Malaysian Private Entity Reporting Standard (MPERS) Adoption and The Financial Reporting Quality by Small And Medium Enterprises (SMEs) in Malaysia

Abstract

Private Entity Reporting Standard (PERS) was not been updated since 2006 even though there are changes in the business environment, so Malaysia needs a new standard in order to regulate the private entities reporting in Malaysia. Malaysian Private Entity Reporting Standard (MPERS) serves as a new reporting framework for private entities and significant milestones in the capital market. This thesis investigates the relationship between the adoption and the use of MPERS on financial reporting quality for SMEs in Malaysia by providing empirical evidence. The study of SMEs was covered by all sectors. The sectors were selected based on the SME landscape of Malaysia following the adoption of MPERS on 1st January 2016. This research was aimed to (1) establish whether SMEs have adopted MPERS using percentage frequencies; (2) access the quality of financial reporting by SMEs using descriptive statistics; and (3) ascertain the relationship between MPERS adoption and financial reporting quality by SMEs in Malaysia, and these would be analysed using correlation and regression analysis. The sample of the study is the accounting practitioners, such as accountants, auditors, and tax agents, comprising 384 respondents who implement and experience MPERS in their financial reporting; nevertheless, only 310 of them can be reached. Findings of the study indicate all variables of financial reporting quality, which are relevance, timeliness, comparability, understandability, and reliability, were positively correlated with MPERS adoption, according to the correlation analysis. According to the results of the regression analysis, reliability, relevance, and understandability have a higher positive linear association with MPERS adoption. It showed that the financial statements prepared were demonstrably relevant to users, presenting within the decision time frame, presenting the information understandable, exuding completeness, neutrality, and accuracy, and could be easily compared between periods, similar businesses, and the whole industry, and financial statements were reliable, free from material error and bias. In general, most SMEs followed MPERS on average, suggesting that SMEs had implemented the MPERS framework. MPERS adoption made sense because it improved financial reporting quality, which should lead to even more SMEs adopting the MPERS framework. This study is different from prior studies, in that it makes a significant contribution toward enhancing one’s knowledge of the relationship between MPERS adoption and financial reporting quality in Malaysia. This study is important as it provides additional knowledge about the impact of MPERS adoption, and improves financial reporting, as well as improves the quality of the financial reporting.