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Understanding the Difference between Cost Accounting and Management Accounting

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Post date June 26, 2020
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Understanding the Difference between Cost Accounting and Management Accounting

Numerous different aspects and types of accounting must be considered by organizations for accurate and comprehensive auditing. Accounting firms in Malaysia provide a variety of accounting services dependent on the type of organization and requirements.

The two main types of accounting are cost accounting and management accounting. While these terms may seem similar to many people, there are stark differences in them.

What is Cost Accounting?

Cost accounting is a form of managerial accounting that focuses on capturing, analyzing, and controlling costs associated with producing goods or services. It is highly detailed and is used to calculate the actual cost per unit, control production costs, and improve operational efficiency.

Objectives:

Track and record all cost elements (materials, labour, overhead)
Analyse cost behaviour and variances
Assist in pricing and inventory valuation

Common Techniques:

Standard Costing
Marginal Costing
Activity-Based Costing (ABC)
Job and Process Costing

What is Management Accounting?

On the other hand, management accounting is a branch of accounting that helps management in planning and decision-making. It is also called decision accounting. Data from both cost accounting and financial accounting is collected for management accounting. The obtained data is analyzed and interpreted to prepare reports and provide essential information to companies.

Both of these types of accounting are an essential part of accounting. They are necessary to be able to run an organization smoothly and efficiently. The data obtained from these accounting systems is used to analyze the overall financial health of an enterprise and make smart future decisions and policies.

Objectives:

Support budgeting and forecasting
Evaluate financial performance and business metrics
Provide insights for business strategy

Common Tools:

Budgeting and Forecasting
Variance Analysis
Break-even Analysis
Key Performance Indicators (KPIs)

Differences Between Cost Accounting and Management Accounting

The key differences between management accounting and cost-accounting are:

1. Data Handling

Cost accounting is associated with the recording and analysis of cost data. Management accounting is used by the management of a company to produce information for better management.

2. Results

Qualitative information is obtained as a result of cost accounting. On the other hand, management accounting gives both qualitative and quantitative data.

3. Sub-Type

Cost accounting is an essential part of management accounting. In Malaysia, when an accounting firm is hired by a large organization, it will conduct both cost accounting and management accounting to give complete information to the organizations.

4. Aims and Objectives

Cost accounting’s main goal is to determine the cost of producing a product and calculate profits. It is done to make a short-term strategy. On the other hand, management accounting’s primary objective is to obtain information for management to set goals and future working procedures. It is performed to create a long-term management strategy.

5. Rules and Procedures

There are specific rules, procedures, formulas and guidelines that must be followed while doing cost accounting, while there are no specific set of rules for management accounting. Every firm conducts management accounting according to its own rules, working conditions and requirements.

6. Scope

Cost accounting’s scope is restricted to cost data. It usually involves cost computation, cost control and cost reduction for maximum profits. Management accounting, however, is a broad type of accounting that covers areas like budgeting, taxation, planning, decision making, risk management, making strategies and the analysis of future trends.

7. Impact of Cost

Cost accounting deals with the majority of aspects of cost, such as allocation, distribution and thorough auditing. Management accounting studies the impact of cost on management operations.

8. Planning

Short-term planning is focused on cost accounting, but management accounting deals with both short- and long-term planning. High-level tools and techniques, such as probability structure and data sensitivity analysis, are used in management planning for accurate planning.

9. Prerequisite

It is not possible to perform management accounting without cost accounting. However, cost accounting is independent of any other type of accounting and can be performed without any prerequisites.

10. Future Decisions

Cost accounting provides the information necessary to make a future cost-related decision from evidence-based historical cost data. On the other hand, historical and predictive data is used for future decision making in management accounting.

Key Differences at a Glance

Feature	Cost Accounting	Management Accounting
Focus	Cost measurement, control, and reduction	Business planning, control, and decision support
Primary Users	Cost accountants, production managers	Senior managers, executives, business owners
Scope	Narrow – production and operations focused	Broad – includes strategy, finance, operations, HR, etc.
Data Type	Historical cost data	Historical + future-oriented data
Mandatory Use?	Often used in manufacturing sectors	Not mandatory, but essential for internal control
Reporting Frequency	Usually routine (e.g., monthly cost reports)	As needed for decision-making
Format	Structured and standardised (e.g., cost sheets)	Flexible and customised reports
Regulatory Focus	May help with inventory valuation for financial reports	Not governed by external financial reporting standards

How Do They Work Together?

While distinct, cost accounting is often a subset of management accounting. Data from cost accounting feeds into management reports that support broader decisions. For example:

ABC (Activity-Based Costing) results may inform pricing strategy.
Standard cost variances may highlight operational inefficiencies to be addressed by management.

Industry Use Cases

Cost Accounting:

Manufacturing: Monitor unit cost and control raw material usage
Construction: Track labour and equipment costs per project

Management Accounting:

Retail: Forecast sales and budget promotional spend
Healthcare: Evaluate cost-effectiveness of patient services

Why Does It Matter for Your Business?

Whether you’re running a manufacturing plant, a retail chain, or a service-based firm, knowing the difference helps:

Identify cost leakages and reduce inefficiencies
Improve profitability through strategic pricing
Make better-informed investment, expansion, and resource decisions

Need Help With Accounting Strategy?

At ShineWing TY Teoh, we help businesses implement practical and compliant accounting systems. Whether you need better cost controls or strategic management dashboards, our accounting professionals are ready to support you.

Contact us for a free consultation and optimise your business performance today.

In a Nutshell

Management and cost accounting systems play a critical role in the internal management of a company. Cost accounting has a quantitative approach, while management accounting is focused on both quantitative and qualitative data.

Cost accounting helps minimize any extra expenses, and management accounting is necessary for strategy formulation and setting goals.

In short, it could be said that cost management is a management accounting sub-type because it is not possible to conduct management accounting without the collection and analysis of cost-related information.

To maximize profits and make smart future decisions, it’s essential for large organizations to manage their finances efficiently through an experienced accounting firm in Malaysia.

For more information, feel free to get in touch with us.

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Financial Reporting Implications of COVID-19

Post author By admin
Post date June 26, 2020
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Financial Reporting Implications of COVID-19

The COVID-19 pandemic has adversely affected the global economy. All businesses and organizations have been affected by this crisis in one way or another. While companies are trying their best to design effective strategies to smoothly run their business in these new conditions, there is mounting pressure from investors and stakeholders for complete financial transparency and information.

Not every enterprise is able to perform sustainability reporting internally in such difficult times, and therefore accounting firms in Malaysia are helping organizations to maintain financial transparency.

Tax regulators, registration authorities and audit and accounting firms have adopted modern tools and technology to help organizations and are guiding them through the process of sustainability reporting. There are five major financial reporting implications of COVID-19:

1. Liquidation and Going Concern

Investors and the management of the majority of businesses are understandably concerned about the survival of companies in these harsh financial conditions. A major concern is that due to low sales and investment, businesses will not have enough cash to survive in the next few months, or for even a year until the COVID-19 vaccine is produced and things start getting back to normal.

During sustainability reporting and preparing accurate financial statements, accounting firms have to assess the organization’s ability to continue as a going concern. Due to the COVID-19 pandemic, assumptions about going concerns and future predictions will also have to be modified for the accurate financial assessment of a company.

Accounting firms will have to consider the current and anticipated impact of the coronavirus on businesses. All of the assumptions, uncertainties and predictions must be made a part of the sustainable report.

2. Impairment assessment

An impaired asset is the one whose values is irrecoverable by the company, either by selling it or using it in future projects. Impairment assessment is a critical part of sustainability reporting. It means that every company must assess the impairment of their nonfinancial assets at the end of the reporting.

Due to the coronavirus outbreak, many businesses have to shut down their manufacturing plants temporarily. Similarly, there are strict travelling, import/export and working guidelines which have led to a decline in business for the majority of industries, which could be considered a sign of impairment.

To generate an accurate financial report during the COVID-19 crisis, organizations should find out their assets’ recoverable amount, which is the combination of the estimated future cash flow and variations in cash flow. The predicted cash flow will indicate the company’s estimate of the economic conditions that will prevail throughout the asset’s life.

Uncertain economic conditions, like in this pandemic, will make forecasting cash flows quite challenging. Companies need to release complete information and the evidence they use to predict future cash flow.

3. Changes in Legal Agreements

No one could have predicted the COVID-19 pandemic and the economic destruction it has brought for many companies. Businesses are facing many cash flow challenges due to disrupted supply-chain, temporarily closing down of factories, a sharp increase in operating costs and lack of revenue.

Many organizations need additional financing to survive in the market. As a result, accounting firms in Malaysia must help organizations to conduct a thorough sustainability reporting and check if there is a need for making any changes in the legal agreement to obtain financing.

4. Measuring Fair Value

As part of sustainability reporting, organizations are required to measure a few of their assets and liabilities at fair value. It is an estimated exit price based on the assumptions about prevailing market conditions.

During fair value measurement, accounting and audit firms should make use of both the known and unknown factors of market conditions. The impact of the evaluation is dependent upon the severity of the COVID-19 pandemic on your company and overall market conditions.

Since there is a lot of uncertainty involved, firms will have to mention all the assumptions made and evidence used to measure the fair value in the sustainability report.

5. Tax Incentives

The government and tax authorities are trying to mitigate the impact of the coronavirus on the economy by helping businesses through with relief packages, tax incentives, direct subsidies, minimum public levies, rental reductions and low-interest loans.

An experienced and qualified accounting firm in Malaysia will be aware of such measures applicable to specific companies and can help organizations in guiding them towards such schemes. They have implications in financial reporting as well. Firms must show all the relief measures utilized by organizations.

In a Nutshell

The whole world is going through turbulent times as the COVID-19 pandemic has disturbed the whole structure of the world. Undoubtedly, many companies are suffering due to the worsening economy and their investors are also getting anxious.

A transparent and thorough sustainability report can play a vital role in bridging the communication gap between companies and their investors. It can also help stakeholders maintain trust in the business and collectively overcome this crisis.

For more information, feel free to get in touch with us.

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What You Need to Know About Financial Statements?

Post author By admin
Post date June 26, 2020
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What You Need to Know About Financial Statements?

Financial statements are an essential part of any business. They are the complete representation of your business’s financial health because it concerns the sources of your money, where it is being invested and the remaining money you have. They help in strategizing the future of the organizations and making smart moves.

Moreover, financial statements are needed when drawing up legal contracts, making loan applications, reporting on sustainability and while attracting investors.

There are many accounting and audit firms in Malaysia that help businesses, especially large organizations, to prepare a thorough financial statement for complete financial transparency.

It is important to familiarize yourself with different aspects of financial statements. Let’s start with the basics.

What are Financial Statements?

Financial statements are reports that give details about the finances of an organization. Whether it is a new company or a well-established enterprise, every type of business must maintain financial statements and be familiar with the reading and analysis of these statements. There are three main parts of a financial statement:

Balance Sheet
Income Statement
Cash Flow Statement

In combination, these statements give a complete and clear picture of your organization’s financial health. It will tell you how much money is being invested in a project, the amount of debt owed, monthly income, investment expenses and other important financial details.

1. Balance Sheets

A balance sheet is a summary of your current business finances. It contains information about the assets your organization owns and the liabilities (or debts) you owe at the time of the creation of the balance sheet.

The frequency of balance sheet generation varies from business to business, depending on the organization’s requirements, type of company and level. Some businesses prefer to do daily or monthly balance sheets, while some do it only once a year.

A large organization that has to deal with a lot of money on an everyday basis usually prefers to prepare a balance sheet on a daily or weekly basis to prevent corruption, embezzlement and other financial errors. For example, banks prepare a balance sheet every day to keep a comprehensive record of the money.

If your organization has hired a competent accounting firm in Malaysia, it will be responsible for looking after the financial statements and documents of your company.

A balance sheet has three main parts:

Assets
Liabilities
Equity (Equity = Assets – Liabilities)

2. Income Statements

An income statement is also called the profit and loss statement of a company. It tells you how profitable your business was over a certain period, such as a month or year. The accounting period depends on the accounting firm you might have hired and the agreement you have with that firm.

The income statement is a clear description of how much money you made and how much you spend, meaning it gives information about both revenue and expenses.

3. Diverse Reporting

Not every financial statement needs to fit into a specific type. Instead, there are numerous other types of financial statements being used by different organizations. Experienced investors and audit firms in Malaysia will have no problem in understanding different financial statements.

It is also possible that an organization has the same type of financial statement but a different approach to data presentation. It simply means that diverse types of businesses produce diverse presentations of the financial statement.

The balance sheet, especially, varies a lot from business to business. Comparatively, income statements and cash flow statements do not vary much.

Importance of Financial Statements

Financial statements allow you to quickly analyze your net income, cash flows and any debt your organization might have. Similarly, a summary of past trends is included in financial statements. Future strategies can be decided on in order to maximize profit and reduce debts based on the collected a

They are an essential tool for optimizing the financial performance of any organization. Investment in various assets is made based on the results of a financial statement. Similarly, the complete financial history of a business is critical in securing a loan. If your company has obtained loans from multiple lenders, they should be mentioned in financial statements.

In a Nutshell

Financial statements are prepared using the collection and comprehensive analysis of financial data. Their importance cannot be denied for various reasons such as maintaining financial history, applying for different loans and complete financial transparency to avoid any legal issues.

While small businesses can easily prepare their own financial statements, larger organizations should hire an accounting or audit firm in Malaysia for thorough bookkeeping, preparing financial statements, analyzing them and suggesting future strategies.

For more information, feel free to get in touch with us.

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Overcoming Site Visit Limitation for Auditing During A Pandemic

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Post date June 26, 2020
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Overcoming Site Visit Limitation for Auditing During A Pandemic

The COVID-19 pandemic has created new challenges for many industries. Auditors are also facing many problems in site visits due to the authorities and various organizations’ strict social distancing guidelines and safety measures.

It is noteworthy that audit firms in Malaysia are not as crippled by the coronavirus crisis as many businesses, such as hotels and the entertainment industry. Accounting services are provided in Malaysia through various physical proximities to fulfil the auditing task of large organizations.

In such unprecedented times, auditors are adopting new tools and techniques to minimize the impact of the coronavirus on Malaysia’s accounting services. Modern approaches like state-of-the-art technology and remote auditing are being used by auditors. Remote auditing was used by many audit firms in Malaysia before the pandemic as well.

Due to COVID-19 and its related travel restrictions, strict safety measures and the need to conduct an audit and legal regulations, the importance of remote auditing is becoming more prominent to overcome the limitations of site visits.

Many organizations have also specifically asked their audit and accounting firms to turn to remote services for better services in these challenging times. The days are long gone when auditors had to maintain a vast book of records and update it manually. Nowadays, certified public accountants (CPAs) can perform more efficient accounting and auditing via rapidly growing modern technology and tools. Technology has sped up the auditing process and made it more efficient.

Certain standards should be followed by auditors, while remote auditing ensures it produces efficient and accurate results. A major difference between remote auditing and site auditing is that site auditing produces direct evidence while remote auditing gives derived documents and data. With proper resources like an excellent telecommunication system and data collection measures, remote auditing can be as reliable as traditional on-site visits.

Some of the other characteristics of remote auditing are:

1. Walkthroughs

The purpose of walkthroughs is to get evidence of transactions, or usually a group of dealings in a large organization. All of the data regarding the negotiation process, authorization, processing of contracts and final transaction reports are collected.

It involves inquiring, observing and examining the contracts and deals of a company. Such procedures can be easily performed via videoconferencing.

2. Inspection of Facilities

Inspection and examination of facilities can be performed through video or photographs in remote auditing. In fact, it will be much faster than the on-site auditing because it produces media evidence of the auditing which the audit firms can keep in their records.

A real-time video call can be made to one of the people on the facility, and a thorough inspection can be done.

3. Fixed Asset Testing

Fixed asset testing is a significant part of auditing. It involves testing the management’s declarations associated with existence and completeness. Existence testing can be remotely conducted via video or photographic means to prove the reliability of on-site presence and ensure the accuracy of adopted measures at the site.

Analyzing and reporting outputs, verifying audit procedures and confirming the asset’s existence can also be performed remotely via unique identifiers.

Completeness testing can be done through a video tour of warehouses or organization premises. Auditors can perform live test counts or choose a particular section for the analysis of evidence. It is also critical that auditors ensure the highest audit standards are being implemented while remote testing and remove any kind of audit risk it might have during completeness or evidence testing.

4. Resources

Another noteworthy feature of remote auditing is that the organization must provide all the available information, resources, representations and required authority and access to auditors to conduct a comprehensive audit and maximize its chances of being successful and accurate.

To fully overcome the limitations of a site visit during this pandemic, audit firms in Malaysia should adopt the common aspects of any type of auditing. These are:

This is essential for a successful auditing process. Every phase of the auditing should be separately planned to ensure maximum results.
Document review. This is important to ensure an organization complies with all the required legal requirements and regulations. Reviewing in remote auditing may take longer than on-site auditing because documents will have to be uploaded online.
Site inspection. This should be done via video stream.
Interviews with management. These can easily be conducted online.

In a Nutshell

Ultimately, organizations should keep in mind that remote auditing can sometimes be difficult to perform due to limited resources, compared to a site visit. However, many audit firms in Malaysia are implementing new strategies and tools for the best accounting and audit services.

With these firms’ cooperation and efficient utilization of the available resources, the site visit drawbacks can be overcome through proper remote auditing.

For more information, feel free to get in touch with us.

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Optimizing Losses During a Pandemic from Transfer Pricing Perspective

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Post date May 28, 2020
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Optimizing Losses During a Pandemic from Transfer Pricing Perspective

It has been about six months since the coronavirus pandemic started and it has affected the world economy in various ways. Along with numerous efforts and stimulus packages, the Malaysian government and the central bank are working hand in hand to minimize the impact of COVID-19 on the economy.

Many of the businesses are being asked to operate within the same old transfer pricing rules which have really affected the organization’s growth and working procedures.

The majority of companies are affected by the COVID-19 pandemic because the supply chain and production have become affected by the crisis. New market trends are indicating that parent companies of local brands are at a higher risk of suffering financial losses.

If your business has also been affected by COVID-19 and the MCO (movement control order) period, read on to find out more about some implementable tips and solutions to common issues being faced by companies. Challenges associated with tax treatment, loan schemes, rapidly changing rules and regulations of the working environment, and other tax subsidiary schemes are prevalent among businesses in Malaysia.

Determining the Losses for Transfer Pricing

In recent years, transfer pricing has become an essential concept for multinational enterprises (MNEs). Such large organizations depend on transfer pricing documents to implement a return on the sales pricing model for local branches.

Malaysian tax authorities also prefer the transfer pricing model when they provide a possible financial upside. However, during increased financial risk and low sales, such models are not preferred.

There is no definite answer to the question of whether losses should be shared among all local branches of an MNE. It depends on the type of MNE and the nature of the losses suffered by the company. The COVID-19 outbreak has led to losses in many departments of businesses, and such losses were not predicted at the start of the year.

Through transfer pricing, Malaysian companies should find out the loss and recovery period and make strategies to overcome the losses as soon as they can. The MNE can decide the nature of the analysis depending on their business sector and scale. Generally, a thorough review of the industry, financial records, future projects and the latest trends need to be examined in order to come out of the loss period stronger and better.

Another major part of transfer pricing documentation should be the research and comparison of competing businesses in specific markets. It is important to compare the effect of the economic crisis on different markets and find out some common steps that can be useful to implement throughout the business sector.

Financial Impact

After examining the impact of COVID-19 pandemic and economic challenges on a whole organization, it is highly recommended that you determine the effect on each entity of a company.

In other words, separate teams should be responsible for conducting the financial analysis of different departments of an organization and create thorough transfer pricing documentation in compliance with the regulations of transfer pricing in Malaysia.

Other than the usual strategy of comparing the results of financial analysis with other companies in the market, your business should focus on equating the results with a maximum unaffected business period. It will clearly indicate the losses suffered by your organization.

It is also important to note that most companies have to bear a higher amount of money spent on selling, hiring, marketing and administration during an economic downturn.

Even though businesses do not require the same number of assets to run their businesses during a crisis, they are still legally bound to certain obligations like leases, salaries and offices rent. Such legal contracts cannot be changed on a short-term basis, and hence, the companies continue to suffer losses due to minimum profits and regular responsibilities.

In a Nutshell

By the end of the COVID-19 pandemic, the economy of Malaysia will be completely transformed, just like the rest of the country. Many organizations will have to rely on loans provided by the government. Large organizations, in particular, may have more transfer pricing implications linked to the circulation of cash handouts within the numerous subsidiaries under the control of an organization.

Large-scale companies are under a lot of pressure to act quickly and form strategies to control the effects of COVID-19 on the business and its partners. However, it is also essential that such actions fulfil the requirements of transfer pricing documents as failure to accomplish transfer pricing policies in Malaysia can lead to severe tax-related issues.

Business owners need to find a balance between quick and effective change to ensure their strategies are beneficial for the company and economy in the long-term.

For more information, feel free to get in touch with us.

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The Effects of Covid-19 on Sustainable Reporting

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Post date May 28, 2020
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The Effects of Covid-19 on Sustainable Reporting

Businesses are being scrutinized all around the world, including Malaysia, in the wake of the COVID-19 pandemic. The crisis has brought the importance of transparency and sustainability in business development to the forefront.

There are two main things that people are asking about large organizations: how are they controlling the effect of the pandemic and what should their response be to such a possible crisis in the future?

Sustainability reporting is a report that is published by organizations to give details about the impact a company is having on the environmental, social and economic structure of the society.

Some companies are struggling to come up with modern techniques for efficient sustainability reporting. Here you can discover some of the sustainability reporting trends being observed in Malaysia and other countries.

The coronavirus pandemic has taken businesses by surprise. No business was ready for this huge crisis in terms of financial or reporting purposes. As a result, many organizations are modifying reports released in December of 2019 and adding some statements about coronavirus. Webpages and other such platforms are also being updated.
Investors, stakeholders, and experts are keeping a close eye on upcoming sustainability reports. Many financial dealings are highly dependent on these reports because investors are not comfortable in making massive investments in these uncertain times.
Social impact in sustainability reporting is more important than ever. Constant reporting is done about the treatment of employees by companies. Many investors, employees, and even employers of competitive organizations are gathering information about the handling of the employees in such unprecedented times.
Financial reporting is a huge part of sustainability reporting, just as in previous years. Accounting and audit firms are helping different companies in Malaysia to release transparent financial records and determine the losses suffered due to the current pandemic. Moreover, data is being collected about possible future trends and strategies are being made on the basis of these projections.
Due to the severe economic downturn, investors are demanding complete transparency, reliability, and consistency in company records. Managing the impact of COVID-19 on the company remains the top priority of business owners, and the significance of this cannot be underestimated. Investors are expecting companies to do thorough reporting and release records, even if with a little bit of delay.

EU’s Efforts towards the Green Deal

Recently, the European Union has urged countries to go green and implement some drastic changes to protect the environment. A letter sent to environment ministers also urged large corporations to release their sustainability reports. Despite the setback suffered due to the coronavirus pandemic in European countries, they have remained committed to the implementation of the Green Deal.

Some CEOs and executives of leading worldwide corporations have responded positively to such efforts.

Kara Hurst, Head of the Worldwide Sustainability at Amazon says that the world’s number one eCommerce store is working continuously to provide the best service to the customers while being safe for the environment and protecting individuals. Amazon has implemented strict policies to curb the spread of the virus and protect the health of both workers and clients.

Hurst also stated that air pollution is dropping massively due to social distancing guidelines, which gives a small glimpse into the carbon-free future.

In a Nutshell

Even during the coronavirus pandemic, all business owners need to remember that the primary purpose behind sustainability reporting is to ensure to stakeholders that their business is functioning efficiently, legally and sustainably. If there are some issues being faced by companies, they must be reported as well, so that executives can make intelligent decisions based on the transparent and trustable data present in sustainable reports.

In this regard, accounting firms in Malaysia can help you to conduct a thorough analysis of the company and prepare a comprehensive sustainability report. Similarly, accounting firms specialize in the producing and bookkeeping of financial records.

One could argue that sustainability reporting is more critical than ever because every business expert, owner and investor need to fully know the impact of COVID-19 on the sustainability of a company and make strategies to move on from this adverse crisis.

For more information, feel free to get in touch with us.

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Malaysia’s Reopening Business And How It Helps National Stability

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Post date May 28, 2020
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Malaysia's Reopening Business And How It Helps National Stability

2020 has been a challenging year for the world. The advent of the novel coronavirus has impacted humans in diverse ways; one of which is the closure of businesses. Businesses all over the world, including Malaysia, are forced to shut down as a means to curb the spread of the deadly virus. However, the imposed stay-at-home order has affected not just the small, medium, and large businesses but the economy as a whole.

The idea to close down virtually all sectors of businesses have stagnated the Malaysian economy. As a result, business operations has diminished, supply chains have weakened, cash isn’t flowing as it ought to, and export markets are at risk of loss. All of these have contributed to the instability of the economy. What then could be the solution?

Reopening businesses

The coronavirus pandemic has caused panic in the minds of employees and employers alike with many businesses having to close down for months now. A lot of industries that could not afford to offer a wage cut for their employees are forced to take a more drastic approach that would increase the rate of unemployment. Many were destined to lose their jobs if businesses were not opened.

With a total of 6, 353 confirmed cases and 4, 484 recoveries as of May 4, 2020, anyone can give the Malaysian government credit for controlling the outbreak of the virus. With this statistic, the government is confident that reopening various economic sectors will help national stability. However, this has to be done under the conditional movement control order (CMCO).

Fortunately, the movement control order (MCO) which was imposed sometimes in April 2020 proved effective in preventing the wave of infection.

Now that the government has allowed accounting firms and other businesses to resume operation, the post-MCO phase would be implemented to ensure the safety and wellbeing of employees in their various working environments. This implies that the return to work will be a gradual process, backed up with standard operating procedures that will prevent further spread of the virus.

The government only hopes this would revitalize businesses and ensure that every sector remains sustainable and competitive. And one great way to achieve this is through tax incentives in Malaysia.

Many organizations including The National Tech Association of Malaysia (PIKOM), have expressed how they feel concerning the decision of the government to reopen businesses. International Trade and Industry Minister Datuk Seri Mohamed Azmin Ali also said the reopening of the country will stimulate the economy and its sustainability, as well as guarantee the people’s wellbeing, which was affected by the outbreak of Covid-19.

While reopening businesses is a welcome development, will it guarantee people’s wellbeing? Well, Malaysia passes the six benchmarks set by the World Health Organization (WHO) to reopen an economy post-lockdown and they’ve also put in place strategic measures to curb the spread of the virus. After all, the government has to focus on lives and livelihoods.

The government has been working to sensitize citizens with SOPs (Standard Operating Procedures) that will ensure safe work conditions for employees. The main objective of this policy is to ensure accounting firms and all other private and public sectors, return to their various offices while complying with SOPs.

However, SMEs will be encouraged to stick with the social distancing rule until a vaccine becomes widely available. This may help alleviate some level of scepticism from customers as businesses seek to reopen.

While offices would be widely opened, working at home should be encouraged. When provided the right tools, employees can work via digital platforms. A good start would be to subsidize or give free broadband access and direct technical support to SMEs. Through remote working, SMEs would remain connected and also increase productivity and resilience.

In Malaysia, the government should support SMEs as they have a lower budget to manage and respond to crises. Special attention should be placed to ensure retail firms, the electrical and electronics industry, and tourism sectors as they are majorly exposed to demand and supply shocks.

As the government gradually eases the lockdown for some sectors, tax incentives in Malaysia should also be employed as a means to encourage economic activity. By reducing tax payments for small and medium enterprises, Malaysian economic growth, as well as cash flow, will be increased.

All hope is not lost. Reopening businesses will help national stability, increase supply chain, and prevent subsequent job losses. Malaysia can remain hopeful as the chaos also provides a unique opportunity to transform and build a stronger and more competitive economy.

For more information, feel free to get in touch with us.

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How to Determine the Value of a Business?

Post author By admin
Post date May 28, 2020
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How to Determine the Value of a Business?

The value of a business is determined via the process of business valuation. Business valuation is important for organizations because selling and buying businesses is a standard part of the corporate sector and large-scale businesses often have to rely on accounting services to conduct an advance business valuation.

Before diving into the particular method of determining the value of your business, it is important to be familiar with some of the following basics:

What is Business Valuation?

When techniques and resources are employed to evaluate the worth of a business it is called business valuation. This service is used by both sellers and buyers. Sellers use business valuation to set a suitable price for their business, and buyers use it to decide whether to buy a business.

Organizations and different types of businesses make use of the accounting services available in Malaysia for business valuation to either sell or buy a business in a profitable way.

A business valuation includes the determination and use of the latest trends and values of the market to set an appropriate value of the business. It is a complex process that involves thorough research of the market, competitive research and analysis of a business’s financial conditions.

Valuation Calculation

Small-scale businesses make use of the fundamental business valuation to determine the value of their company. A basic valuation can be performed by the internal team of a small company, or even yourself. Large-scale businesses and enterprises, however, have to rely on the accounting services offered by various accounting firms in Malaysia.

There are many different and changing variables in the advance business valuation.

Requirements for Business Valuation

The following are the documents that are essential for business valuations:

Financial statements that contain the details of financial dealings and overall information about the business’s financial history
Copies of tax returns
Legal agreements, licenses, patents and other documents related to the business
The latest full balance sheet of the business

If you have hired an accounting firm, you should provide them with as much information about your business as you can because it will result in an accurate and successful business valuation.

Three Business Values

The total value of a business is the culmination of three different values. These are:

1. Book Value

The book value or the liquidation value is the most straightforward part of the total business value. It is similar to your net worth which means the total value of your business recorded on the books. You can obtain the book value after eliminating all of the liabilities from your business assets.

2. Present Value

Present value is determined using the current and anticipated cash flows, which indicates your business’s cost both in current and future times. A steady company that has a stable stream of earning has the best chance of getting an accurate present value.

3. Fair Market Value

This is the estimated price of your business according to the situation of the market at the time of valuation. As a seller, fair market value is the most important value for you because you use it to set a cost on your business while meeting the potential buyers.

Business Valuation Formula

There are different mathematical as well as conceptual formulas involved in determining the value of a business. You can start the business valuation process using various different steps as all of the following tools will give you a good estimate value of your business, and you can use the acquired number during negotiations.

A) Asset Valuation

Asset valuation includes valuing all of the assets that your business owns and showing them on a well-maintained balance sheet. Assets, for example, land, building, cars, cash, equipment and intellectual properties all have values which should be included.

B) Cash Flow

The majority of buyers are interested in learning about the earnings of your business and how much revenue it can generate. It is possible via a cash flow statement, which gives all of the details about cash coming in and out of business.

C) Seller’s Discretionary Earnings (SDE)

SDE is the most common approach of business valuation implemented by accounting firms all over the world, including Malaysia. Its purpose is to find out the amount of money a business brings to its owner. The following formula can calculate it:

SDE = (Total Non-Taxed Earnings + Personal Salary + Non-essential Expenditures) – Liabilities

In a Nutshell

Business valuation is an essential step in selling or buying a business. Due to the rapidly changing economic conditions of a particular market or country’s economy, it can be quite difficult for firms to evaluate their worth accurately.

Therefore, you can use the accounting services present in Malaysia to determine an accurate value of your business and conduct effective negotiations.

For more information, feel free to get in touch with us.

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7 Reasons Why Cash Flow is More Important Than Profit

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Post date May 19, 2020
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7 Reasons Why Cash Flow is More Important Than Profit

Most small-scale businesses and start-ups begin with the end (profit) in mind. But what they overlook is the importance of cash flow over profit.

Business owners remain unaware of the fact that cash flow is very important for the financial health of their firm. That is why it’s often recommended to seek the help of accounting services, be it in Malaysia or other parts of the world, to profitably handle your firm’s financial matters.

Profit and cash flow are two sides of the same coin. So what difference does it make when both terms mean ‘making money’?

What is a Profit?

Profit is the surplus revenue after deducting business expenses. It determines the position of a firm in the overall competitive market.

The three main types of profit are gross profit, net profit and operating profit.

What is Cash Flow?

Cash flow is the total amount of cash moving in and out of your business. It better determines the present situation of your business. Usually, cash flow is calculated on a monthly basis.

Cash flow positive is when more money is moving into the business rather than going out during a given time. Cash flow negative indicates more money is spent compared to the amount the business receives.

Accounting services operating for businesses aim to maintain positive cash flow to improve sustainability reporting, necessary to keep investors satisfied.

Seven Reasons Why Cash Flow is More Important Than Profit

Here’s why the alluring profit trap isn’t right for your business:

1. Cash Flow Indicates Operational Issues

Positive and negative cash flow fluctuations can indicate operational issues within your firm, something that profit can’t show. For example, if most clients delay responding to invoices or payments, the cash flow can get out of balance. This results in a situation where one month the company experiences loss, while the next month in profit. The source of this trouble lies in the incoming cash flow.

Although your sales are steady, you need to ensure a steady flow of incoming payments as well.

2. Cash Flow Helps With Business Growth

A steady, positive cash flow that is invested to expand your business is a far superior strategy than simply hanging on to small profits. Instead, growth due to continual cash flow can lead to heavy profits in future. It’s a sign of the long-term prosperity of the organization.

3. Cash Flow Is Money at Hand to Pay Debts

Counting only on heavy profits and not leaving any money in the bank can increase your debts. When you don’t pay in time, the late fees and overdrafts are added up to the initial amount.

With cash flow, you can pay off the debts and free yourself from the burden in less time. This way, the business continues to have cash in hand to decide upon future investments once the debt is paid off.

4. Cash Flow and Profit Can Convince New Investors

A business that has a steady revenue, net profit and cash flow shows the future potential of a business. Investors would prefer to collaborate with such organizations because they are able to balance their financial graphs well.

5. Positive Cash Flow Indicates Healthy Financial Growth

Profit cannot be predicted, but cash flow helps in predicting the growth of a business. Continuous positive cash flow means you can plan income and investments for the upcoming months as well.

6. Positive Cash Flow Prevents You From Having to Take On Heavy Loans

Taking large loans to manage risky investments seems like a good idea at first but if you have poor cash flow, it can delay the repayments, resulting in an increase in interest. Positive cash flow is a priority as it helps you to manage repayments or even prevent you from needing the loan in the first place.

7. Cash Flow is a Reliable Determiner of Growth

Profit cannot precisely determine where your business stands, while cash flow can. It cannot be manipulated to show business growth when it’s not the case. That’s why owners and investors prefer to determine the health of a business based on the cash flow of an organization.

For more information on cash flow or other accounting services, feel free to get in touch with us.

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Improve Budgeting And Forecasting For Your Business

Post author By admin
Post date May 19, 2020
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Improve Budgeting And Forecasting For Your Business

Budgeting, planning and forecasting (BP&F) are three integrated steps for the smooth running of a company’s fiscal year.

No matter how big or small your business may be, an accurate budgeting and financing process can help a company achieve its financial goals. But how can auditing firm in Malaysia improve forecasting and budgeting?

Here are 7 expert tips to help you budget and forecast for achieving annual financial goals.

1. Ensure Transparent and Clear Goals are Set

Often auditing firms fail to plan and budget the fiscal year accurately. This leads to expectations of unrealizable goals and inaccurate predictions of the future of a business. With clearly-set goals, it becomes easier to follow the plan and understand where the company’s finances are heading.

2. Prepare the Budget According to a Plan

The vacancy tax is being formulated by the Housing and Local Government Ministry (KPKT). It is expected to be imposed on developers who fail to sell properties in a few months during the next few years. The purpose of this tax is to minimize the existence of empty residential units in the country.

Moreover, the Ministry is also expecting that the vacancy tax will prompt developers to become more careful and responsible with their projects, especially high-rise and large-scale developments. The introduction of the vacancy tax does not need Parliament’s approval as it can be implemented without amending the Act.

3. Communicate and Make Informed Decisions

Budgeting and forecasting is basically a team effort. Communicate with each department to provide realistic goals for each month and year. Leaders and teams can be involved in determining realistic budgets for each department. They may offer a different perspective to you for future plans that you can consider.

4. Set Adequate Time for B, P & F

Budgeting shouldn’t be a robotic act of filling in facts and figures for the cloud-computing software to predict. Rather, competitive accounting services in Malaysia consider the previous year revenue, cash flow, budget, payroll and HR services budgets, etc. against the organization’s current situation. This is because budgeting and forecasting lay a framework for future budgets, limiting any major changes to the company’s revenue stream later on.

A strong budget helps to create convincing sustainability reporting for financial investors of the company. Thus, a keen eye is needed to find ways you can achieve positive cash flow and profit for the upcoming year.

5. Prepare a Flexible Budget

For better forecasting and budgeting, it is essential to avoid a static and unchanging budget. Because annual budgets and forecasts can become obsolete and inaccurate within the first 3 to 4 months of the year. Therefore, it should be flexible to allow for unforeseen changes. For example, tax incentives in Malaysia after COVID-19 pandemic require companies to alter their budgets.

Sometimes, inflexible budgets can frustrate employees if they are held accountable for unrealistic goals. In the worst case, this can lead to faulty decisions and plans impacting a company’s financial health.

6. Implement a Rolling Forecast

No matter what, no one can predict the circumstances that may arise during the year. To keep up with equipment failure, industrial trends and internal conflicts, it is necessary to implement a rolling forecast for the business.

After each quarter of the year, keep updating financial forecasts for the upcoming months based on the current situation that can help you predict future profits better. Rolling budgeting and forecasting also let you align the budget with the annual strategic plan while maintaining the accuracy of budgets and forecasts.

7. Simplify the Process

By simplifying the process of budgeting and forecasting, you make the entire job easier and more accurate. But how it can you achieve this? With automated data aggregation and data entry process. Using technology for efficient budgeting and forecasting is an error-free process, far easier than the manual entry of digital data. Once a strong budget is created, all you would need to do is to update it on a quarterly basis to cope with the sudden changes that hit a company from time to time.

However, invest proper time to ensure that all the data entered is important because, without it, the entire automated framework of budgeting and forecasting will turn out wrong.

For more information, feel free to get in touch with us.