Exploring the State- Profession Nexus: The Case of the Malaysian Accounting Profession (1957 -1995)

S.Susela Devi Faculty of Business & Accountancy

University of Malaya Kuala Lumpur MALAYSIA

Tel: 603 79673803 Fax: 603 79673980

Email: susela@um.edu.my

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Exploring the State- Profession Nexus: The Case of the Malaysian Accounting Profession (1957 -1995)

Abstract There is limited evidence of the State and profession nexus in the development of the

accounting profession in the emerging economies. This paper discusses the

development of the profession in a developing country, Malaysia, during the period

1957-1995. It focuses on the power struggle within the profession and the State’s role

therein. Utilizing an explicit corporatist theory of the State, it highlights the domestic

policies and priorities that shaped the development of the accounting profession in

Malaysia. The State’s role emerges through a discourse of the struggles of the

indigenous accountancy professional body, Malaysian Institute of Certified Public

Accountants (an associationism mode)– in its attempts to become the national

professional body – and its rivalry with the statutory body established by the State –

the Malaysian Institute of Accountants (a corporatist mode). The study evidences a

notion of associative disorder and arguably, the division within the profession was

facilitated the State’s role in balancing its socio-economic goals and pursuit of

economic development.

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Exploring the State- Profession Nexus: The Case of the Malaysian Accounting Profession (1957 -1995)

INTRODUCTION

Extant literature on accounting regulation and the professionalisation of accounting

evidences significant discourse on the role of the State (Poulantzas, 1975; Burchell at

al., 1980; Tinker, 1984; Puxty et al., 1987; Richardson and McConomy, 1992).

Increasingly, the importance of the State in understanding the development of the

profession has been highlighted (Chua & Poullaos, 1993; Poullaos, 1993; Robson et

al., 1994; Walker, 1995; Walker & Shackleton, 1995; Caramanis, 1999 Beelde, 2002).

However, these studies have predominantly focused on the Anglo Saxon countries

including continental Europe. There is limited discourse on non-Anglo Saxon

institutional contexts (Beelde, 2002). Poullaos and Sian (2010, p.4) in exploring the

organization of accountants in Britain’s (former) colonies and the impact of the

‘empire’ experience, observed that state- profession nexus differs between “the two

broad categories of (former) colonies: the (while), self-governing, settler colonies

(Canada, South Africa and Australia) and the racially/ethnically diverse colonies

which were subject to colonial administration from Britain for much longer, not

attaining formal independence until after- in some cases well after - the Second

World War”. Poullaos and Sian (2010, p.241) call for closer analyses to provide

insights into why forms of state control over (or state sanction of particular groups of)

accountants that proved not to be feasible in the imperial centre (meaning Britain)

were deemed permissible, if not desirable, in the periphery (meaning the former

colonies, for example, Malaysia).

Whilst in the Anglo- Saxon context, the corporatist theory of the State has been

utilized (Walker and Shackleton, 1995) to demonstrate that organized interests show a

tendency to monopoly and are supported by the State in exchange for adhering to

certain norms and performing a regulatory function over their members on behalf of

the State (Williamson, 1989 as cited in Beelde, 2002), there is limited investigation of

the State –Profession nexus in the emerging economies. For instance, in the context

of the East Asian countries (so called “Tigers”) during the early nineties it was shown

the State played a significant role in the economic development of these economies

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(Wade, 1990). Is the State- Profession nexus different in these economies? Malaysia

provides a unique setting due to its multi-ethnic society (a legacy of the colonial rule)

where the State pursues an active policy of economic development (constituting

economic growth plus structural, social and economic changes) since its

independence (Susela, 2010). Given the limited evidence of the State - Profession

nexus in the development of the accounting profession in the emerging economies,

this paper discusses the development of the profession during the period 1957-1995

focusing on the power struggle within the profession and the State’s role therein. This

paper utilizes an explicit corporatist theory of the State in examining the domestic

policies and priorities that shaped the development of the accounting profession in

Malaysia. The State’s role emerges through a discourse of the struggles of the

indigenous accountancy professional body, Malaysian Association of Certified Public

Accountants (MACPA) 1 – in its attempts at achieving status as the national

professional body – and its rivalry with the statutory body established by the State –

the Malaysian Institute of Accountants.

The paper contributes to the extant literature in evidencing the corporatist mode of

regulation in an emerging economy. It reveals that the struggles of the profession are

intertwined with the role of the State in economic development within the context of

ethnic relations. It evidences that unlike the more developed countries (Puxty et. al.,

1987), the Malaysian experience exhibits an associative disorder. The State, by

maintaining an apparently self-regulated profession (associationism- represented by

MACPA) as well as a statutory regulatory body (MIA) as form of a corporatist

arrangement, is able achieve its socio-economic goals in the context of a multi-racial

society with ethnic tensions. The internal tensions between the two modes of

regulation (in the profession) arguably provide the State a free-hand in pursuing its

socio-economic goals. Clearly, the Malaysian case illustrates that development was

achieved despite the profession. The profession was too preoccupied with its internal

tensions and can be seen as being reactive rather than proactive in pursuing initiatives

to enhance the profession’s contribution to nation-building and economic

development.

1 MACPA later changed its name to Malaysian Institute of Certified Public Accountants (MICPA) in 2001.

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The analysis is based on information derived from extant literature and sixty-five in-

depth interviews 2 in 1995 with selected individuals closely associated with the

accounting profession drawn from the four organizing principles (State, Market,

Profession and Community) as espoused in the theoretical framework adopted.

The remaining discussion is organized as follows: Section 2 provides a brief

background of the State and Profession’s link to the nations’ economic development

and the approach taken to expose the State-Profession nexus. Section 3 elaborates on

the explicit corporatist theory of the State which is the theoretical framework guiding

the “way of seeing” the State –Profession nexus in the context of the stages of

economic development. Section 4 sets the Malaysian economic and accounting

development in perspective drawing from respondents’ account of the development

within the profession. Section 5 discusses the implications of the analysis in Section 4.

Section 6 concludes.

2. BACKGROUND

The Malaysian economy has transformed significantly since independence in 1957

from the British. The then Malaya 3 was a typical primary commodity exporter,

heavily dependent on rubber and tin for foreign exchange earnings, government

revenue and employment. By 1990, the nation’s dependence on rubber and tin had

declined, being replaced by the manufacturing sector. The State pursued an active

policy of economic development (constituting economic growth plus structural, social

and economic changes) since its independence4. The accounting profession similarly

transformed and its development has been much aligned to economic development of

Malaysia. However, it can be argued that its internal tensions have not enabled the

profession to contribute to the economic development of the nation in a proactive

manner. Whilst it may be shown that the development in the profession was in

2 A total of sixty five interviews were conducted in March-April 1995. Respondents were drawn from community, market, profession and state (Susela, 1999). The respondents are denoted by i-no-1 to i-no-65 in subsequent discussion. The analysis was done using NUD*IST (Richards and Richards, 1994). 3 The Federation of Malaya achieved independence from the United Kingdom on August 31, 1957. Singapore, Sarawak, British North Borneo and the Federation of Malaya federated to form Malaysia on September 16, 1963 and on 9 August 1965 Singapore exited to be an independent nation. 4The discussion in this paper covers only West Malaysia. West Malaysia is the official designation given to the Federation of Malaya after it was incorporated into Malaysia. East Malaysia officially covers Sabah and Sarawak.

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tandem with economic development of the country, it is not clear if the profession

had contributed to the development.

Rational models of economic development using Neo-classical development

economics perspectives advocate a market approach (self-regulation). A state activist

approach calls for a prominent role for the State (where there is need for a strong

State which was free from the narrow interests of the dominant economics classes). In

the context of developing countries at least, accounting has become imbued with a

significant role in economic development (Hunter; 1964; Enthoven, 1969; 1973;

Ogundele, 1970; Shinawi, 1970; Abdeen, 1980; Elliot, 1972; Cheng and Jain, 1973;

Holzer and Tremblay, 1973; Qureshi, 1974; Mirghani, 1979; Chang, 1992).

However in the case of Malaysia, it is not evident that the profession has made

significant contribution to assist economic development. The power struggle within

the profession may have inhibited a more proactive stance by the profession. Hence,

the State assumes a critical role in organizing the profession as well as pursuing the

set socio-economic goals.

Accounting Profession: The Power Struggle

The existence of two professional accounting bodies, one which is a statutory body

and the other, a private body, provides an interesting setting of the complex dynamics

in the development of the accounting profession in a rapidly developing economy.

The private body, MACPA 5 , continues its struggles to achieve a position as the

national accountancy body in the face of stiff competition from international

professional bodies that have established office in Malaysia as a result of their

qualifications being recognized in the Accountants Act 1967. There are currently

many routes to becoming a qualified Chartered Accountant in Malaysia.

Consequently, MACPA has to compete with other international professional bodies (a

total of 10 other professional bodies are recognized see http://www.mia.org.my) to

attract students to undertake its professional program (Susela, 2010).

5 Unlike most of the other British Commonwealth Countries around the world, Malaysia, which was at one time under the colonial rule of the British, was not allowed to use the designation Chartered Accountants for professionally-qualified accountants (Susela, 1996). Instead the association was called Malayan Association of Certified Public Accountants.

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The aim of this paper is to espouse the State and Profession nexus in the context of

the accounting regulatory process since independence. An historical analysis of the

development in the regulatory process is used to understand the contemporary mode

of accounting development in Malaysia (Susela, 1996). The historical analysis is an

attempt to provide the context for understanding the setting up of MACPA, the

formation of Malaysian Institute of Accountants (MIA), the attempts by MIA and

MACPA to merge and discussions leading to proposals for the formation of a single

national accountancy body. An explicit corporatist theory of the State is used in this

paper to explore the history of MACPA in the post colonial era covering four decades,

through the sixties, to the nineties.

The corporatist perspective allows an examination of domestic policies and priorities

in shaping development rather than resorting to models of external causation. Clearly,

external actors and structures, such as multinationals and international financial and

commodity markets, do have important implications for the profession’s development.

3. THEORETICAL FRAMEWORK – CORPORATIST THEORY OF THE

STATE

Rational models of economic development using Neo- classical development

economics perspectives advocate market approach, or a state activist approach which

argues for a prominent role for the State (where there is need for a strong State which

was free from the narrow interests of the dominant economics classes), cannot

explain development in a multi-cultural country such as Malaysia (Lorrain, 1989;

Sikka, 1991).

The framework adopted in this paper recognizes that accounting’s current meanings

and significance emerge in the context of a complex nexus of practices, procedures

and institutional arrangements. This framework acknowledges the interconnectedness

and interdependencies between accounting and the wider contexts in which it

operates.

The Corporatist Mode of Regulation

The theoretical framework underlying this paper is derived from Puxty et al. (1987)

using the principles of dispersed competition (Market), Hierarchical control (State)

and spontaneous solidarity (Community) to analyse accounting regulation. It is

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theorized that institutions and practices of accountancy are an outcome of interactions

between parties such as State managers and representatives of organized interest

groups, whose actions can be analysed according to these three principles.

Accordingly, Puxty et al. (1987) identify a number of theoretically possible modes of

regulation.

Puxty et al (1987) show the organising principles of Community to be subordinated to

those of Market and State. At one extreme, there is liberalism, whereby regulation is

provided exclusively by the discipline of Market principles.

Figure 1: Modes of Regulation

legalism

State (hierarchical control)

Market (dispersed competition)

Corporatism

Associationism

Liberalism

legalism

Community (spontaneous solidarity)

Profession (concertation)

Source: Susela (1996)

At the other extreme, Legalism relies upon the unreserved application of State

principles. It is acknowledged that neither Market nor State principles exist in a pure

form. Different forms of regulation are evidenced along the Market (liberalism) –

State (legalism) axis. Puxty et al (1987) view associationism as a mode of regulation

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that is accomplished through the development of organizations representing their

members’ interests. In the case of accounting, professional accounting bodies

symbolize the obvious strategy of associationism and there is some dependence upon

the principles of Community. Corporatism, however, involves a greater reliance on

State principles of hierarchical control. The State does not simply license the

existence of organized interest groups, but incorporates them into its own centralized

hierarchical system of regulation. Consequently, the State simultaneously recognizes

its dependence upon associations and seeks to use them as instruments in its pursuits

and legitimization of its policies.

Susela (1996) incorporates a fourth model of social order introduced by Streek and

Schmitter (1985) – the corporative-associative order. This brings in the Profession as

the fourth element of social order with the guiding principle of “concertation” as

shown in Figure 1. This principle of “concertation” refers to negotiation within and

among a limited and fixed set of interest organizations that mutually recognize each

others’ status and entitlements, and are capable of reaching and implementing

relatively stable compromises (pacts) in the pursuit of their interests.

Puxty et al (1987) in ignoring this mode of regulation, adopt a middle range

theorizing of corporatism (Lowe et al., 1991, p.153) which does not emphasis the

unequal interests (Susela, 1996). In contrast, Streek and Schmitter (1985) adopt an

explicit corporatist theorizing stance. They suggest a theory of the State where it is

capable of pursuing its own interests. Poulantzas (1975) describes the State as being

an independent realm of social conflict having relative autonomy from the economic

sphere. Miliband (1983, p.31), however, distinguishes between the State acting on

behalf of, but not at the behest of, dominant interests. The State, as evidenced by

Miliband (1983), has pursued policies which were not only pursued without reference

to the capitalist class, but also at times against the wishes of many parts of that class,

or even the whole of it. Even at its most reforming guise, “the State remains the

protector of the social order which gives capital its preponderance (Miliband, 1983,

p.31).

The Puxty et al (1987) model fails to interpret corporatism as a phenomenon in its

historical context. An explicit political economy perspective incorporating the

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Corporatist mode (Cooper and Sherer, 1984) is adopted in this paper. Consequently,

accounting is viewed as part of the ideological State apparatus which continues as a

whole to be an instrument of the ruling class (Gramsci, 1971; Poulantzas, 1973;

Althusser, 1976; Carillo, 1977).

This paper rejects the middle range theorizing of corporatism which implies a basic

harmony of interests between the State and the interest groups. Instead, an explicit

State corporatist theory of regulation explains the historical development of the

profession in the Malaysian context (Susela, 1999). Development of the accounting

profession has been intertwined with the pursuit of economic development as well as

balancing ethnic relations. The profession is seen to be a part of the State apparatus,

instrumental in achieving specific national goals given the highly interventionist role

of the State in economic development (Jesudason, 1990). However, having two

modes of regulation, Associationism (MACPA) and Corporatism (MIA), in existence

simultaneously, can be arguably an interesting phenomenon in the Malaysian

regulatory scene.

4. MALAYSIAN ECONOMIC AND ACCOUNTING DEVELOPMENT IN

PERSPECTIVE

The Colonial Economic Development

Susela (2010) provides detailed account of the colonial impact on the new economic

framework and the accompanying set of values the British colonists brought to the

Malay world. The resultant social structure is marked by ethnic pluralism, while

export economy was distinguished by segmentation along ethnic lines. The

indigenous Malays were said to be marginalized in an economy dominated by

Europeans (mainly British) and, to a lesser extent, the large Chinese migrant group

(Jesudason, 1990). These economic and ethnic structures were influential in shaping

Malaysia’s post colonial development. This has a significant impact on the

development of the profession too.

Undeniably, colonialism contributed to much economic dynamism in Malaya

installing a competitive economy in place of a quasi-feudalistic economy and

introducing the notion of economic development as an end for the State to pursue

(Jesudason, 1990, p.36).

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During the early 1950s, the State was keen to get the Malays involved in business and

commerce (Susela, 2010). Malays were sent overseas to train as accountants

(Government of Malaya, 1953, p.76).

Malaysian Post Colonial Economic and Accounting Development in Perspective

Malaysia’s economic development in the post colonial era underwent significant

transformation and the accounting profession developed in tandem with the economic

development (Susela et al, 2004). To set the context for the discussion, development

in the accounting profession is discussed along the five year economic development

plans: First Five Year Plan (1956-1960); Second Five Year Plan (1960-1965); First

Malaysia Plan (1966-1970); Second Malaysia Plan (1971-1975); Third Malaysia Plan

(1976-1980); Fourth Malaysia Plan (1981-85); Fifth Malaysia Plan (1986-1990); and

the Sixth Malaysia Plan (1991-1995).

This section focuses on the economic development and corresponding development in

the profession. It attempts to capture the sentiments and the contextual dimension by

narrating the respondents’ account of the selected events.

First Five Year Plan (1956-1960) and Second Five Year Plan (1961-1965)

The Five Year Plan (1956-1960) for the Federation of Malaya, called the General

Plan of Development, was adopted in October 1956. The plan spanned momentous

years in the Federation’s history. They were years of political progress which

culminated in the achievement of Merdeka (independence) on 31 August 1957.

During this period the communist terrorists were crushed and the Emergency was

finally brought to an end. Significant economic advance was accomplished despite all

the financial and administrative burdens of the Emergency, and the financial

difficulties accompanying the world-wide recession of 1957-1958 (Government of

Malaysia, 1961).

Hence, the private sector played a prominent role and a supportive role by the State.

Certain changes were seen in the administrative style of the colonial period. Colonial

practice had centered on minimal taxation, strict avoidance of deficits and an

essentially unprotected market. These practices had to be changed to accommodate

the State’s new spending needs and desire to see more industrial development.

However, this meant overcoming the preferences of the foreign business sector, the

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lingering influences of a few colonial officers, and ingrained bureaucratic attitudes of

the colonial era.

The State’s attempt to institute tariff protection was opposed by strong commercial

interests (Wheelwright, 1965, p.97). The British importing houses, such as Guthrie,

Boustead and Harper and Gillian, showed a “lukewarm reception to the idea of

manufacturing because of their traditional role of marketing imported goods”

(Jesudason, 1990, p.97). The State abandoned the policy of a balanced budget and

incurred a deficit in order to establish viable projects, largely as a reaction to Malay

pressures on the State. This period evidenced the State attempts to break away from

the direct business pressures by incurring some deficit financing (Rudner, 1975).

Formation of the Malaysian Association of Certified Public Accountants: Market

driven initiative

In 1936 a few local people who earlier went to UK to gain professional accounting

qualifications formed the Malayan branch of the Association of Chartered and

Incorporated Accountants (Azham, 2006). On 26 July 1958 these accountants and

those from the Malayan branch of the Association of Certified and Corporate

Accountants (ACCA) came together and incorporated the Malayan (later Malaysian)

Association of Certified Public Accountants in Singapore under the Straits Settlement

Companies Ordinance 1940 as a self-regulatory accountancy body (Azham, 2006).

This was a private sector market-driven initiative (Susela, 1996).

During this period of relatively laissez – faire approach, the MACPA aimed to

advance the status and development of the accounting profession in Malaysia and to

provide the opportunity to those aspiring to qualify as an accountant to be trained

under local law and practice (MACPA, 1988).

The period of the Second Five Year Plan witnessed a significant role by the State.

Increased fiscal capacity allowed the State to better shape development in response to

internal political priorities. Hence, State spending changed direction, with increased

allocation for agriculture and higher percentage of funds directed for infrastructure

and social services in the rural sector. The orientation switched to raising rural

incomes so that the domestic market could be enlarged and consequently, assist in

industrial development (Jesudason, 1990).

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MACPA instituted the examination and articleship system of training accountants in

February 1961 and registered its first batch of students (MACPA, 1988, p. 10). The

first MACPA examination - "Intermediate" - was conducted in December 1963 and

the "Final Part I and II" - in December 1965 with the assistance of the Overseas

Accountancy Examination Advisory Board (OAEAB) established by the Chartered

Accountants Joint Standing Committee of the Institutes of Chartered Accountants of

Scotland, England and Wales and Ireland. This support by the OAEAB was extended

until 1969 (Enthoven, 1977, p. 323) by which time the local examiners had gained

sufficient exposure and expertise to take over from their UK counterpart. Since 1970,

the MACPA examinations were conducted with the assistance of senior members of

the profession and professionally qualified academics from the local institutions of

higher learning.

Megat Abdul Rahman (vice-president of the MACPA, in 1980) observed that the

MACPA modeled, in particular, its examination and training scheme upon that of the

ICAEW: … In Malaysia, the 'articleship' system (now known as Stream I) is a direct copy of that of the English Institute" (Megat, 1980, p. 3). … MACPA education structure was inevitably based on the English Institute of Chartered Accountants (ICAEW) (p.2).

One respondent noted that MACPA was spawned by those who came from the UK.

He said: “…because the economy here will grow and they need accountants and all

that and they started it…” (i-no-18).

The respondent opined that MACPA had grown “rather steadily, serving the needs of

the market and the economy”. This Big Six practitioner continued that if it had just

been MACPA, “it would have done its job with much credit” (i-no-18). Another

practitioner supported this notion:

…I think we have to go back in history...Even before MIA was born and after MIA was

born, it was inactive for a long period of time. So, the vacuum was filled by the initiatives of

the members of MACPA…the MACPA has got the history of setting standards … (i-no-19)

Second Five Year Plan (1960-65): Further developments

This period too witnessed an intense focus on the financial reporting practices of

companies (Babiak, 1964; Chin, 1964). UK accounting pronouncements were widely

used then (Chin, 1964). Major international accounting firms had already established

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their offices in Malaya during the colonial period. During this period, several local

Bumiputra accounting firms were set up. For example, Hanafiah, Raslan and

Mohamed, a firm of Chartered Accountants (from UK) with mostly Bumiputra

partners was set up in 1964 (Azham, 2006).

In 1965, the Companies Act was introduced which mandated disclosure requirements

in its Ninth Schedule for items of both Profit and Loss Account and the Balance Sheet.

This is the beginning of the State’s active intervention in financial reporting.

Companies incorporated under the said Act were required to comply with the Act’s

requirement regarding financial reports (Mitchell, 1974).

First Malaysia Plan (FMP) 1966-1970: Increased State involvement

The State’s actions during this plan period are an important departure from previous

periods. It became directly engaged in commercial and industrial activities in the

modern sector (Jesudason, 1990) due to urban Malay pressures for greater Malay

progress in business. Whilst leaving the responsibility for manufacturing operations

to the private sector, the State continued to focus on maintaining a favourable

investment climate, by providing industrial estates and transport, power and

communication facilities, and granting tax and other incentives. The Malay middle

class, comprising aspiring businessmen, politicians and administrators, wanted parity

with rich Chinese entrepreneurs. Lacking capital and expertise, these groups turned to

the State assistance. Consequently, the State made a special allocation of RM 124

million for the specific promotion of Malay economic development. Several projects

resulted. For example, a Malay bank (Bank Bumiputra), and a Council of Trust for

the Indigenous People (Majlis Amanah Rakyat or commonly known as MARA) were

established. MARA provides commercial loans to existing and aspiring Malay

entrepreneurs and engages in commercial and industrial projects on its own. This

allocation of RM 124 million was merely 3.2 percent of the Plan’s expenditure and is

modest given the backward state of the Malay economy, the deep cultural and

personal desires of many Malays to expand economic power and influence, and the

support in the Constitution for State favoritism of Malays (Jesudason, 1990). The

State was, surprisingly, restrained in its vanguard ethnic role due to several reasons.

Firstly, after independence, the Malaysian leaders in pursuing wider geo-political and

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economic goals did not opt for nationalization, or take over the plantation and mining

concerns from the British and foreign owners. Apparently, this was due to Malaysia’s

heavy dependence on the British for its military defence (Jesudason, 1990, p.52).

Malaysia was not in a position to risk attacking local British commercial interests

(Jesudason, 1990, p.53). Secondly, in the economic sphere, Malaysia was trying to

diversify its economic base away from over-reliance on primary commodities, and

since it possessed only a rudimentary industrial capital, it welcomed any foreign

investment and hence felt obliged to give leeway to the foreign sector (Morais, 1972).

Thirdly, this perception of economic vulnerability, as well as the existing political

arrangements, helped to further strengthen the free enterprise system. The

“independence pact’ of 1957, over which the United Malays National Organization

(UMNO)6 and the Malayan Chinese association (MCA) had bargained, allowed for

Malay cultural and political dominance in return for safeguarding of the Chinese

economic position. This priority appears to lay the basis for political stability in a

potentially divisive multi-ethnic society.

Hence, pushing for Malay commercial development was a secondary concern. The

MCA, for its part, by taking a conciliatory stance toward Malay cultural and political

predominance, enjoyed strong influence in State and high access to the prime

Minister (Jesudason, 1990, p.53). Consequently, the commercial enterprise was

dominated by foreign and Chinese enterprise. Any sizeable State commercial

involvement would have necessitated mobilizing large resources and acting more

aggressively toward the existing economic groups.

Further, the MCA’s influence in preserving free enterprise is reflected in several ways.

Consistent with the political bargain it had made with UMNO, it was given control of

the important economic Ministries of Finance and commerce and Industry, as well as

the Ministry of Housing and Development. This is said to have placed MCA ministers

in a powerful position to influence the relative balance between the public and private

sectors (Jesudason, 1990).

6 UMNO is a political party which primarily protects Malay interest; MCA is a parallel political organization safeguarding Chinese interests, and MIC (Malayan Indian Congress) is said to look after the Indian interests. In the UMNO-MCA electoral pact, the Alliance party was formed comprising the three political parties and this part won the General Election and attained government power in an independent Malaya in 1957.

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Many Malay State officials and Malay business leaders were beginning to view the

Malay business failures to be a result of non- Malay economic strangulation rather

than their own shortcomings (Jesudason, 1990, p.54). The bureaucratic controls to

deal with this interpretation of business problems did not take place. Most of the

State’s pro-Malay activities in the 1960s were confined largely to data collection, the

sponsorship of a few joint ventures between Malays and foreign companies, and

helping aspiring and existing Malay businessmen pool organizational and financial

resources. There were few direct controls and regulations on firms. An informal

policy requiring manufacturing firms with pioneer status to put aside ten per cent of

their equity for Malay interests was not even applied seriously (Lindenberg, 1973).

This period witnessed the enactment of several Acts of Parliament pertaining to the

corporate sector regulation. The most prominent is the Income Tax Act 1967. This

Act covered some aspects of accounting policies to be adopted and reflected in the

accounts, for example, in the valuation of stock (Susela, 1996).

The establishment of the Malaysian Institute of Accountants (MIA) under the

Accountants Act 1967 too was a significant development for the accounting

profession.

Establishment of the Malaysian Institute of Accountants

The Accountants Act 1967 resembled the Singapore Society of Accountants

Ordinance 1963 which was largely based upon the New Zealand Society of

Accountants Act, the main difference being that the Malaysian Act was "much

briefer" and thus "less explicit" than the Singaporean Ordinance (Hai, 1970, pp. 27-

28). Section 6 of the Act specified the key functions of the MIA: to regulate the

practice of the profession of accountancy; to promote the interests of the profession of

accountancy; to provide for the training, education and examination of persons

practising or intending to practise the profession of accountancy and also to determine

the qualifications of persons for admission as members.

The State played a significant role in instituting the MIA. The State desired the

profession to be regulated as there were many individuals claiming to be accountants

or practising as public accountants in the years following independence who had a

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variety of educational backgrounds and qualifications 7 . The existence of several

accountancy bodies, wherein membership is based primarily on regional ties of

academic and professional training, posed a major obstacle to the formulation of

uniform policies in accounting regulation (Chin, 1964). Calls were made to unite

these various professional bodies (Chin, 1964). MACPA being the senior body was

called to lead in setting desirable standards of financial reporting for its members.

The House of Representatives' Parliamentary Debates (Vol. IV, No. 12, Col. 2409

dated 25 Aug. 1967) had disclosed the following remark made by the then Assistant

Minister of Finance, Dr. Ng Kam Poh: The position of the accountancy profession in Malaysia at present is not entirely satisfactory in that although many accountants are members of long established and reputable associations and have within the last few years between them formed the Malaysian Association of Certified Public Accountants for the purpose of maintaining adequate standards of competence and ethics in this country, there are many who wish to be considered as accountants but who belong to accountancy associations imposing lower standards or whose members could be considered under qualified except for a measure of practical experience.

(cited in Azham (2006)

Hence this period of accountancy development in Malaysia evidences the intervention

of the State. The State’s establishment of MIA, as a statutory body, to regulate the

profession seem contradictory to the laissez-faire approach it adopted to economic

development during the same period. Arguably, this may not be contradictory after all

because the State, after setting up MIA, did not go any further to ensure the Institute

actively pursued its objectives. It appears as a half- hearted action undertaken by the

State to appease certain interest groups. A parallel can be drawn to similar feeble

State attempts to introduce “ad hoc economic programs to support Malay businesses”

(Jesudason, 1990, p.55) or “the formulation of the program was conceptually weak

and its implementation half-hearted” (Lim, 1973, p.211).

The State appointed the Accountant General to head MIA. The Act required that the

MIA council be responsible for appointing an investigation and a disciplinary

committee. The investigation committee’s task was to investigate any complaints

made against any MIA member. The disciplinary committee was to dispense

disciplinary actions when the member had been found guilty of contravening the

7 Chin (1964) notes that among the more important bodies representing the profession in Malaysia are the Malayan Association of Certified Public Accountants, the Institute of Chartered Accountants of England and Wales, the Australian Society of Accountants, The Association of Certified Secretaries and the Singapore Society of Accountants.

17

Accountants’ Act or any part thereof, the Accountants Rule 1972 and subsequently

from the 1990, the MIA's By-Laws on ethics. However, these statutory committees,

which could only be formed immediately after an AGM, did not materialize for the

next two decades of the MIA’s existence no AGM was held. Hence, MIA merely

functioned as a registering body. Furthermore, this was delegated to the audit firm

Price Waterhouse. In 1982, the MACPA took over this registering function. The first

AGM was held only in 1987 (Azham, 2006).

Evidently, the State did not pursue measures to ensure the MIA achieved the

objectives for which it was established. It was only on 9 April 1987 (MIA, 1987)

when a Big Six ex-partner (also a dissident MACPA Council member) became the

president of MIA. However, the Institute confined itself to a registering role (Susela,

2010).

Respondents’ Account: Formation of MIA

Another senior member in the profession rationalized the establishment of MIA. He

said that it was a political issue and it also involved professional jealousy. He recalled

that when the Accountants Act was first mooted in the 1960s, Singapore was

promulgating the Singapore Society Accountants Act (SSA Act) and had invited the

Australian Society of Accountants to design the said Act in Singapore. According to

this respondent:

…Even though they themselves [meaning, the Australians] did not have an SSA Act, they

were in fact influenced by development in New Zealand. The original SSA Act is almost

word for word taken from the NZ Act… (i-no-8)

The real reason, he reckoned was professional jealousy. He added that: …for a long time, the accountancy profession here was indirectly controlled by the UK base.

Of course, the war in UK has been transferred here also. There the CAs looked down on the

ACCAs and the ACCAs say I am better than you etc…(i-no-8)

He recollected that, at that time, there were two groups who were dominant, namely,

CAs from the UK, some CAs from Australia, and a lot of ACCAs from the UK, many

of them were in industry. Those in practice were noted to be largely CAs in the Big

Eight those days and a small number of them in industry and that “there were a large

number of ACCAs in practice”. This respondent perceived the formation of MACPA

as an attempt by the CA body and accounting bodies overseas to form a “trade union

18

in order to protect members’ interests”. He recalled in the early years “there was

closed door policy” (i-no-8).

One corporate executive collaborated. When MACPA was formed, he noted, it was

formed for all practising accountants in the country and there were some ASA

members who were also practising. They wanted ASA qualification to be considered

as part of MACPA. However, it was decided not to recognize ASA because: …the training system did not follow our kind of training system. The Australian Society guy

passes from University or college, he get his membership… (i-no-8)

The establishment of MIA is related to dissatisfaction with MACPA’s exclusion of

ASA. This exclusion upset a lot of people. The respondent noted “ a lot of it is

personal, perhaps parochial interests…” (i-no-9).

Respondents’ account: Several professional bodies – professional jealousy

It is noted that although MIA was set up, and included ASA and ACCA among the

list of recognized professional bodies, MACPA was still dominant. As one former

Council member in the first council of MIA noted: …it took a few years … either the people do not want to give up their positions … or there is

some political manipulation at that time …I don’t know. In a country – is fortunate – is by

legislation, you have got Accountants Act – that is supposed to tell them, according to an Act

of Parliament to look after the accountancy profession but in that there is a lot of jealousy –

those who are CAs or CPAs, felt they are one step higher than the others … I must say they

were better organized (referring to the MACPA) … they have more interest in the profession,

they have lectures …it took quite some time, until this new president, XXX, stepped in and

most of us old timers stepped down at the AGM in 1987. They came in and now they are far

more active… (i-no-1).

Second Malaysia Plan (SMP) 1971-1975 and Third Malaysia Plan (1976-1980):

Self regulation continues

Racial tensions in 1969 manifested in a change in the State’s role. The New

Economic Policy (NEP) was geared to enable the State to counter balance foreign and

Chinese dominance in the economy (Jesudason, 1990, p.74). One of the many -

faceted approach towards achieving national unity in the context of the Rukunegara

19

(the National Ideology) was the development of a socio- economic foundation that

would provide for a viable and equitable participation of all races in the development

process. It was recognized that such a process of transformation of Malaysian society

could only be achieved within the context of an expanding economy, so that no

particular group would experience any loss or feel any sense of deprivation. Such a

process of growth with equity called for considerable focus of policies and

programmes on the structure and content of growth that would benefit the poor and

the disadvantaged racial groups (Government of Malaysia, 1971). The State emerges

as an entrepreneur. The New Economic Policy spanned a period of thirty year (1971-

1990) under the Outline Perspective Plan 1. With the NEP, the State no longer merely

played a supportive role for private capital but it had moved to center stage to become

a medium for capital accumulation, serving the particular interests of the governing

class. At least in this important sense, it is suggested that the statist bourgeoise

crystallized with the announcement and implementation of the NEP (Jomo, 1986;

Brown, 1994).

The State instituted many new regulations concerning economic participation in non-

Malay firms, creating new bodies to monitor and influence the behaviour of the

private sector. The Foreign Investment Committee (FIC) was created in 1974,

consisting high ranking State finance, trade and industry administrators, the

Economic Planning Unit and the Registrar of Companies. It was set up initially to

monitor foreign acquisitions of Malaysian companies but later (in early 1980s), it

became an important instrument for enforcing the NEP, especially in getting large

public and non-public corporations to restructure their equity (Jesudason, 1990). This

State machinery enjoyed strong leverage because of its high powered bureaucratic

membership. Companies which ignored the Committee risked a strained relationship

with the State, resulting in potential problems when it came to getting approvals for

machinery imports and other permits for their businesses (Jesudason, 1990). Another

State apparatus, the Capital Issues Committee, originally formed in 1968 to supervise

the capital market, worked with the FIC to set the prices of shares issued to Malay

interests (including State enterprises) by private Chinese and foreign companies. It

was seen as a State intervention into a market-determined transaction (Jesudason,

1990).

20

Furthermore, the State intensified efforts to attract and encourage export-oriented

industries, using measures such as free-trade zones, to attract transnational enterprises

which were relocating in search of more cost effective operation sites. For example,

the electronic semiconductor industry provided remarkable employment generating

consequences (Jomo, 1987). These efforts integrated Malaysia into the world

capitalist economy, albeit on different terms, in the context of the new international

division of labour (Jomo, 1987).

Development of the Stock Exchange: Greater role for the profession

The Kuala Lumpur Stock Exchange (KLSE) started as a nucleus of four stockbrokers

under the direction and with the assistance of the Central Bank in May 1960. Later, it

was renamed the Malayan Stock Exchange in 1964 and then the Stock Exchange of

Malaysia and Singapore in 1965 and in 1973, the Kuala Lumpur Stock Exchange.

Much focus then was on promoting the financial disclosure of companies (Bank

Negara Malaysia, 1993). In 1974 KLSE published its first monograph, Corporate

Financial Reporting in Malaysia, which portrayed the state of corporate financial

disclosure practices in Malaysia. Sadly, these disclosures were found to be barely

minimal and inadequate (Mitchell, 1974). Again MACPA accepted the responsibility

for expanding on the financial statement disclosure requirements of the Malaysian

Companies Act 1965 (Mitchell, 1974). MACPA issued Statement No 1,

Recommendations on the Presentation of Accounts, in June 1972. It was considered

an important step in the long march towards improving financial reporting (Mitchell,

1974). The significance of the listing of several foreign companies on the KLSE was

noted (Mitchell, 1974). As of 30 November 1973, the total market value of these

foreign companies amounted to almost 60 percent of the total market value of listed

companies. Furthermore, it was observed that several non-listed companies operated

in Malaysia as subsidiaries of multinational companies. In view of the international

nature of its commercial and financial affairs, Mitchell (1974) reiterated the

importance for Malaysia to seriously consider international accounting standards

when recommending corporate reporting practices. Accordingly, MACPA produced

its first guide on the format of presentation of statutory accounts called the Blank

Company in 1976.

State and Internationalisation

21

Adoption of International accounting Standards

In 1978, IASs 1 to 4 were adopted by MACPA. IASs 5 to 10 were adopted in 1979.

At a seminar organized by MACPA in 1980, the Deputy Governor of the Central

Bank observed in his opening speech: The International accounting Standards are important to all of us… there is a great need for all

people who hold a position of trust of members of the public such as directors of companies,

banks and finance houses, to understand and apply these standards so that they may fulfill

their duty of public accountability better, more consistently and in a more meaningful way

(Abdul Aziz, 1980, p.40).

As an accountant and as an officer of the Central Bank, he said he was very keen that

these standards should be adopted in the country. Several seminars were held by

MACPA during this tome to promote application of IASs (MACPA, 1980). A total of

13 IASs were adopted during the period 1979 to 1986.

A Big Six practitioner explained the situation existing then when MACPA decided to

adopt IAS. He shared that during that time the State was focusing on all measures to

expedite the NEP and there was a sense prevailing then that MACPA should be seen

to be internationally accepted (i-no.13): … that was really the right time for us to go in that direction and more so, I think, because we

got this IASC coming in …therefore, there was really a harmonization of us to some extent …

the international standards…

For an open developing economy dependent on foreign investment and export

earnings within the global political economy, this marks the beginnings of a phase in

Malaysian economic development that enforced the urgency and “need” to be

internationally accepted. Not surprisingly, this enthusiasm extended into accounting

regulation, specifically, financial reporting.

This account highlights the State had a stronger relationship with the more ‘market’

oriented MACPA. To please the State, MACPA reacted to the calls to undertake

accounting standard setting activities.

Susela (2010) recounts the tensions and emotions evident during the seventies and

early eighties because MACPA adopted a strict membership admission policy.

Several qualifications such as the Australian Society of Accountants (ASA) and

Association of Certified Chartered Accountants (ACCA) could not easily become

members of MACPA.

22

The view that MACPA was an elitist organization was growing as one practitioner

from the big Six observed: …perhaps, the problem lies, may be it is a failing on the part of the profession …because you

had CPA (referring to MACPA) before which was very good in its standard setting but it was

construed or there was a perception or people saw it in the market place as an elite group

which only defended the interest of certain small grouping. The majority of the people,

especially, the ACCA block, they came up with the revival of MIA … (i-no-33).

Another Big Six practitioner noted that some big accounting firms were biased

towards MACPA: …if you are not CPA you can’t be a partner …that was partly their zeal to promote the local

CPA exams that they had done that and raised this sentiment against CPA (i-no-28)

It may also be argued that having an “elitist status” may work favourably for the

members as they can command a higher market price. As several respondents noted

“the market differentiates” (i-no-33; i-no-34; i-no-29; i-no-57).

There was concern raised at this time about the low number of qualified Bumiputra

accountants. In the then Deputy Prime Minister’s speech in 1979 he noted: …I note that the number of Bumiputras in the accountancy profession is very low. The

introduction by the Association of new training schemes and recognition of certain Diplomas,

example, the Diploma in accountancy from ITM, for registration and exemption purposes, has

to some extent encouraged more Bumiputra entrants to the profession. But I must say that the

Bumiputra participation in this profession is still unsatisfactory. Greater efforts must eb made

to promote the entry of more Bumiputras … (Mahathir Bin Mohamad, 1979, p.6)

The State intervened and used its State-apparatus, the MIA, to include the eligibility

of accounting graduates from recognized public universities as members of MIA. The

recognition of the local accounting undergraduate degrees was implemented through

the amendments to the Accountants Act since 1972. Although there is concern that

this recognition may implicate the quality of accountants, this view is generally not

shared by most respondents including the State respondents (Susela, 1996).

The Fourth Malaysia Plan (1981-1985): Closer rapport with the State

The prolonged world economic recession which began in 1979 and continued into the

early 1980s, coupled with emerging domestic structural constraints, slowed down the

Malaysian economy considerable during the Fourth Malaysia Plan period (Zain

Azraai, 1989). As a result the Malaysian economy expanded at a slower rate during

23

the early 1980s8. In contrast, public investment grew by an average 12.5 percent

annually during this period – more than three times the Plan’s target of 3.7 percent in

real terms (Jomo, 1987, p.118). It has also been suggested that the situation could

have been aggravated by the growing public sector (Jesudason, 1990). There was

concern in 1983 that the State had become burdened with a massive budget deficit

and could not hope to reach the 30 percent ownership target for the Bumiputras by

1990 as outlined in the NEP. The Mid- Term Review of the Fourth Malaysia Plan

called for new strategies, approaches and concepts in development and increasing

private sector involvement in both traditional areas and those reserved for the public

sector (Government of Malaysia, 1991).

In his opening address at the national conference on the Securities Industry, the then

Prime Minister explained the State’s perception of the economy and observed that the

role of the private sector had undergone a radical change. He added that this

perception was reflected in the concept of Malaysia Incorporated and its corollary,

privatization. The State, he said, no longer believed that the private sector was

avaricious and out to exploit the country. Instead it was regarded as a partner in

development and, as such, deserved to be given all assistance. The State’s role would

be to redistribute the wealth created by the private sector so that there is equity and a

growing standard of living within society. This being so, he noted that the need for

the State to arrogate itself certain monopolistic services is no longer there and hence

the move towards privatization. Further the State recognized that capital market

growth is vital for national economic development. The call was for mobilization of

savings at all levels to fuel economic growth. The capital market, he claimed, and in

particular, the securities industry, had a critical role to play in channeling financial

resources for the corporate sector (KLSE, 1984a).

Te securities market commanded much attention during the seventies, especially, with

the merger and acquisition activities resulting from NEP initiatives. Moreover, Malay

political leaders, conscious of the political need to make the benefits of NEP positive

within the Malaya community, embarked on an innovative strategy to channel the

8 The average growth rate (in constant 1978 prices) during 1981-85 was 5.8 percent per annum, with the annual growth dropping from 7.7 percent to 2.8 percent in 1985 (Jomo, 1987, p.118).

24

surpluses of well performing state controlled enterprises to the larger Malay

community in 1981.

The Amanah Saham Nasional (ASN) or National Unit Trust Scheme was launched in

1981. About 552 million shares invested by the State were left in the hands of

Permodalan Nasional Berhad9 for the establishment of ASN (KLSE, 1984b). This is

an important vehicle used by the State to achieve its socio-economic goals.

Profession attempts to get closer to the State

In 1979, at the request of the Directors General of Insurance, an insurance committee

was formed by MACPA, which aimed to clarify the various technical problems on

auditing and accounting standards in the insurance industry. This committee was seen

to be active in the 1980s after the regulation of the insurance industry was taken over

by the Central Bank (MACPA, 1986).

The accounting profession was perceived to be solely represented by MACPA

judging from its various activities. It was actively organizing seminars and talks

during this period, and there was general support from top leaders (Abdul Aziz, 1980;

Megat Abdul Rahman, 1981). The President of MACPA, in June 1981, suggested that

establishing closer rapport with the State and its agencies should be a priority. He

observed that the accounting profession should make itself available to assist the State

agencies, especially those involved with trade and industry and finance. He noted that

the State expected the private sector to play a more positive role in commerce and

industry and at the same time, the State was also involved in setting up businesses to

complement the role of the private sector. Accordingly, the then President of MACPA

called for the profession to maintain a close rapport with State agencies “for mutual

benefits and for mutual interests” (Megat Abdul Rahman, 1981, p.7).

The profession (especially MACPA) continues to be active

Between 1982 and 1984, 5 technical Bulletins (TBs) were issued to cover areas not

governed by the IASs. Along with the corporate sector developments and the

increased acceptance of IASs, MACPA was actively involved in discussions with the

Registrar of Companies, suggesting further disclosures for financial reporting by 9 See Gomez and Jomo (1999) for detailed discussion of the State- Business nexus in Malaysia.

25

companies (MACPA, 1983). In 1984, the Companies Act 1965 was amended, to

include the definition of “accounts” to mean profit and Loss Account and Balance

Sheet, and including notes or statements required by the Act and attached or intended

to be read with Profit and Loss Account or Balance Sheet.

The MACPA Educational Trust Fund was established in November 1981 with the

objective of promoting and advancing education and research in accountancy.

Issuance of Malaysian Accounting Standards (MASs)

In 1984, Malaysian Accounting Standard 1, Earnings Per Share was issued. MACPA

played an active role in providing guidance in the form of MASs to cover issues not

covered by the IAS or which need to be separately addressed in the context of the

Malaysian environment.

To further promote interest in corporate financial reporting, MACPA and the

Malaysian Institute of Management jointly organized the first Malaysian Annual

Corporate Reports Award Competition in March 1985 (MACPA, 1986).

Attempts were beginning to surface where MIA and MACPA entered into a charade

of cooperative action to appease the State (Susela, 1996) leading to speculations that

these two bodies should merge.

Proposal to merge MIA and MACPA

During this time there were attempts by MACPA to merge with MIA. In 1979, the

Deputy Prime minister in his speech at the twenty-first anniversary of MACPA noted: The MACPA has over the last 21 years developed into an active professional body, with the

organization to look after professional education, training and examinations, professional

standards and discipline and development of the profession in Malaysia. It would make sense

if the actively functioning organization of the MACPA rather than be dismantled, could

simply be converted into the new single national body, of with of course whatever

amendments to its constitutions, by-laws and regulations as are considered necessary for the

purpose (Mahathir Mohd., 1979, p.8)

Although there appeared to be strong State support for the merger of the two

professional bodies, when the proposal was finally submitted in 1985 for approval by

cabinet in order to amend the Accountants Act 1967, it was rejected. The reasons for

rejection are not clear but the common understanding from all accounts seems to

indicate that the merger was perceived certain interest group as not being in its favour.

26

Hence, this group lobbied the State to reject the merger proposal and it succeeded

(Susela, 2010). This evidences that the interesting phenomenon in the Malaysian

State-profession nexus. The State apparently preferred to retain both modes of

regulation- associationism- as well as corporatism- the MIA. Clearly, the associative

disorder is evident.

The Fifth Malaysia Plan (1986-90) – Increasing Privatisation

During the Fifth Plan period, the economy experienced extreme variations in its

growth performance, ranging from a most severe recession at the beginning of the

Plan to boom conditions during the last three years. Successful adjustment measures

were undertaken after 1983 to consolidate the public sector and reduce its budgetary

deficits (Ambrin, 1990). As noted earlier, there was a distinct shift towards private

sector led growth (Malaysia, 1984). This was particularly apparent following the

promulgation of the Promotion of Investment Act,1986, which was an integral part of

the State’s efforts to revive economic activity after the recession in 1985 (Malaysia,

1986). Some economists argue that the State planners and policy makers had little

alternative but to rely on the private sector, especially after the near disastrous

consequences of accelerated deficit spending and foreign borrowing in the early

1980s (Jomo, 1987).

Privatisation

The State outlined five objectives of privatization in the Guidelines on Privatization

issued by the Economic Planning Unit in January 1985, one of which was to relieve

the financial and administrative burden of the State. To facilitate the implementation

of the privatization program, the State launched the Privatization Master Plan in

1991.

In 1985 and 1986, the economy entered into deep recession and there were new

strains on the investible funds because of large public and foreign debts (Jesudason,

1990). The privatization move was seen as a way forward to reduce some of these

strains. Further, the Fifth Plan also incorporated certain changes to encourage the

Chinese business sector. Since the introduction of the Industrial Coordination Act

(ICA) in 1975, this sector had been seen to be “dragging their feet’ in promoting the

private sector as an engine of growth. The then Finance Minister is quoted as saying

27

the private sector has to take the lead in promoting development (KLSE, 1986, p.8).

The ICA was also liberalized. Opinions were voiced that the private sector needed

more incentives, particularly access to funds and less bureaucratic red tape (KLSE,

1986).

A focus on financial reporting- Amendments to Companies Act 1965

In 1986, the Ninth Schedule to the Companies Act 1965 was amended to incorporate

almost all IAS disclosure requirements. Additionally, the Statement of Changes in

Financial Position was introduced. MACPA participated actively in the discussions

with the Registrar of Companies prior to the amendments to the said Act (MACPA,

1986).

The State clearly, preferred the market driven MACPA to lead in issues of standard

setting and financial reporting. The corporatist mode, in the meantime was relegated

to a role in ensuring adequate supply of qualified accountants were admitted into the

Institute by focusing on its registering role.

However, some members of MIA constantly challenged the predominance of

MACPA. Susela (2010) explains that when proposals for a merger fell through

attempts were made to revive MIA. MIA was activated in 1987. Its priority upon

activation seemed to be to track down “bogus” accountants, i.e. accountants who

were not registered with MIA and who were providing accounting services (MIA,

1987). The problem of a shortage of accountants was voiced constantly during this

period. As a long term measure the MIA set up the Malaysian Association of

Accounting technicians (MAAT). MAAT was incorporated under the Companies Act

1965 on 14 March 1990, as a second tier accountancy body sponsored by MIA to

provide a pool of accounting technicians who could act as support staff to members of

the Institute, and to provide a qualification and an organization for such persons (MIA,

1993).

This is an interesting event. According to sources within MACPA, the idea was first

mooted by MACPA (Susela, 1996). However, MIA seized this idea and went ahead

to set up MAAT which was subsequently renamed Malaysian Association of

Accounting Administrators (MAAA). Sadly, to-date the development of the MAAA

to ensure it achieved its objectives has not been very successful. Therein is another

28

example of how the internal tensions within the profession have not facilitated the

development of the profession as a whole.

Respondents’ Account: Activation of MIA

The growing concern with shortage of qualified accountants was seen during this

period. The State through MIA enabled the recognition of local accounting graduates

as accountants to fill vacancies in the State sector, and also increase the supply of

accountants (i-no-34).

The graduates issue was elaborated on by this big six practitioner: …at that time there was not much dialogue with various Universities…also there were more

universities coming up then.. it was simpler to add an accounting faculty, law faculty etc

because of the equipment required than a medical faculty for which you needed hospital for

training etc. Also there was shortage of accountants … they thought MACPA was an elitist

producing so few a year. I have told them our examiners, some of them come from the

universities … we have insisted there is no quota … (i-no-57)

One respondent recounted the situation when the merger proposal was rejected: …so, at that time feelings were running high as to who would control MIA. XXX (a former

member of MACPA and a practitioner from Big Six) wanted MIA to takeover MACPA (i-no-

3)

There was also rising discontent within the ACCA group. This inevitably led to

strong support for the reactivation of MIA. The efforts to revive MIAs were

supported by the ACCA camp (i-no-29; i-no-9).

Upon its reactivation, MIA directed its attention to MACPA. The passing of the By

Law 610 is seen as an attempt by MIA to reduce the “prominence” of MACPA.

The Sixth Malaysia Plan (1991-95) – Further Private Sector Initiatives

The Sixth Malaysia Plan, covering the period 1991-95, was the first phase in the

implementation of the Second Outline Perspective Plan (OPP 2). OPP 2 set the broad

objectives, strategies and targets that would guide the development of the nations in

the nineties. The main thrust of the plan was to sustain growth momentum and

manage it successfully so as to achieve a more balanced development of the economy.

The emphasis was on “balanced development” and recognized that while there had

been progress in economic growth and distribution, the quality of the growth process

10 See Susela (2010).

29

needed to be improved to make it more broad-based (Government of Malaysia, 1991,

p.4). The crucial policy was the National Development Policy (NDP), which

emphasized growth with equity to enable all Malaysians to participate in the

mainstream of economic activities, to ensure political stability and national unity. It

was based on the ongoing thrust of the NEP which was to eradicate poverty and

restructure society (Malaysia, 1991). The State directed its focus on the capital market

as a mechanism to achieve its NEP objectives wherein listing of its privatized state

owned entities was facilitated (Jomo, 1993).

Development of the capital market

The capital market, comprising public and private debt and equity securities, provided

an increasing share of the investment funds for the public and private sectors. Total

net funds raised in the market rose rapidly from RM 9.4 billion in 1991 to RM 13.8

billion in 1992. Of significance was the prominent role played by the capital market

in financing the development of the economy, with total funds raised in 1992

exceeding new loans of RM 13.7 billion extended by the banking system

(Government of Malaysia, 1993).

The private sector was more dominant than the public sector in raising funds in the

capital market, accounting for 66 percent of the funds mobilized in 1991, 89 percent

in 1992 and 72 percent in the first 10 months of 1993. The substantial share was

largely due to the privatization of State- owned companies. Additionally, the

strengthening of the financial position of the State and the acceleration of the

privatization program reduced the borrowing requirements of the public sector. The

establishment of the Securities Commission strengthened the regulatory framework of

the capital market to ensure it orderly development (Government of Malaysia, 1993,

p.163). Further, the Futures Industry Act 1993 provided the legal framework to

ensure protection of investors, and stability in the trading of options and financial

futures contracts.

The State’s privatization program had a significant impact on the growth of the stock

market. In order to ensure financial integrity of companies, all listed companies were

required to establish Audit committee (Government of Malaysia, 1993; MIA, 1993).

30

Two specific measures were undertaken by the State to enhance the capital market as

a source of fund mobilization:

(i) The Securities Commission (SC) was set up in 1993 as a single regulatory

body to foster the orderly development of the capital market, safeguard the

interests of the investing public and minority shareholders as well as

maintain market integrity and efficiency. In this regard, the SC has

assumed the functions of the Capital Issues committee and the Panel on

Takeovers and mergers. The Commission also ensures that adequate

standards are observed for a viable capital market through the issue of new

guidelines on reverse takeovers of companies listed on the Second Board

of the KLSE.

(ii) Efforts to develop the KLSE into a sophisticated international bourse.

Market capitalization of KLSE grew significantly from RM 131.6 billion

in 1990 to RM 452.3 billion by October 1993, reflecting the buoyant

economic conditions as well as the effectiveness of the privatization policy

of the State. Four new privatized companies were listed on KLSE in 1991

and 1992, bringing the total of listed privatized companies to 15. Total

capitalization of these companies accounted for about a quarter of total

market capitalization.

MACPA and MIA collaboration - further issuance of MASs

This period also witnessed collaborative efforts by MIA and MACPA in standard

setting. Several MASs were issued jointly by MIA and MACPA. During this plan

period, the insurance industry continued to play a significant role in mobilizing

domestic resources and providing an important source of funds for both the private

and public sectors.

Several policy initiatives were introduced to strengthen the insurance industry aimed

at increasing financial discipline, raising public accountability and enhancing

management efficiency. One of these measure included setting uniform accounting

practices to rationalize diverse accounting procedures. Hence, MACPA and MIA

worked closely with the Insurance industry and State representatives to develop MAS

for insurance industry.

31

MACPA also formed committees to deliberate on public sector accounting issues.

This was seen as a move which was in line with the State’s call for greater

cooperation between private sector and public sector initiative (MACPA, 1992). The

first MACPA Guideline for Accounting in Public Sector was issued in January 1992.

Respondents’ account: MIA and MACPA competition intensifies

Some respondents recounted MACPA’s crusade to get into MIA Council during the

nineties. It was noted that this was not possible as “the numbers are too small” (i-no-

34; i-no-56). One respondent observed the rift ACCAs (in MIA) and CPAs and CAs

(in MACPA): …the only rift …because of the election into the MIA Council. The professional bodies start

to lobby to put their representatives into Council… (i-no-56).

Another small practitioner recounted the friction between MACPA and MIA (i-no-

24). Another former MIA council member agreed that there is an element of truth in

the claim that Mia is dominated by the ACCA at that time (i-no-35). Another ACCA

members notes that MACPA tries to take over and he is confident “but they will

never succeed.. they don’t have the numbers… because of that there was a bit of bad

blood”. He noted further: …certain segment of the ACCA qualified accountants who have taken a leading role in this

… very active in trying to wrest control of MIA and have been successful. CPA people are

jealous now …at the end of the day the rift is still there… (i-no-29)

Since its reactivation MIA is noted to have grown stronger and has embarked on

activities seriously, one of which is in the standard setting arena.

One ACCA member noted that MIA is a State regulatory body which has been

established to regulate the profession and believed that MIA and MACPA can only

co-exist – objectively – on two levels, that is: …MACPA should stop thinking of itself as the premier accountancy body in the country, it

cannot compare with MIA because it has different functions…” (i-no-29).

One practitioner observed the State’s attitude towards the accounting profession: …the State is aware but they have left it to the profession to sort out its affairs… the state has

already indicated to the profession … example, at the last Annual Dinner (meaning in 1994),

the Deputy Prime minister … put it quite strongly …’we are not here to teach you your

business but if the situation warrants it, we would do so’…(i-no-56)

32

It appears the State is not unduly concerned with the internal tensions within the

profession. Whilst on one hand, a practitioner observed that the State should be

concerned about issues relating to the accounting profession, one of which is

accounting education: …The profession is also not really progressive to think through …at one time they were

trying to keep the number … MACPA would not want to increase the numbers because their

value will go up. But that is not right, my view … we need to consider the needs of the

country …the state could have a role here …(i-no-7).

On the other hand, a senior accountant appreciated that the problem should be sorted

out by the profession itself: …they (meaning the state) appreciate that accountants are very essential … they gave us self-

regulation …it is up to us to do so… (i-no-61).

A retired senior State official observed: …they (the government) are quite happy with the development in the profession… they were

not worried about getting enough accountants.. (i-no-16)

However, a respondent (academic community) observed that the State had only

intervened in the profession on account of ethnic redistributive purposes, to meet its

socio-economic goals under the NEP: …what little I know … about the profession is that the only intervention that has taken place

which has been pursued by the government has been mainly to try to, for ethnic redistributive

purposes … so you have, for instance, you have one body which is officially recognized and

one body which is not officially recognized… to me, I think, the government intervention

should be more broad and much more oriented towards developing the profession as a whole

rather than simply in terms of ethnic ratios and typical NEP type of initiatives… (i-no-54).

The State involvement in the accounting regulatory process appears to be motivated

by a concern for social engineering rather than a concern for the overall development

of the profession. This is clear from the discussion above. It could also be construed

that the rivalry between the two professional bodies is seen as a “natural occurrence”

since it occurs in other countries too (Poullaos and Sian, 2010).

Furthermore, State’s reluctance to get involved is that MACPA has established over

the years a strong rapport with the State. It has served the State well from all accounts.

A former senior State official notes … but personally, I think the MACPA has more public image, the accountants in MACPA are

more professional compared to MIA. I say this because, I know a lot of them personally…

33

they are more professional about it because they have been in the business longer but

whatever it is, they should come together (i-no-16).

Similar accounts were noted from another State respondent (i-no-47) and a non-

accountants State official (i-no-21).

Another practitioner remarked: …it is sad MIA has been politicized … people are using the accounting body as a political

platform to get political mileage for themselves. That is sad … even this issue of entering the

profession through the university only .., I have got no clear preference either way . I have got

one worry … where the universities are controlled by government … that is where quality

control … Bumiputra accountants who want favor from the government will tell the

government that if you make it a graduate qualification, you, the government can make sure

there is more Bumiputra accountants because you can control the inflow … that is my fear. A

lot of Bumiputra accountants in MACPA have their reservations but MIA … there are people

with political aspirations … play their card “we are short of Bumiputra accountants’ .. their

interest is politics … they are not worried about whether we have quality accountants or not

… I hope with the MIA- MICPA merger certain politically minded people in the MIA council

have achieved their political aims and then they get out … actually there is no need for the

merger but the problem is MIA has used the government and the government has asked for a

merger and once politicians have been twisted in their thinking, they don’t understand the

profession … (i-no-5).

The perception that MIA is there to take care of Bumiputra interests seems to have

seeped into the community. A respondent from the academic community seems to

think that the MIA is backed by the government because of NEP issues, specifically,

to increase Bumiputra accountants: …I think that is the general perception. Even in MIA, that is what they think, they called me

in some advisory committee… (i-no-54)

The issue of Bumiputra accountants (that there is a shortage of Bumiputra

accountants) seems to clearly emerge as an argument against MACPA and this has

given an advantage to MIA from the perspective, at least, of the politicians.

A MIA council member respondent’s brief comment captured the heart of the issue: …the problem with MIA-MACPA merger is that it is highly politicized … it is estranged …

the MIA-MACPA … the talk has been going on for a long time. The problem with MIA – the

Act was set up twenty years ago …it was dormant …just collecting fees. If it was stronger, it

can continue to do what it wants … MACPA doesn’t produce that many accountants … that is

the problem … can’t see any immediate solution… (i-no-26).

34

The unequal ethnic representation in the profession continues to plague the profession.

As noted in Table 4 in Appendix 1, Bumiputra accountants only represent 20 per cent

of the total registered members of MIA and of this 4.2 per cent are professionally

qualified.

Respondents’ account: Fear of withdrawal of State support

Increasingly, respondents observed that MACPA supporters are concerned about the

withdrawal of State recognition if it does not get in with MIA. This was suggested as

the reason why MACPA agreed to a Memorandum of Understanding for working

towards a unification or integration of the profession in 1994. One practitioner

commented: …from MACPA perspective, obviously the fear is that if we don’t get ourselves on the MIA

bandwagon, over time we will be seen to be a marginal organization, can we still retain the

loyalty of people who still want to be MACPA members with all that it implies? (i-no-23).

Clearly the implicit support for MACPA is illustrated by the State. The rapport with

MACPA is maintained by the close association of key personalities of the Association

with the State as noted from respondents, account. Further, the Association’s key

posts in the council are held by respected members of the public accounting practice

and they participate as members of key regulatory authorities’ committees as State

representatives and many hold key positions within the regulatory and corporate

sectors (i-no-18; 1-no-33; i-no-44).

5. DISCUSSION

The analysis illustrates a struggle within the accounting profession to capture the

national professional status. However, the State had its own designs in setting up

MIA with a statutory role as well as a professional body. This has caused much

confusion (Susela, 1999). In the 1960s State involvement in the economy was kept to

a minimum, being confined essentially to the provision of basic public services and

facilities to meet the needs of a growing economy. It was a period of a restrained role

by the State. The State’s relatively laissez- faire approach approximated the neo-

classical economists’ view of economic rationality to a greater degree than did the

economic arrangements after 1970.

35

During this period, the need for developing enterprise accounting was not apparent,

although legislation had been introduced to regulate the profession. Persistent calls

for improving corporate financial reporting were noted. The existence of MACPA is

seen as the Associationism mode of regulation (Susela, 1999). The focus of the State

then was on rural development and building up rural infrastructure, while at the same

time leaving the rest of the economy to grow at its own pace without much State

intervention. Compromises between the top ethnic leaders was said to have

encouraged this relatively lasissez-faire economic framework between 1957 and 1969.

The State was responsive and supportive of, both foreign and (predominantly

Chinese) domestic private sector interests. The associative order- the MACPA – was

evidently a market driven player with strong State support.

The seventies characterized growing State involvement, primarily in favour of

nascent Malay bourgeoise. The State played a highly interventionist role in the

economy under the banner of the NEP. To eradicate poverty, there was a need to

increase public sector assistance for agriculture and rural development. Further the

need to develop a viable Bumiputra commercial and industrial community called for

greater state involvement in the economy, via the establishment of non Financial

Public Enterprises as well as various trust agencies to meet the NEP target of 30%

equity ownership share for Bumiputra community. These schemes aimed to

ultimately transfer the benefits to Bumiputra individuals. The political elites were

considered to have embarked on rapid expansion of the state enterprise sector and the

result was the creation of the “Malay Bourgeoise”. While such intervention generally

did not threaten capitalism per se, particular capitalist interest – usually Chinese or

foreign – have been threatened at various times.

Seen against this background the policies of the 1980s suggest the beginning of a

swing away from the excesses of the 1970s type interventionism, for example,

through privatization, Malaysia Incorporated concept, deregulation and “NEP”

concessions (Jomo, 1987). The amendments to the Accountants Act 1967 to allow

recognition of local accounting graduates witnessed the State’s careful utilization of

‘the profession’ – the MIA - as part of the state apparatus to achieve its socio-

economic goals.

36

This trend continued in the nineties, privatization and downsizing of the bureaucracy

were attempts to prod the private sector to play a role as an engine of growth. The

private sector was already by now predominantly Malay interests.

Clearly, the discussion espouses that the State is not free from the narrow interests of

the dominant economic classes and neither were the interests of State elites and

capitalist classes ultimately congruent. The analyses shows whilst, the politically

dominant group was also economically weak at the time of independence by the

nineties through the NEP, economic disparity between the races continued to prevail.

The disproportionate representation of the Malays in the profession continues to

feature within the MACPA-MIA relations (Susela, 2010).

The internal tensions have caused the State to step in occasionally to steer

development in the profession. For example, Susela (1999, p.366) contends co-

operative charade of both bodies fell through with the issuance of a standard on

Accounting for Goodwill and related lobbying activities by interest groups. The State

stepped in to take the accounting standards-setting role out of the profession. An

independent standard setting body, Malaysian Accounting Standards Board.(MASB)

was established in 1997. However, MACPA’s attempts to regain its former

dominance still continue (Susela, 1999, p.383).

However, it is interesting to note that the Accountants Act 1967 was amended further

in 2001.The amendments to the Accountants Act 196711 in 2001 further compound

the challenges for MACPA. The growth in membership has decreased significantly.

In contrast the membership of MIA12 has grown tremendously. Refer Appendix 1.

The MIA- MACPA power struggle saga continues to this day.

11 The amendments to the Accountants Act 1967 brought substantial changes to the way the accounting profession

in Malaysia is organized and geared to move forth in the new millennium. One important change was the

introduction of the designation Chartered Accountant for the first time in Malaysia for Malaysian Institute of

Accountants’ (MIA) members.

12 Prior to amendments to the Accountants Act 1967 in 2001, there were 3 categories of membership, namely, PA (Public Accountant), Registered Accountant (RA) and Licensed Accountants (LA). PAs referred to those in public practice who have obtained the licence (approved by the Ministry of Finance) to perform public practice services, and have relevant years of work in a public practice. RAs are those who are generally employed in the corporate sector or the public sector. They need not necessarily have work experience relating to public practice. LAs refer to a small number of accountants who were admitted into the profession in the early years and allowed to practice although they did not possess the required professional qualifications. After 2001 amendments, the categories are: Chartered Accountant in Practice, Chartered Accountant not in Practice, Licensed Accountants and Associate Members. (See http:www.mia.org.my)

37

The State- Profession Nexus

The State’s role in accounting regulation is evident. The explicit corporatist

perspective enables an appreciation of how the State, in appearing to promote self-

regulation and in distancing itself from the accounting regulatory arena, effectively

promotes the corporatist as well as associationist mode of regulation. On one hand,

the State established the MIA as an apparatus to achieve its socio-economic goals. On

the other hand, the State had close rapport with the Big Six and the public accounting

fraternity through its support of MACPA, a market driven organisation.

The organizing principle of dispersed competition is clearly exhibited from

understanding the profession. Associationism arises to meet the contradictions and

complexities of a rapidly developing capitalist economy. The presence of big

businesses and the perceived need to cater to these capitalist enterprises is observable.

However, the account of the State –profession in Malaysia evidences a notion of

associative disorder and arguably, the division within the profession was good for

development within the country. The account fails to evidence the profession taking a

lead role in promulgating relevant changes in the profession. On the contrary, many

of the developments such as adoption of International accounting standards, setting

up of an independent stand setting board appear to be initiated by the State.

6. CONCLUSION

The State, by maintaining an apparently self-regulated profession (associationism) as

well as a statutory regulatory body (MIA) as form of a corporatist arrangement, is

able achieve its socio-economic goals given multi-racial society with ethnic tensions.

The paper contributes to an understanding of the accounting regulatory process in

developing economy, wherein, clearly, corporatism is shown to be an outcome of

capitalistic development. It offers a perspective of accounting regulation which is

clearly embedded in the socio-economic and political context of development.

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APPENDIX 1

Table 1: Membership statistics for MACPA (1973-1994) Members

as at 31 Dec

1973 1977 1980 1985 1990 1994

In practice 223 339 370 402 398 409

Not in practice 251 829 835 1057 1357 1779

Total 474 1168 1205 1459 1755 2188

Total membership as at end 1993 = 1968

Total membership end 1994 = 2188

Increase 220

% increase = 11.2 %

Table 2: Membership statistics for MACPA (2000-2006) 2000 2001 2002 2003 2004 2005 2006 Total Membership

2822 2902 2951 3009 3034 3082 3088

CPA Graduate members

2028 2110 2205 2312 2395 2463 2519

% increase 2.8 1.7 2.0 0.8 1.6 0.2

Table 3: MACPA Membership statistics by parent bodies 1977 1980 1985 1989 1993 ICAEW 378 348 316 262 252 ICA (Australia) 181 172 159 137 122 ICA Ireland 13 12 12 11 7 ICA (India) 11 8 7 4 3 ICA (Canada) 7 5 3 2 2 ACCA 83 90 101 123 137 ASA/ASCPA 384 371 356 307 328 CA (Scotland) 5 4 3 3 3 CA (NZ) 26 26 25 21 23 CPA graduates 81 169 477 721 1091 Total 1169 1205 1459 1591 1968 %CPA graduates 6.9 14.0 32.7 45.3 55.4

Table 4: MIA membership

MIA: Professional versus Local Graduate Members as at 1 July 2004

BumiputraNo. %

Professional 857 4.2

local graduates 3,194 15.8TOTAL 4,051 20.0 16,156 80 20,207 100

Non-bumiputra

No %

13,844 68.5

2,312 11.5

Total

No %

14,701 72.8

5,506 27.2

Source: Susela (2005)

45