It’s official: the accounting sector will have a primary role in the development of sustainability reporting in Malaysia.
Specifically, the Malaysian Accounting Standards Board (MASB) will issue national standards for sustainability disclosure in the same way that the board has been setting rules for the preparation of financial statements. As for external assurance on sustainability reporting, the assurance engagements are expected to be performed in accordance with standards adopted by the Malaysian Institute of Accountants (MIA).
These are among the key details in the National Sustainability Reporting Framework, launched on 24 September. The framework was produced by the Advisory Committee on Sustainability Reporting, whose members are from the Securities Commission (SC), the Audit Oversight Board, Bank Negara Malaysia, the Companies Commission of Malaysia, Bursa Malaysia and the Financial Reporting Foundation.
Timeline focus
There’s understandably a lot of attention on the timeline for the implementation of the framework, particularly in relation to when certain categories of companies in Malaysia must start complying with the two disclosure standards issued to date by the International Sustainability Standards Board (ISSB). In addition, the framework proposes a separate timeline for mandatory external assurance of Scope 1 and Scope 2 greenhouse gas emissions as reported by companies.
The nexus between accounting standards and sustainability standards is well established
While we should be mindful of the deadlines and targets, it’s equally important to have a fair idea of how sustainability reporting will likely be shaped and steered in Malaysia. The MIA and the MASB are prominent players in the Malaysian accounting scene, with solid track records.
Global trend
There’s nothing out-there about widening the MASB’s job scope to include the formulation of sustainability disclosure rules for the country. The nexus between accounting standards and sustainability standards is well established, and this is reflected in policies and practices across the globe.
The ISSB was created in 2021 as a sister organisation of the International Accounting Standards Board, and their parent is the International Financial Reporting Standards Foundation. Similarly, in Japan and South Korea, the standard-setting bodies for accounting and sustainability are housed under one roof.
Singapore’s Accounting and Corporate Regulatory Authority teamed up with Singapore Exchange Regulation to set up the Sustainability Reporting Advisory Committee in June 2022 to advise on the roadmap for sustainability reporting by the city-state’s companies.
The MASB is expected to start setting domestic standards for sustainability disclosure in early 2027
Australia’s approach for setting sustainability standards is a close parallel to what Malaysia plans to do. The Australian Accounting Standards Board develops, issues and maintains Australian Sustainability Reporting Standards using the ISSB’s standards and guidance as the baseline.
The National Sustainability Reporting Framework refers to the two ISSB standards as ‘the baseline sustainability disclosure standards for companies in Malaysia’. Subject to legislative amendments (including changes to the Financial Reporting Act 1997), the MASB is expected to start setting domestic standards for sustainability disclosure in early 2027.
External assurance
Another goal for 2027 is the introduction of a requirement for external assurance engagements that will provide reasonable assurance in relation to sustainability disclosures. The Advisory Committee on Sustainability Reporting will release a framework for sustainability assurance after further consultation with relevant stakeholders. It’s probable that the MIA will be more involved at this stage.
Apart from the duties assigned to the MASB and the MIA, the framework’s sizeable impact on the accounting profession will be felt when there’s heavy reliance on finance officers and external auditors to lead the way as companies apply the sustainable reporting standards. There’s certainly much work to be done.
The focus now is on helping companies comply with the new requirements
In his speech at the launch of the framework, SC chairman Dato’ Mohammad Faiz Azmi pointed out that determining the framework’s dates and requirements was ‘the easy part’. The focus now is on helping companies comply with the new requirements through capacity-building programmes and supporting tools and services.
This initiative is dubbed PACE (policy, assumptions, calculators and education). It’s a fitting acronym because it’s indeed crucial that accountants and auditors keep pace with what’s going on in sustainability reporting.
