Guidance on Special Matter No. 2 Presentation of Financial Statements for Takaful Companies; and Classification and Measurement of Qard

Transcription

1 Guidance on Special Matter No. 2 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard Preamble Entities Other Than Private Entities, with the exception of Transitioning Entities 1, are required to prepare their financial statements in accordance with the Malaysian Financial Reporting Standards ( MFRS ) for annual periods beginning on or after 1 January Such entities would include the takaful companies ( TCs ). Guidance on Special Matter No. 2 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard ( Guidance ) has been developed to provide guidance on presentation of financial statements and accounting treatment for certain transactions and events of Companies. This Guidance is issued by MIA and shall be regarded as best practice. It should be read in conjunction with the respective applicable accounting standards. Issuance Date This Guidance is issued on 29 May Malaysian Institute of Accountants 1 Entities that are within the scope of MFRS 141 Agriculture and IC Interpretation 15 Agreements for Construction of Real Estate, including its parent, significant investor and venturer.

2 GUIDANCE ON SPECIAL MATTER NO. 2 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard 1. INTRODUCTION 1.1 Entities Other Than Private Entities with the exception of Transitioning Entities, are required to prepare their financial statements in accordance with the Malaysian Financial Reporting Standards ( MFRS ) for annual periods beginning on or after 1 January Such entities would include the takaful companies ( TCs ). 1.2 This Guidance provides guidance on the following: a) Presentation of financial statements for TCs; and b) Classification and measurement of Qard. 2. SCOPE 2.1 This Guidance applies to all s ( TOs ) in Malaysia in the preparation of TOs separate and consolidated financial statements. 2.2 The accounting treatment of Qard in this Guidance applies specifically to Qard that has been extended by the TO to s ( TFs ) in Malaysia. 2.3 This Guidance does not override any provisions contained in MFRS and shall be read in conjunction with the respective applicable MFRS. 3. PRESENTATION OF FINANCIAL STATEMENTS FOR TAKAFUL COMPANIES 3.1 Paragraph 6.2 of the Bank Negara Malaysia s Guidelines on Financial Reporting for s ( BNM Guidelines ) requires TOs to present the assets and liabilities of the TFs separately from the assets and liabilities of TOs. 3.2 However, MFRS requires consolidated financial statements of a TC to be prepared and presented when the TO could demonstrate its control over the respective TFs. 3.3 To ensure compliance with both MFRS and the BNM Guidelines, the financial statements for TCs shall be presented, where: a) Financial positions of the TO, each of the TFs and the TC (on a consolidated basis) are presented in columnar format on the face of the statement of financial position of the TC; b) Financial performance of the TO, each of the TFs and the TC (on a consolidated basis) are presented in columnar format on the face of the statement of comprehensive income of the TC; and c) Retained earnings/accumulated losses of the TO, each of the TFs and the TC (on a consolidated basis) are presented in columnar format on the face of the statement of changes in equity of the TC; and d) Relevant notes for the above. 1

3 GUIDANCE ON SPECIAL MATTER NO. 2 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard 3. PRESENTATION OF FINANCIAL STATEMENTS FOR TAKAFUL COMPANIES (CONTINUED) 3.4 In preparing and presenting the financial statements in this manner, the following should be addressed: a) Every line items of income and expenses as well as assets and liabilities of the TO, each of the TFs and the TC should comply with the recognition and measurement principles of MFRS; b) Deficit of TFs should be reported as a loss in the financial statements of TFs and TC as losses are recognised in the income statement when there is a decrease in future economic benefits related to a decrease in asset or an increase in a liability in accordance with the Conceptual Framework for Financial Reporting ; and c) Intragroup transactions and balances (i.e. transactions and balances between TO and each of the TFs and transactions and balances between the TFs) should be eliminated in full upon consolidation. 3.5 The illustrative Statement of Financial Position, Statement of Comprehensive Income and Statement of Changes in Equity ( Statements ) as explained in 3.3 can be found in Appendix I to this Guidance. 4. CLASSIFICATION AND MEASUREMENT OF QARD 4.1 Where assets of the TFs are insufficient to meet their liabilities, TOs are required to provide loan to TFs via Qard. 4.2 Classification and measurement of Qard in the statement of financial position of TO From the TO s perspective, Qard is in substance, an investment by the TO in TFs. The Qard, although is refundable by the TF when it has surplus assets, carries more features of an equity instrument rather than a debt instrument because: Its recoverability is dependent on the performance of the underlying assets and liabilities of the TF; It is only provided in specific circumstances i.e. when the TF has a shortfall of assets to cover its obligations; It does not have a fixed repayment period; It acts as a temporary capital to determine that the TF will be able to continue as a going concern and provides returns to the operator via profit sharing or management fee arrangements; As it can only be refunded via surplus assets of the TF, it is subordinated below other liabilities of the TF. Since a TF is controlled by the TO, pursuant to MFRS 127 Separate Financial Statements and as required under BNM Guidelines, such investment should be carried at cost less any accumulated impairment losses. 2

4 GUIDANCE ON SPECIAL MATTER NO. 2 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard 4. CLASSIFICATION AND MEASUREMENT OF QARD (CONTINUED) 4.2 Classification and measurement of Qard in the statement of financial position of TO (continued) The TO shall assess at the end of each reporting period whether there is any indication that the Qard may be impaired in accordance with MFRS 136 Impairment of Assets. The impairment loss of Qard shall be recognised when its carrying amount exceeds its recoverable amount (i.e. higher of its fair value less costs of disposal and its value in use). 4.3 Classification and measurement of Qard in the statement of financial position of TF From the TF s perspective, Qard should be classified as a liability because TF has a contractual obligation to repay Qard. Hence, it should be measured in accordance with MFRS 9/MFRS 139. The TF, however, does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Although the Qard shall be measured initially at fair value, in accordance with MFRS 13 Fair Value Measurement, the fair value of a financial liability with a demand feature is not less than the amount payable on demand, discounted from the first date that the amount could be required to be repaid. In situation when the Qard carries specific terms of repayment or features that are not specifically addressed in this guidance, the suggested classification and measurement above may not be appropriate. 4.4 Classification and measurement of Qard in the statement of financial position of TC The Qard payable recognised in TF s statement of financial position would be eliminated against the investment recognised in the TO s statement of financial position in the TC s statement of financial position. 3

5 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard Illustrative Statement of Financial Position, Statement of Comprehensive Income and Statement of Changes in Equity of Statements of financial position as at 31 December 2012 Assets Property and equipment xx - - xxx xx - - xxx Investments xx xx xx xxx xx xx xx xxx Retakaful assets - xx xx xxx - xx xx xxx Deferred tax assets xx - xx xxx xx - xx xxx Trade and other receivables xx xx xx xxx xx xx xx xxx receivables - xx xx xxx - xx xx xxx Qard receivables xx xx Cash and bank balances xx xx xx xxx xx xx xx xxx Total assets xxx xxx xxx xxx xxx xxx xxx xxx 4

6 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard Illustrative Statement of Financial Position, Statement of Comprehensive Income and Statement of Changes in Equity of Statements of financial position as at 31 December 2012 (continued) Equity and liabilities Share capital xx - - xxx xx - - xxx Retained earnings/ (Accumulated losses) xx - (xx) xxx xx - (xx) xxx Fair value reserve xx - - xxx xx - - xxx Total equity xxx xxx xxx xxx xxx xxx xxx xxx Liabilities contract liabilities - xx xx xxx - xx xx xxx Participants' fund - xx xx xxx - xx xx xxx payables - xx xx xxx - xx xx xxx Qard payables - - xx xx - Deferred tax liabilities - xx - xxx - xx - xxx 5

7 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard Illustrative Statement of Financial Position, Statement of Comprehensive Income and Statement of Changes in Equity of Statements of financial position as at 31 December 2012 (continued) Trade and other payables xx xx xx xxx xx xx xx xxx Tax payable xx xx xx xxx xx xx xx xxx Provisions xx - - xxx xx - - xxx Total liabilities xxx xxx xxx xxx xxx xxx xxx xxx Total equity and liabilities xxx xxx xxx xxx xxx xxx xxx xxx Commentary: Three statements of financial position required in certain circumstances An entity shall present a third statement of financial position as at the beginning of the preceding period when it applies an accounting policy retrospectively, restates items retrospectively or reclassifies items in its financial statements that has material effect on the information in the statement of financial position at the beginning of the preceding period. 6

8 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard Illustrative Statement of Financial Position, Statement of Comprehensive Income and Statement of Changes in Equity of Statements of comprehensive income for the year ended 31 December 2012 N1 N2 N1 N2 Revenue Wakalah fee income xx xx Gross contributions - xx xx xxx - xx xx xxx Contribution ceded to retakaful - (xx) (xx) (xxx) - (xx) (xx) (xxx) Net contributions - xx xx xxx - xx xx xxx Change in unearned contribution reserve - (xx) (xx) (xxx) - (xx) (xx) (xxx) Net earned contributions - xxx xxx xxx - xxx xxx xxx Gross benefits and claims paid - (xx) (xx) (xxx) - (xx) (xx) (xxx) Claims ceded to retakaful - xx xx xxx - xx xx xxx Gross change to contract liabilities - xx (xx) xxx - xx xx xxx Change to contract liabilities ceded to retakaful - xx xx xxx - xx xx xxx Net benefits and claims - (xxx) (xxx) (xxx) - (xxx) (xxx) (xxx) 7

9 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard Illustrative Statement of Financial Position, Statement of Comprehensive Income and Statement of Changes in Equity of Statements of comprehensive income for the year ended 31 December 2012 (continued) N1 N2 N1 N2 Other income Surplus sharing from: takaful xx xx takaful xx xx Commission income - xx xx xxx - xx xx xxx Realised gains and losses - xx xx xxx - xx xx xxx Investment income xx xx xx xxx xx xx xx xxx Fair value gains and losses xx xx xx xxx xx xx xx xxx Other operating income xx xx xxx xxx xxx xxx xxx xxx xxx xxx 8

10 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard Illustrative Statement of Financial Position, Statement of Comprehensive Income and Statement of Changes in Equity of Statements of comprehensive income for the year ended 31 December 2012 (continued) N1 N2 N1 N2 Other expenses Surplus sharing with takaful operator - (xx) (xx) - - (xx) (xx) - Wakalah fee expenses - (xx) (xx) - - (xx) (xx) - Commission expenses (xx) - - (xxx) (xx) - - (xxx) Other operating expenses - (xx) (xx) (xxx) - (xx) (xx) (xxx) (xxx) (xxx) (xxx) (xxx) (xxx) (xxx) (xxx) (xxx) Surplus attributable to participants - (xx) - (xxx) - (xx) - (xxx) Profit/(Loss) before taxation and zakat xxx - (xxx) xxx xxx - (xxx) xxx Taxation (xx) - - (xxx) (xx) - - (xxx) Zakat (xx) - - (xxx) (xx) - - (xxx) Profit/(Loss) for the financial year xxx - (xxx) xxx xxx - (xxx) xxx 9

11 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard Illustrative Statement of Financial Position, Statement of Comprehensive Income and Statement of Changes in Equity of Statements of comprehensive income for the year ended 31 December 2012 (continued) N1 N2 N1 N2 Other comprehensive income: Fair value change of available-for-sale financial assets, net of tax xx xx xx xxx xx xx xx xxx Surplus attributable to participants - (xx) (xx) (xxx) - (xx) (xx) (xxx) Other comprehensive income for the financial year xxx - - xxx xxx - - xxx Total comprehensive income for the financial year xxx - (xxx) xxx xxx - (xxx) xxx Notes: N1 Assuming the is in profit position N2 Assuming the is in loss position 10

12 Presentation of Financial Statements for Companies; and Classification and Measurement of Qard Illustrative Statement of Financial Position, Statement of Comprehensive Income and Statement of Changes in Equity of Statements of changes in equity for the year ended 31 December 2012 Non-distributable Distributable Share capital Fair value reserve Retained earnings/(accumulated losses) Total equity RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January 2011 xx xx xx - (xxx) xx xxx Total comprehensive income for the financial year - xxx xxx - (xxx) xxx xxx At 31 December 2011 xxx xxx xxx - (xxx) xxx xxx At 1 January 2012 xxx xxx xxx - (xxx) xxx xxx Total comprehensive income for the financial year - xxx xxx - (xxx) xxx xxx At 31 December 2012 xxx xxx xxx - (xxx) xxx xxx 11