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The Capital Market Advisory Committee (“CMAC”) of the Malaysian Institute of Accountants (“MIA”) has prepared a list of Frequently Asked Questions (“FAQs”) for members’ reference. These FAQs are not meant to be exhaustive and do not constitute an authoritative or official pronouncement of the MIA. Reference to the laws and regulations which include the MIA By-Laws (On Professional Ethics, Conduct and Practice) (“MIA By-Laws”) should always be made.

Interim Financial Information

Paragraph 12.04 of Chapter 12 Financial Information in the Prospectus Guidelines states that the date of the prospectus issuance must not be later than six months after the end of the most recent financial year. If the date of the prospectus issuance is later than six months after the end of the most recent financial year, audited interim financial report must be provided and the selected financial information must be disclosed.

Paragraph 12.06 of Chapter 12 Financial Information in the Prospectus Guidelines states that the selected financial information required to be disclosed must –

  1. Be prepared in the same currency as the currency used in the audited financial statements of the corporation; and
  2. Include at a minimum, the following:
    1. Revenue;
    2. Gross profit and gross profit margin;
    3. Other income;
    4. Depreciation and amortisation;
    5. Finance costs;
    6. Share of profits and losses of associates and joint ventures;
    7. Profit or loss before tax and profit margin;
    8. Tax expense;
    9. Profit or loss attributable to minority interest and equity holders of the parent;
    10. Basic and diluted earnings per share;
    11. Total non-current assets and total non-current liabilities;
    12. Total current assets and total current liabilities;
    13. Total assets and total liabilities;
    14. Net assets or net liabilities;
    15. Issued capital and reserves; and
    16. Non-controlling interests.

Where audited interim financial information is disclosed in the prospectus, comparative information in relation to subparagraphs (i) to (xvi) for the corresponding period in the most recent financial year must be included. The comparative interim financial information needs not be audited.

The comparative information should be reviewed in accordance with International Standard on Review Engagements 2400 (Revised) Engagements to Review Historical Financial Statements (“ISRE 2400 (Revised)”), as the comparative information is to be included in the accountant’s reports.

An accountant’s report should include reporting accountant’s opinion on the 3-year audited financial statements and audited interim financial information. In addition, the reporting accountant should issue a private report to the Board of Directors in respect of the reviewed comparative interim financial information.

The 3-year financial statements and interim financial information are to be indicated as “audited” whereas the comparative interim financial information are not required to be indicated as “reviewed” because the work done on comparative information is a private reporting.

Key Audit Matters

Paragraph 5 of the ISA 701 states that this ISA applies to audits of complete sets of general purpose financial statements of listed entities and circumstances when the auditor otherwise decides to communicate key audit matters in the auditor’s report. This ISA also applies when the auditor is required by law or regulation to communicate key audit matters in the auditor’s report. However, ISA 705 (Revised) prohibits the auditor from communicating key audit matters when the auditor disclaims an opinion on the financial statements, unless such reporting is required by law or regulation.

For accountant’s report included in the prospectus prepared in connection with an offer or invitation to subscribe for or purchase any securities of a corporation, a business trust or a real estate investment trust (including any excluded offer or excluded invitation as defined under the Capital Markets and Services Act 2007), ISA 701 does not apply in this circumstance as the entity is not yet listed.

Prospective Financial Information

All the relevant ISAEs are applicable. Even though there is no specific ISAE mentioned in the MIA By-Laws on PFI, RAs should conduct their engagements according to the applicable prevailing assurance standards.

The definition of “client” encompasses parties stated in the signed engagement letter between the company and the RA.

A private report on PFI is to be addressed directly to the company’s Board of Directors or management who are included in the signed engagement letter. In this circumstance, it should not be referred to or included in the document for public circulation.

Should the RA agree to the inclusion of the investment banker or principal adviser as the addressee or parties to the signed engagement letter, the private report on PFI can be provided to them.

The preparation of PFI for RTO shall be limited to the list of business structures and post-listing transactions outlined in Appendix VII of the MIA By-Laws. The preparation of such PFI is also subject to the limitation stated under Paragraph 570.3.

No. A valuation report prepared by a valuation expert does not fall under the scope of the MIA By-Laws on PFI, provided that the valuation expert does not act as RAs or auditors.

An acquisition of assets with similar characteristics of REITs and IPCs is an example of post-listing transaction outlined in Appendix VII of the MIA By-Laws.

Combined Financial Statements and Pro Forma Financial Information

Example A: An illustration of when combined financial statements and pro-formafinancial information should be used

The following illustrates a scenario in which combined financial statements are prepared for part of a group that are under common control and pro forma financial information is prepared for the other part of the group that are not under common control.

A group of six (6) entities engage in an initial public offering exercise. Three (3) of the entities, i.e. Co.1, Co.2 and Co.3 are under common control and the other three (3) entities, i.e. Co.4, Co.5 and Co.6 are not under common control.

In this circumstance, combined financial statements are prepared for Co.1, Co.2 and Co.3 and pro forma financial information is prepared for Co.4, Co.5 and Co.6.

Year 1 Year 2 Year 3
Under Common Control Co.1 Co.1
Co.2		 Co.1
Co.2
Co.3		 Combined financial statements
Not Under Common Control – – Co.4
Co.5
Co.6		 Pro-forma financial information

All the financial information of Co.4 to Co.6 could be included in the Management Discussion and Analysis. However, the Management Discussion and Analysis should strive to provide commentary which is factual and representative of past transactions and results rather than purporting to comment on hypothetical trends which may be misleading to potential investors.

Information contained in pro-forma financial information, i.e. Co.4 to Co.6, should be disclosed in other financial information, separately from the combined financial statements or in Accountants’ Report. In this respect, the individual audited financial statements of Co.4 to Co.6 should be separately included in the Prospectus.

Intercompany transactions among the combining entities i.e. Co.1 to Co. 3 would be eliminated using the same consolidation principles as established in MFRS 10 ‘Consolidated Financial Statements’.

The other entities, i.e. Co.4 to Co.6, in pro-forma financial information are not regarded as inter-companies and therefore no elimination is required. However, if the intention is to illustrate the hypothetical effect of the combining entities as though these were part of a single economic entity, then these may be shown as part of the pro-forma financial information with the basis of preparation stated clearly.

Change in accounting policies should be applied in accordance to the applicable Malaysian Financial Reporting Standards (“MFRS”).

If the intervening acquisition is an entity which is not under common control, this should be accounted for using acquisition accounting if it meets the criteria under MFRS 3 Business Combinations. Merger accounting may only be used if the acquired entity is under common control and the combined group adopts merger accounting as its accounting policy.

The financial results should be carved out into twelve (12) months using a reasonable basis and such carved out financial information shall be audited.

Example B: An illustrative of combined financial statements and pro-forma financial information

The following illustrates a scenario in which combined financial statements are prepared for part of a group that are under common control and pro-forma financial information is prepared for the other part of the group that are not under common control.

Promoter P planned to list a group of entities as part of a listing scheme via a new List Co. All of the entities had been in operations for more than five (5) years.

  1. Promoter P controlled Entity A for the past five (5) years.
  2. Promoter P took control of Entity B in Year 2 and subsequently took control of Entity C in Year 3.
  3. Promoter P held 20% equity interest in Entity D whilst his partners own the balance. However, Promoter P and his partners agreed to include Entity D as part of the listing scheme.
  4. To complement the group business, Promoter P planned to acquire Entity E, in which neither Promoter P nor his partners held any equity stake.
  5. In addition, Promoter P also planned to dispose of Entity F, a subsidiary of Entity A, as part of the listing scheme.

Entity A should be included as part of combined financial statements, as Entity A was under common control of Promoter P for the past five (5) years.

Entity B and Entity C were acquired in Year 2 and Year 3 respectively. The pre-acquisition financials of Entity B, i.e. Year 1 and Entity C, i.e. Year 1 and 2, would be prepared by the respective entities and re-audited by RAs in accordance with ISA 700 ‘Forming an Opinion and Reporting on Financial Statements‘ [or ISA 700 (Revised) ‘Forming an Opinion and Reporting on Financial Statements’ for audits of financial statements for periods ending on or after 15 December 2016), as stand-alone financial statements, if the pre-acquisition financials of Entity B and Entity C are required to be included in the offering documents. The RAs’ opinions on the pre-acquisitions financials would not be part of the opinion on combined financial statements given that the pre-acquisition financials of Entity B and Entity C were not under Promoter P’s common control.

If the pre-acquisition financials of Entity B and Entity C are included in the offering documents, the RAs would be required to re-audit for the pre-acquisition financials of Entity B and C, which would constitute a full audit exercise in accordance with ISA 700 ‘Forming an Opinion and Reporting on Financial Statements‘ (or ISA 700 (Revised) ‘Forming an Opinion and Reporting on Financial Statements’ for audits of financial statements for periods ending on or after 15 December 2016).

The auditor should apply the relevant auditing standards to ensure that he obtains sufficient appropriate evidence to provide him comfort on the financial component. If he is unable to obtain sufficient comfort and there is no other applicable alternative available for him to obtain sufficient comfort, a modified opinion should be issued.

Promoter P did not have control over Entity D and Entity E prior to the acquisitions. Hence, the financials of Entity D and Entity E would not be included in the combined financial statements. Once they have been acquired, Entity D and Entity E would be shown in the consolidated financial statements of Promoter P.

However, if the financial statements for Year 1, 2 and 3 of Entity D and Entity E are required to be included in offering documents or circulars, the financial statements, i.e. Year 1, 2 and 3 of Entity D and Entity E should be prepared by management of the respective entities and opined by the reporting accountants as stand-alone financial statements.

The new List Co can opt to select which entities under common control to be included in the new List Co’s group.