that MayBank is presenting its income statement in a very good manner and totally according to the guidelines of BNM.
The financial position statement of the company which is also known as balance sheet describes that on a particular date what is the worth of the company. This statement is quite compulsory for every organization to maintain as it helps the stakeholder of the company to analyze the position of the company financially. It has been observed while analyzing the financial position statement of the company that the company is using the fair value accounting technique to report the worth of their assets. It has also been found that company has disclosed all the reserves and provisions while preparing the financial position statement (Htay & Zaharin, 2011). Company has differentiated each and every type of asset and liabilities very well to make it clear for the stakeholders (Sulaiman, Majid & Ariffin, 2015). The data have been presented by the company in such a manner that every person who is not even from finance and accounting background can also analyze the report of the company and reach to a result. While doing this analysis it has been found that the statements of the company are meeting with all the requirements of the BNM guidelines and thus the presentation and described result of the statements and data is reliable for every stakeholder and it becomes easy for them to understand the financial position of the company (MayBank, 2016).
As discussed earlier, CIMB is one of the greatest banks in Asian territory and in Islamic banks. This Bank follows the guidelines of BNM to prepare its financial statements and comprehensive income statement. It has been observed through the financial statements of the CIMB that the presented data is reliable and it has been presented in such a way that any user can understand it easily. It has been also observed that this bank has followed each and every guideline very smoothly (CIMB, 2016). All the data have been disclosed by the company to present the honest statements.
While preparing the comprehensive income statements, company has followed all the guidelines of BNM and prepared its statement accordingly. The extraction of the annual report of this Bank shows that the rules and guidelines of BNM are good for the bank or organization as well as for the stakeholders and other users (CIMB, 2016). While analyzing the income statements of MayBank it has been found that all the interest income and expenditure has been shown differently and presented according to the guidelines of BNM. The structure of this statement is totally according to the rules of GP8 (Sanayei & Noroozi, 2009). It has been also found that all the data have been disclosed by the bank to make its statements more reliable. All the income and expenditure of the bank has been shown perfectly and the taxation amount has also been presented to deliver a good result to its users (Alma’amun, 2010). It has been analyzed through the report of CIMB that all the incomes and expenses have been shown in such a way that every stakeholder can easily analysis the data which is required to him or her. The data even described about the dividends a shareholder would get. Thus it could be said that CIMB is presenting its income statement in a very good manner and totally according to the guidelines of BNM.
The financial position statement of the company describes the real worth of all the assets of a company on a particular date. This statement is quite necessary for every organization to maintain as it helps the stakeholder of the company to analyze the position of the company financially (Paino, Bahari & Bakar, 2011). It has been observed while analyzing the financial position statement of the company that the company is using the fair value accounting technique to report the worth of their assets. It has also been found that company has disclosed all the reserves and provisions while preparing the financial position statement. Company has mentioned all the assets and liabilities of the company very well to make it clear for the stakeholders (Djang et al, 2012). The data have been presented by the company in such a manner that every person who is not even from finance and accounting background can also analyze the report of the company and reach to a result. While doing this analysis it has been found that the statements of the company are meeting with all the requirements of the BNM guidelines and thus the presentation and described result of the statements and data is reliable for every stakeholder and it becomes easy for them to understand the financial position of the company.
Thus it can be said after analyzing all the aspects of BNM guidelines, the financial position statement and comprehensive income statement of the company that the guidelines of BNM is good for all the parties like shareholders, customers, preparer, directors, CFO, stakeholders, auditors and other users. The guideline suggests the bank to follow the new rules, accounting techniques, accounting standards, estimations and assumptions based on the events and the knowledge to make the statements more reliable and help all the parties to do the best analysis accordingly to make the decision regarding investment, borrowing, divestment, projects etc.
The MayBank and CIMB are the top banks in Malaysia and both of these banks are offering the Islamic banking facilities to their clients. For this they are mentioning and reposting very well into their statements too. The disclosure policies of BNM are also following by both of the banks very well. All the relevant data of the company has been disclosed very well by both the banks. The distinguished report of asset and liabilities has been presented very well.
The guidelines of BNM are a good step of central bank of Malaysian as this would help every person in some manner. The new technique of analyzing the worth of the assets made it more reliable as earlier due to the historical cost accounting, almost all the data was not at all relevant. Thus it has been concluded that this step of central bank is appreciable and this technique would help every user of the financial data in some manner.
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