A Preliminary Analysis on Compliance Level and Disclosure Quality of FRS136: Malaysian Top 20 Shari'Ah Approved Companies

Abstract

This study focuses on the disclosure of goodwill impairment process under the new requirements of FRS 136 – Impairment of Assets. This primary objective of the study is to investigate the compliance level and disclosure quality of FRS 136 by the top 20 Shari'ah Approved Companies (ShAc) in Bursa Malaysia as at 2010 based on their market capitalization. In order to achieve this objective, the weighted index is chosen because this index being able to differentiate the quality and importance of each mandatory disclosure under FRS 136. The weighted index was developed by constructing disclosure scoring sheet, obtaining annual reports of 20 firms in 2010, completing scoring sheet for each firms by assigned weighted for the disclosure items and calculating disclosure weighted index. The findings of this study revealed that 13 out of 20 (65%) Shari'ah approved companies failed to comply with the most basic elements of the FRS 136 pertaining to goodwill impairment testing especially in allocating goodwill into the CGUs and key assumptions used in determining the recoverable amount of CGU assets. The results of this study suggest that the performance of the top 20 Shari'ah approved companies must improve before Malaysian practice is truly of international standard.