Category: Business Insights

How the Accounts Payable Process Works: A Comprehensive Guide

How the Accounts Payable Process Works A Comprehensive Guide

How the Accounts Payable Process Works: A Comprehensive Guide

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The accounts payable process is a critical aspect of every business. It ensures invoices are paid on time to maintain healthy cash flow management for corporate financial stability, improve operational efficiency, and foster strong relationships with vendors and suppliers while complying with relevant regulations.

In this guide, we’ll explore the definition and role of accounts payable in Malaysia, its process, and why it is important to consider outsourcing it to an accounting firm.

What Is Accounts Payable? What Is Its Role in Accounting?

Accounts payable refers to the management of short-term obligations that a business owes to its suppliers or vendors for goods or services received on credit. In simpler terms, this is a record of all invoices that have been issued but not yet paid. It is a common practice for companies in Malaysia to have a dedicated department responsible for managing such obligations or outsource to an accounting services provider.

The accounts payable process encompasses several critical functions in the accounting process and plays an important role in business operations. It involves receiving, verifying, and making payment for invoices accurately and on time, ensuring the payments adhere to the company’s policies. This prevents potential late fees, maintains strong vendor relationship, and helps avoid financial disruptions for the company. Strategic timing of payments for invoices also enables businesses to retain cash longer and improve liquidity, contributing to their overall financial stability.

How Does the Accounts Payable Process Generally Work?

Generally, when the accounts payable process is handled in-house in Malaysia, several key steps must be taken:

  • Purchase Order (PO): A purchase order is submitted by a particular department of the company to procure the services or goods from the vendor.
  • Receiving the Goods or Services: Upon receiving the goods or services from the vendor, the company verifies whether they match the PO. If accurate, a goods received note (GRN) will be sent to the vendor.
  • Invoice Receipt: The vendor submits the invoice, which details the amount owed and due date, to the accounts payable department of the company.
  • Three-way matching: The accounts payable department compares the invoice against the PO and GRN to verify that there’s no discrepancy between these three documents, particularly in terms of the items or services received, quantities, and prices.
  • Approval Process: Upon verification, the invoice is sent for approval to initiate the payment process. The payment method can be an electronic transfer, check, or other means.
  • Record keeping: After the payment is finalised and processed, the data and details are input into the accounting system for tracking.
  • Accounts Payable Reconciliation: The accounts payable department regularly reviews and examines any outstanding invoices and payment records against the statements from vendors and suppliers to ensure the overall accuracy of the balance.
Accounts Payable Approval Process

How Does the Accounts Payable Process Work When Outsourced to an Accounting Firm?

Many companies outsource the accounts payable process to accounting firms in Malaysia. These service providers often consist of a team of experts with specialised resources and technologies to streamline the entire process for improved efficiency and ensure the practice is in compliance with relevant Malaysian regulations. Businesses can focus on their core operations without allocating extra costs to manage an in-house team, making outsourcing an ideal and cost-effective strategic choice.

Unlike how a company’s in-house team typically manages the accounts payable process, outsourced accounting firms or service providers operate differently with the following steps.

Initial Setup and Integration

Outsourced accounting firms generally start by conducting an initial assessment to learn about the needs of the company, such as the systems and processes required to handle the accounts payable functions. A new software may be implemented or integrated with existing systems to enable a streamlined accounts payable process.

Receipt, Processing, Matching, and Validation of Invoices

Handing the whole process from receipt, processing and matching to validating the invoices, the outsourced accounting firm typically utilises software throughout this step. Professional accounting firms like BoardRoom ultilises Optical Character Recognition (OCR) technology, where physical or digital invoice documents are scanned and converted into machine-readable data, automating the extraction of details like invoice numbers, amounts, dates, and vendor information. This significantly reduces manual data entry errors and speeds up the three-way matching process, improving efficiency and accuracy.

Workflow Management and Payment Approval

If no discrepancy is found or fraud risk is detected, the accounting firm route the invoice to the designated approvers based on predetermined thresholds and notify them for approval. Once approved, the accounting firm will start issuing payment vouchers, preparing cheques or initiating online payment to process the payment, ensuring timely remittance to the supplier.

Payment Documentation, Reporting, and Reconciliation

The accounting firm will document all payments made and record them in the client’s accounting system, which enables them to generate detailed reports and reconcile payments with bank statements. This is essential for maintaining accurate corporate financial records and supporting audits.

Consideration When Switching to Outsourced Accounting Provider

Consideration When Switching to Outsourced Accounting Provider

While an accounting firm can offer expertise and resources to ensure a smoother operation, businesses need to consider several crucial factors before outsourcing their accounts payable process to them:

  • Ongoing Evaluation and Optimisation: The accounting firm should be able to continuously evaluate and optimise the accounts payable process to improve efficiency and reduce costs.
  • Technology and Software: The firm should have access to advanced technology and software solutions that can streamline the accounts payable process and the approval workflow.
  • Accuracy and Compliance: The firm should have a strong track record of accuracy and compliance with relevant regulations.
  • Scalability: The firm should be able to scale its services to meet the changing needs of the business.
  • Security: The firm should have robust security measures in place to protect sensitive financial information.
  • Track Record: The firm should have a proven track record of success in providing accounts payable services.

Why Choose BoardRoom for Your Accounts Payable Needs?

As the leading provider of outsourced accounting services in Malaysia,BoardRoom can help you streamline your accounts payable process, improve efficiency, and reduce costs. Our experienced team of professional chartered accountants combines expertise with advanced technology to handle your accounts payable needs effectively. By partnering with BoardRoom, you can focus on your core business while we take care of your accounts payable. Contact us today for an assessment, and let us guide you through every step with our tailored solution.

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Mastering Payroll in Manufacturing Industry: Advanced Solutions for a Global Workforce

Mastering Payroll in Manufacturing Industry Advanced Solutions for a Global Workforce

Mastering Payroll in Manufacturing Industry: Advanced Solutions for a Global Workforce

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Navigating the complexities of payroll management in the manufacturing sector presents unique challenges distinct from those in other industries. Diverse roles and large operational scales require an advanced payroll system to comply with varied labour laws, protecting a predominantly blue-collar workforce and addressing multi-country statutory requirements.

In the manufacturing industry, employees tend to work complex shift schedules to meet operational demands. Adjustments to human resources in response to fluctuating business demands and supply chain issues further complicate payroll processing.

Outsourcing payroll to specialists ensures greater accuracy, compliance and efficiency. It allows manufacturing companies to focus on core production activities rather than administration, mitigating the risk of errors and leveraging advanced systems capable of seamlessly handling global payroll requirements.

As the industry evolves amid increasing regulatory and operational demands, sophisticated payroll solutions for the manufacturing industry has become increasingly critical in enhancing business efficiency and compliance.

Adapting Payroll Systems in Manufacturing Sector for Global Compliance and Worker Protection

A payroll system for the manufacturing industry can be more challenging than in other industries due to several factors. Companies in this sector employ a large number of blue-collar workers, and stringent employment laws are in place to protect them. For this reason, it’s necessary to have a payroll system that can navigate the complex terrain of regulations designed to protect workers, who may be vulnerable to exploitation.

The precision required in processing payroll in the manufacturing industry ensures that employees are compensated fairly and accurately, reflecting the actual hours worked and any overtime, which can be significant.

In addition, manufacturing operations often span multiple countries, each with its own set of labour laws and regulations. A multi-country payroll system is essential to ensure compliance and efficiency across all locations.

Ken Wong, Managing Director Asia, Payroll at BoardRoom Group emphasises the importance of having a payroll system that complies with local laws.

“Having a payroll system that complies with the local statutory requirements is critical,” he says.

The payroll system must account for various shift operations, overtime calculations and local holidays. Additionally, manufacturing plants often operate 24 hours a day, 7 days a week, requiring a flexible approach to employee scheduling and payroll management.

“In the manufacturing industry, you have very complex shift patterns,” Ken says. “There are people who work on Saturdays and Sundays, and then people who work shift hours that are different from what a regular employee who works in a technology company or an office environment would experience. You need to roster these employees into different time slots, and it’s not always easy because, depending on the demands of your business, you may have to increase the number of employees in each shift so that you get more productivity out of it.

“Another factor to consider is the high attrition rate in manufacturing. In a month, multiple employees may resign. Most manufacturing companies employ a large percentage of foreigners, and when they leave the business or leave the country, your tax computation is also more complex because you need to compute the withholding tax before the foreigners can leave the country.”

Integrating the payroll into one platform improves operational efficiency and reduces data duplication. By centralising payroll operations, manufacturing companies can better manage their workforce, ensure accurate payment for all employees and significantly reduce the administrative burden associated with multi-regional compliance and payroll processing.

Essentials of a Multi-country Payroll System for Manufacturing Businesses

Essentials of a Multi-country Payroll System for Manufacturing Businesses

In the complex global manufacturing landscape, the payroll system must be linked with existing HR systems to ensure seamless employee data management.

Ken highlights the importance of data accuracy, especially for manufacturing employees whose earnings may fluctuate with the demands of the business.

“For manufacturing employees, their wage fluctuates according to the demand and supply of the business. So every single dollar counts for them, and being able to process the data accurately and on time ensures that what they have worked and the hours they have put in are being paid correctly.”

Real-time data processing is important in a payroll system tailored for the manufacturing sector as it ensures that adjustments, such as overtime and shift changes, are updated instantly, thus preventing delays and errors. It also enables managers to assess employee output and productivity and adjust rosters to ensure production targets are met.

Integrating the payroll and HR systems is also important when it comes to leave.

“When someone is supposed to be rostered to work today and does not show up, the time system will flag this as someone missing from work,” Ken explains. “The payroll system then goes to your leave system to check whether this person is on leave and if it’s medical leave or annual leave. Therefore, this person does not have their pay deducted and is excused for not being at work. So the time and attendance system keeps the whole process humming.”

Why Integrated HR and Payroll Software is Beneficial

Integrating the HR and payroll systems ensures that employee information stored by the HR system from onboarding can be automatically transferred to the payroll system once the employee starts work.

The importance of having an HR system fully integrated with the payroll system is even more critical for large manufacturing companies that maintain physical operations across multiple countries.

“With many of these companies, what I’ve noticed is that they want to make sure all data comes from one source so there’s a source of proof. They want to deal with integrated data, which means no manual entry of information, and it interfaces with our platform. BoardRoom’s all-inone cloud-based HRMS solution, Ignite, allows us to manage payroll for most countries in Asia,” Ken says.

These integrated systems significantly reduce errors and provide essential reporting features that assist in strategic financial management and compliance audits. The payroll system’s ability to scale and adapt flexibly to the changing needs of a global workforce is not merely a convenience but a necessity.

Integrated HR and Payroll Software is Beneficial

Benefits of Outsourcing Payroll in Manufacturing Industry

Manufacturing companies benefit from the expertise of an outsourcing partner like BoardRoom in managing payroll effectively. The advantages of outsourcing payroll include:

  • cost-efficiency
  • compliance expertise
  • enhanced security
  • freeing up resources to concentrate on core operations

BoardRoom is the ideal outsourcing partner because of its extensive experience in handling large headcounts and complex scenarios.

Ken explains, “Outsourcing isn’t just about handling payroll; it’s about leveraging expertise to effectively accommodate the peaks and troughs of business demands.”

Benefits of Outsourcing Payroll in Manufacturing Industry

Transitioning to an Outsourced Payroll Solution in Eight Steps

Opting for an outsourcing partner like BoardRoom not only simplifies payroll management but enhances overall business efficiency by enabling manufacturers to focus more on their primary business goals.

Here’s how BoardRoom can transition your manufacturing company to an outsourced payroll solution:

Initial consultation and scoping

We’ll engage stakeholders in meetings and collect data to create a detailed needs assessment, which will allow us to tailor our payroll service precisely to the manufacturing site’s requirements.

Solution proposal

Craft a custom proposal based on the initial scoping phase, ensuring the solution addresses all specific operational complexities.

System configuration and customisation

The system is adapted to align seamlessly with existing operational processes and meet any unique payroll and compliance requirements.

User acceptance testing (UAT)

The system is rigorously tested to ensure all functionalities meet your specifications, including comprehensive scenario testing.

Parallel run

This critical phase involves running the new system alongside the current one to identify and rectify any discrepancies or errors and ensure accuracy.

Employee training

We’ll ensure all relevant staff are well-trained in using the new system.

Go live

The system officially becomes operational after successful testing and training.

Post-implementation support

Continuous support and feedback mechanisms are established to ensure the system evolves with the company’s needs and any issues are swiftly addressed.

Drive Success with Advanced Payroll Solutions

The complexity of managing payroll in the manufacturing sector requires sophisticated systems. BoardRoom specialises in offering comprehensive outsourcing services that simplify payroll processes, ensure compliance and enhance operational efficiency.

BoardRoom’s deep understanding of the specific challenges in processing payroll for the manufacturing industry means we are adept at handling everything from employee onboarding to multi-country compliance with precision. Best of all, our tailored solutions are designed to meet the distinct needs of each and every client.

For manufacturing companies aiming to enhance their operational efficiency, partnering with BoardRoom offers a clear advantage. Visit BoardRoom payroll services to discover more about how our expert solutions can simplify your payroll needs. Take the first step towards a seamless, efficient payroll solution today.

Contact BoardRoom for more information:

Ken Wong

Ken Wong

Managing Director for Payroll for Asia

E: [email protected]

T: +60 3 7890 4800

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Guide to Filing Annual Returns in Malaysia

Guide to Filing Annual Returns in Malaysia

Guide to Filing Annual Returns in Malaysia

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Ensuring your company operates compliantly in Malaysia involves filing annual returns. This legal requirement keeps the Companies Commission of Malaysia (SSM) informed about your company’s current status. This guide simplifies the process for you, providing a step-by-step approach to filing your annual return electronically. This will help you fulfil this important obligation efficiently and maintain the integrity of your business standing in Malaysia.

What Is an Annual Return (AR)?

An Annual Return (AR) is a mandatory document that must be filed with the Companies Commission of Malaysia (SSM) yearly by registered companies in Malaysia. This comprehensive report provides a snapshot of your company’s essential details, ensuring transparency and keeping the authorities informed.

Why Is Filing Annual Returns Important?

Filing annual returns is important for several reasons. First and foremost, it guarantees your business operates compliantly. The SSM utilises these reports to verify your company’s legitimacy and adherence to regulations. Additionally, annual returns promote transparency. By submitting accurate information, you demonstrate responsible business practices, potentially fostering trust with investors, clients, and partners. Finally, timely filing helps you avoid potential penalties imposed by the SSM for late submissions.

Filing Annual Returns

Who Needs to File an Annual Return?

All registered companies in Malaysia are required to file an annual return. This includes limited liability companies (LLCs), private companies limited by shares, companies limited by guarantee, and foreign companies registered to operate in Malaysia.

What Information is Required in an Annual Return?

Your annual return filing in Malaysia should include the following key details:

  • Company Details: This section captures your company’s name, registration number, and registered office address.
  • Business Activities: Briefly describe the core business activities your company undertakes.
  • Director(s) Information: Provide the full names, identification numbers (IC/Passport), and residential addresses of all company directors.
  • Company Secretary Information (if applicable): If your company has a designated company secretary, include their name, IC number, and residential address.
  • Members’ Information (shareholding details): List all company members (shareholders) and their corresponding shareholding details.

How to File an Annual Return?

The company secretary should file, sign, and submit the annual return electronically through the Malaysian Business Reporting System (MBRS) in Malaysia, as this user-friendly system streamlines the process. To ensure accurate filing of annual returns, you should follow the below steps.

Preparation with MBRS Preparation Tool (mTool)
To start with the filing, you should first utilise the MBRS Preparation Tool (mTool) to prepare your annual return. This tool simplifies data entry and ensures consistency. You can download it from the MBRS Portal if needed.

Once you have downloaded the mTool, use it to enter company details, director information, shareholding details, and other relevant information. Then, import your prepared financial statements, if applicable, into mTool for verification.
Submission through MBRS Portal
Once everything is prepared with mTool, you can begin your annual return submission through the MBRS Portal with the following steps:

  1. Log in to SSM4U and access the MBRS Portal.
  2. Create a new annual return submission.
  3. If you use mTool, upload the generated XBRL file directly into the portal. Alternatively, you can manually enter the data into the online form.
  4. Carefully review all information for accuracy before submission.
  5. Submit the annual return electronically and proceed to pay the filing fees online.
  6. Upon successful submission, you will receive a confirmation email with a reference number for your records.

Deadlines and Due Dates of Annual Returns

Companies are required to file your annual return within 30 days of your company’s anniversary date, which is the date your company was incorporated. In the case of a foreign company, the annual return due date will be on the company’s registered date. This deadline is independent of your financial year-end.

It’s also crucial to double-check the deadlines and due dates with the SSM website for any change in regulations.

Deadlines and Due Dates of Annual Returns

Penalties for Late Filing

Late filing of annual returns can result in fines imposed by the SSM. The severity of the penalties depends on the duration of the delay and whether the company is a private or public company.  These penalties must be paid during the delayed submissions of the documents to SSM.

Furthermore, neglecting to file can lead to additional legal consequences, such as the SSM striking the company off the register. This can significantly impact your business operations, making it difficult to open bank accounts, enter into contracts, or maintain good legal standing.

How can BoardRoom help with your Annual Returns Filing?

Filing annual returns is a necessary step for maintaining a compliant and transparent company in Malaysia. By understanding the process and adhering to the deadlines, you can ensure your business operates smoothly and avoids any potential complications.

BoardRoom offers professional assistance with filing your annual returns. Our dedicated team of corporate secretarial specialists can guide you through the entire process, from preparing your documents in XBRL format to filing your annual returns accurately and on time. This allows you to focus your valuable time and resources on running your core business activities with peace of mind.

Contact us today and let us guide you every step of the way with our tailored services and advice.

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10 Advantages of Outsourcing Your Payroll Services

10 Advantages of Outsourcing Your Payroll Services

10 Advantages of Outsourcing Your Payroll Services

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Payroll outsourcing is a strategic approach where businesses entrust their payroll functions to external service providers. This arrangement benefits businesses of all sizes by simplifying payroll processes and ensuring compliance with regulations.

In this article, we explore the top 10 advantages of outsourcing your payroll services.

Save Time and Resources

Outsourcing payroll reduces the administrative burden on internal HR teams, allowing them to focus on core business functions. It frees up valuable time and resources that can be allocated to strategic initiatives. With payroll tasks handled externally, HR professionals can dedicate their efforts to talent management, employee development, and other critical areas that drive organisational success.

Cost Reduction

Businesses can potentially save on salaries, benefits, and software for in-house payroll staff by outsourcing payroll services. Additionally, outsourcing eliminates the need for costly infrastructure investments in payroll processing. By leveraging the expertise and economies of scale of external providers, businesses can achieve significant cost savings while ensuring accurate and compliant payroll processing.

Increased Accuracy and Compliance

Outsourced payroll providers specialise in navigating complex tax regulations, reducing the risk of errors and penalties. They also stay updated on compliance changes, ensuring accurate and compliant payroll processing. With stringent quality control measures and dedicated payroll teams with expertise in payroll compliance, outsourced payroll providers helps to mitigate the risks associated with payroll processing errors, ensuring payroll accuracy and regulatory compliance.

Increased Accuracy and Compliance
Enhanced Security

Reputable payroll providers have in place strong data security measures to protect sensitive employee information. Outsourcing payroll reduces the risk of internal fraud or data breaches, enhancing overall security. With advanced encryption protocols, secure data centres, and comprehensive cybersecurity measures, outsourced payroll providers safeguard confidential employee data, providing businesses with peace of mind and mitigating risks associated with data breaches.

Scalability and Flexibility

Outsourced payroll services offer scalability and flexibility to accommodate business growth or fluctuations in staffing levels. Businesses can easily adjust payroll services without hiring or training additional staff. Whether scaling operations to support expansion initiatives or adjusting payroll services to align with seasonal staffing changes, outsourcing payroll provides businesses with the flexibility to adapt quickly to evolving business needs, ensuring seamless payroll operations.

Access to Expertise

By outsourcing payroll, businesses gain access to the expertise of payroll specialists who stay in the know of best practices and industry trends. This knowledge enhances payroll accuracy and efficiency. With dedicated payroll professionals managing payroll tasks, businesses can leverage the expertise of seasoned professionals with specialised knowledge in payroll processing, tax compliance, and regulatory requirements, ensuring accurate and efficient payroll operations.

Payroll processing
Improved Employee Satisfaction

Timely and accurate payroll processing contributes to employee satisfaction and morale. Some payroll providers offer self-service portals, allowing employees to access pay slips and tax documents conveniently. By providing employees with timely and accurate salaries, and access to comprehensive payroll information and self-service tools, businesses can enhance employee satisfaction, engagement, and retention. This fosters a positive workplace culture and strengthens employee relations.

Streamlined Administration

Outsourcing payroll centralises payroll tasks with a single provider, simplifying record-keeping, reporting, and auditing processes. This simplified administration enhances efficiency and compliance. With integrated payroll solutions and automated processes, businesses can streamline payroll administration tasks, reduce manual errors, and ensure consistent payroll processing, optimising operational efficiency and ensuring smooth payroll management.

Reduced Stress

Outsourcing payroll shifts the burden of payroll complexities to dedicated service providers, reducing stress for internal HR teams. It allows HR professionals to focus on strategic initiatives rather than routine tasks. By partnering with experienced payroll providers, businesses can lessen the administrative burden associated with payroll processing, allowing HR professionals to focus on strategic initiatives such as organisational development, talent acquisition and employee engagement.

Focus on Core Business Functions

By outsourcing payroll, businesses can invest time and resources in key areas that drive growth and profitability. This focus on core business functions enhances overall efficiency and competitiveness. With payroll tasks entrusted to external providers, businesses can redirect resources to main functions to drive sustainable business growth.

Tailored support with transfer pricing in Malaysia

BoardRoom's Expert Outsourced Payroll Solutions

Outsourcing payroll services offers numerous advantages, including cost savings, enhanced accuracy and compliance, and improved employee satisfaction. At BoardRoom, we offer comprehensive outsourced payroll services designed to simplify your payroll processes and ensure compliance with regulatory requirements. From payroll calculation and withholding tax to employee record maintenance and statutory reporting, BoardRoom handles all aspects of payroll administration with our team of experienced payroll specialists and cutting-edge technology.

Contact us today to experience seamless and stress-free payroll management.

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IPO Application: A Guide to Listing Your Company in Malaysia

IPO Application_ A Guide to Listing Your Company in Malaysia

IPO Application: A Guide to Listing Your Company in Malaysia

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An Initial Public Offering (IPO) marks a significant milestone in a company’s journey, allowing it to transition from private ownership to a publicly traded entity. Malaysia stands out as a compelling listing destination for companies considering an IPO. With a robust regulatory framework, diverse investor community, and vibrant capital market ecosystem, Malaysia offers a conducive environment for companies to unlock their growth potential and thrive in the competitive business landscape.

Benefits of Getting Publicly Listed

Getting your company listed on an exchange provides many benefits, some of which are:

Access to capital
By getting listed, a company can tap into a broader pool of investors in the capital market, enabling it to raise funds for company expansion, research, development, or other strategic initiatives.
Facilitate growth
Listing can provide a pathway for mergers and acquisitions, offering the company access to potential partners or targets for strategic growth and consolidation in the market.
Enhance credibility
Being listed means the company will be imposed with regulatory and reporting requirements by the stock exchange. This in turn foster transparency and good governance practices, which can enhance the company’s reputation and credibility among stakeholders.
Greater visibility and branding
Listing on a stock exchange can significantly increase a company’s visibility, boosting its brand recognition and awareness, and potentially attracting new customers, partners, and opportunities.
Incentive for employees
As a listed company, the business can offer stock options or other equity incentives tied to the company’s performance to align the interests of employees with the company’s long-term success. Employee stock ownership plan (ESOP) is a powerful tool to attract and retain talent. It can also motivate employees to contribute to its growth and profitability due to employees’ ownership in the company.
Liquidity of shares
Listing provides liquidity to existing shareholders by creating a platform where they can easily buy or sell shares, thereby widening the investor base and potentially increasing demand for the company’s stock.

Eligibility and Requirements

When it comes to IPO application and listing your company on Bursa Malaysia, there are a few things to consider:

  1. Listing Boards: Bursa Malaysia offers different boards where companies can list their shares. These include the Main Market for the listing of established companies, ACE Market which is a sponsor-driven alternative market for companies with growth prospects, and LEAP Market which is an advisor-driven market for high-growth potential companies to raise capital and access funding from sophisticated investors.. Each board has its own set of rules and requirements.
  2. Criteria: Companies must meet certain criteria to be eligible for IPO application and listing. This includes showing profitability, having a good track record, and meeting corporate governance standards such as having independent directors.
  3. Minimum Share Capital: There are also requirements for the minimum amount of share capital that a company must have for it to be listed on the exchange.

Understanding these eligibility criteria and requirements is essential for companies considering an IPO in Malaysia.

IPO application

The Listing Process

Embarking on the journey of IPO application and listing your company on Bursa Malaysia involves several important steps.

Overview of the Steps

It begins with initial planning and preparation, where the company evaluates its readiness for going public. This is followed by the submission of the IPO application to the exchange, due diligence processes, prospectus development, and eventually, listing day.

Importance of Professional Advisors

Seeking guidance from professional advisors such as investment banks and solicitors is crucial throughout the IPO application process. These experts provide valuable insights, assist in navigating regulatory requirements, and ensure compliance with listing rules.

Key Milestones During the IPO Application Process

Due Diligence Process
Companies undergo a thorough examination of their financial, legal, and operational aspects during the IPO application process to ensure transparency and mitigate risks. The company’s management team plays a key role in the due diligence process in providing accurate and comprehensive information about the company’s business, operations, financials, legal matters, and other relevant areas to the underwriters, investment banks and external advisors such as the legal and accounting firms.
Prospectus Development and Approval
The prospectus, containing comprehensive information about the company and the IPO, is prepared and submitted for approval by regulatory authorities.
Marketing and Investor Roadshows
Companies engage in marketing activities and roadshows to generate interest among potential investors, showcasing their business prospects and investment opportunities. This is typically managed by the invetsment banks or underwriter. In some cases, companies may engage external public relations or investor relations firms to assist with marketing efforts and investor communications during the IPO process.
Pricing and Allocation of Shares
Determining the offer price and allocating shares to investors are critical steps in the IPO process, balancing the company’s valuation with market demand. An experienced share registrar ensures that accurate records of these shareholders are maintained, including contact information and the number of shares held. In the distribution of shares to investors, the registrar also ensures that shares are allocated correctly according to the IPO offering terms and that investors receive the appropriate documentation confirming their ownership.
By understanding and effectively navigating through these key milestones, companies can successfully execute their IPO application and achieve their growth objectives.
Pricing and Allocation of Shares

Costs and Considerations When Applying For an IPO

Before proceeding with an IPO in Malaysia, it’s essential to consider the following:

Expected Fees for IPO Application

Companies should anticipate various fees associated with the IPO application process, including advisory fees for professionals such as investment banks and solicitors, underwriting fees if the company uses the services of an underwriter to facilitate and manage the IPO, as well as expenses related to regulatory filings and compliance.

Timeline of the IPO Process

Understanding the timeline for a typical IPO in Malaysia is crucial for effective planning. While timelines may vary depending on various factors, including regulatory approvals and market conditions, companies should expect the process to take several months from initial planning to listing day.

Additional Considerations

Tax Implications
Companies need to assess the tax implications of going public, including potential capital gains taxes and other applicable taxes during the IPO application process. Seeking advice from tax professionals is advisable to ensure compliance with tax laws and optimise tax efficiency.
Post-Listing Compliance Requirements
After listing, companies are subject to ongoing compliance requirements imposed by regulatory authorities and stock exchange rules. This includes financial reporting obligations, disclosure requirements, and adherence to corporate governance standards. Being prepared to fulfil these obligations is essential for maintaining regulatory compliance and sustaining investor confidence.

By considering these costs and additional factors upfront, companies can better navigate the IPO application process in Malaysia and position themselves for a successful transition to the public market.

Tips on Your IPO Application Process

Listing your company on Bursa Malaysia offers numerous advantages:

  • Benefits of Listing: It provides access to capital for growth, enhances visibility and credibility, and creates opportunities for expansion and strategic partnerships.
  • Importance of Careful Planning: Successful IPOs require thorough planning and preparation. Companies must assess their readiness, adhere to regulatory requirements, and engage professional advisors to navigate the complexities of the process.
  • Professional Guidance: Seeking guidance from experienced professionals, including investment banks and legal advisors, is crucial for a smooth and successful IPO
  • Alternative Fundraising Options: For companies not yet ready for an IPO, there are alternative fundraising options to consider. These may include private equity investments, venture capital funding, or debt financing. Each option offers its own benefits and considerations, providing companies with flexibility in their capital-raising strategies.

By weighing the benefits, planning meticulously, and seeking professional support, companies can leverage the opportunities presented by listing on Bursa Malaysia to fuel their growth and achieve long-term success in the dynamic business landscape.

    IPO Application Process

    BoardRoom's Expert IPO Application Services

    When it comes to navigating the intricate process of IPO application in Malaysia, BoardRoom emerges as a trusted partner. With more than 50 years of experience and expertise in corporate services, BoardRoom offers comprehensive support and guidance tailored to meet the unique needs of companies venturing into the IPO landscape. From ensuring regulatory compliance to facilitating due diligence and prospectus development, our team of seasoned professionals is dedicated to orchestrating a seamless IPO journey.

    As a full-suite share registry provider, we also provide services such as corporate action services, share registry maintenance and coordination, AGM meeting and scrutineering services , corporate secretarial and corporate governance advisory services.

    Contact us today to help your business navigate the complexities of the IPO application process and increase the chance of successfully listing on Bursa Malaysia.

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    Guide to e-invoicing: A fast track to compliance with Malaysia’s e-invoicing transition

    Guide to e-invoicing A fast track to compliance with Malaysia’s e-invoicing transition

    Guide to e-invoicing: A fast track to compliance with Malaysia’s e-invoicing transition

    boardroomsuperadmin

    E-invoicing was announced in Malaysia as the Inland Revenue Board’s (IRB) solution to combating the issue of the shadow economy and revenue leakage. With the first major deadline in August 2024 fast looming, now is the time for businesses to start preparing for the transition.

    E-invoicing implementation is significant for all businesses, and major changes may be required for systems, processes and even strategic direction. While the rollout will be phased, implementation is essential, with all businesses expected to comply by 1 July 2025.

    What is e-invoicing and how can you maximise the benefits for your business? Our comprehensive guide offers you insight into the requirements, what you need to do to switch over and the benefits it can bring.

    How does e-invoicing work?

    An e-invoice is a digital representation of a transaction between a supplier and a buyer. Many companies already issue electronic invoices, such as PDF invoices. However, having such electronic invoices does not necessarily mean being compliant with Malaysia’s e-invoicing requirements as set out by the Inland Revenue Board of Malaysia (IRBM). The Malaysia e-invoice requirements go beyond to include specific processes and reporting formats.

    E-invoicing works by enabling seller’s accounts receivable to input invoices into their financial system, which then sends them in a structured electronic format directly to the buyer’s system. Upon receipt, the buyer’s e-invoicing system automatically processes and imports the data into their accounts payable system, which streamlines the payment process without the need for manual handling.

    Only two formats of e-invoice are acceptable – XML and JSON. Both of these formats are easy for machines to read, which reduces the time it takes for a machine to translate and process the invoice.

    E Invoicing Infographic

    What is the timeline for implementation?

    There are a number of dates that you need to be aware of in the transition. It’s critical to be mindful of the timeline, as e-invoicing implementation can take up to three to four months to complete.

    The following table provides a breakdown of the key dates for the e-invoicing implementation rollout based on business turnover.

    Annual Revenue of businessesImplementation Date
    Businesses with an annual turnover greater than RM 100 million1 August 2024
    Businesses with an annual turnover greater than RM 25 million and up to RM 100 million 1 January 2025
    All businesses 1 July 2025

    The above timeline is subject to changes. Please refer to LDHN website for detailed guidelines and updates.

    Exemptions from e-invoicing requirements

    Certain types of income expenses do not require an e-invoice.

    These include:

    • Employment income
    • Pensions
    • Alimony
    • Dividend distribution by companies listed in Bursa Malaysia, or companies that are not required to deduct tax under Section 108 of the Income Tax Act 1967
    • Zakat

    While government bodies, local authorities and statutory bodies are exempt from the e-invoicing requirements, they may voluntarily choose to participate. A complete list of exemptions is detailed in the IRBM’s official e-invoice guidelines.

    A step-by-step guide to e-invoicing implementation

    A step-by-step guide to e-invoicing implementation

    E-invoicing implementation is quite complex. The process may include upgrading infrastructure, integrating systems and training staff to ensure a smooth transition.

    Here is a step-by-step guide to help you understand the process and how you can best implement e-invoicing.

    1. Confirm business turnover

    Your turnover will dictate when you must transition to e-invoicing. Refer to your 2022 audited financial statement or tax return to confirm your business turnover.

    If you had a change of accounting year end for financial year 2022, your turnover or revenue will be pro-rated to 12 months. This will be used to determine your implementation date.

    2. Conduct a gap assessment analysis

    Cheong Woon Chee, Head of Tax Services, BoardRoom Malaysia, says that a gap assessment analysis is a critical next step in the process.

    “A gap assessment will help you to determine what you need to do to meet the e-invoicing implementation requirements,” explains Woon Chee. “This should encompass current systems and processes but also the people and the training you’ll need to undertake in preparation for the transition.”

    A comprehensive gap assessment should include the following components:

    Accounting system compatibility
    Evaluate the compatibility of the current accounting system with e-invoicing requirements.
    Invoice format compliance
    Ensure the invoice format adheres to the required e-invoicing standards.
    Self-billing e-invoices
    Determine the need for self-billing e-invoices.
    Transaction management
    Assess how transactions with both B2B and B2C buyers will be managed.
    Legal and contractual review
    Conduct a thorough review of all legal documents, including contracts and employment agreements.

    Once a gap assessment analysis has taken place, a tailored gap closure strategy should be developed that addresses the identified gaps. The strategy should provide detailed recommendations and action plans to ensure a seamless transition to e-invoicing. By understanding the requirements thoroughly, you can plan effectively, working backwards from the implementation date to ensure you are ready on time.

    Having this lead time also gives you the opportunity to start talking to your clients, partners and service providers. They are critical in the transition, so it’s important to engage them early to understand their timelines and requirements.

    3. Determine the best model for your needs

    You have a choice between two e-invoicing models, which will depend on your business needs and size.

    The first model uses the MyInvois portal, hosted by the IRB. This portal is available to all taxpayers, and Woon Chee says that if you’re processing around 20 invoices or less a month, MyInvois is a cost-effective solution.

    “The other option is an application programming interface (API),” explains Woon Chee. “APIs are more suitable for businesses or taxpayers that process a substantial number of transactions.

    “It is likely that your current systems will need enhancements or upgrades to support an API configuration, which comes with an upfront investment.”

    Train staff on the new system

    4. Train staff on the new system

    E-invoicing implementation involves training in the lead up to the transition as well as after the transition to ensure a seamless changeover.

    “E-invoicing isn’t like the standard invoices staff are familiar with,” adds Woon Chee. “Initially, training should focus on awareness before moving to additional rounds of training that go into detail about the new process.”

    Training is crucial and should cover the strategic approaches the organisation is taking to implement e-invoicing effectively across departments, the tax implications and the compliance requirements. Staff must understand the effects e-invoicing will have on existing accounting processes, especially as the new forms now feature over 50 mandatory fields, raising the chance of errors. Post-implementation training can help identify errors and ensure they are rectified moving forward.

    5. Understand the PEPPOL network

    The Malaysian e-invoicing requirement is powered by the Pan-European Public Procurement Online (PEPPOL) network. PEPPOL is not a provider. It is an enabler that allows any organisation to send and receive business documents – in this case, e-invoices – through PEPPOL-accredited service providers.

    While businesses aren’t required to use a PEPPOL service provider for e-invoicing, there are benefits to doing so. Namely, a PEPPOL-enabled solution ensures effortless compliance and security, seamless integration and error-free automation with real-time insights into your e-invoice progress.

    6. Apply for grants and tax incentives

    There are grants and tax incentives available to support you with the costs of investing in the infrastructure required to transition to e-invoicing.

    These include:

    Digital grant
    Micro, small, and medium enterprises (MSME) can apply for a grant of up to RM 5,000 (total allocation of RM 100 million) to upgrade digital sales, inventory and accounting systems.
    Tax deduction
    From YA2024 to YA2027, MSME can receive a tax deduction of up to RM 50,000 for each Year of Assessment (including consultation fees incurred for e-invoicing implementation).
    Capital allowance
    The capital allowance claim period has been reduced from four years to three years. Capital allowance can be claimed on the purchase of ICT equipment and computer software packages, as well as consultation, licensing and incidental fees related to customised computer software development.

    What are the benefits of e-invoicing?

    According to the IRB, the benefits of e-invoicing include reducing manual work and associated human error. It will also help streamline operational efficiency, facilitate efficient tax filing, and digitise financial reporting to be in line with industry standards.

    The Malaysia Digital Economy Corporate (MDEC) shares similar sentiments around the way e-invoicing will increase business efficiency, improve cash flow and facilitate effective tax reporting.

    The BoardRoom team can see a range of benefits for our clients. Eunice Hooi, BoardRoom’s Managing Director Asia, Tax, explains that one of the biggest benefits is the minimisation of inaccuracies thanks to real-time monitoring.

    “Shifting to e-invoicing will reduce inaccuracies, as both income and expenses are verified on the spot rather than retrospectively. This immediate validation allows businesses to promptly address any discrepancies identified by the tax authorities, such as disallowed expenses,” says Eunice.

    What are the benefits of e-invoicing

    The key benefits of implementing e-invoicing include:

    • Seamless compliance through adherence to the e-invoicing mandates, PEPPOL standards and data security.
    • Eliminate errors with automated creation, validation, delivery and archiving of invoices.
    • Smooth integration with existing ERP and business applications, enhancing overall business operations.
    • Gain real-time insights into the status of invoices to ensure timely payments, resulting in visibility and control.
    • Save time and resources by digitising and automating invoicing processes, boosting cost savings and efficiency.

    The switch to e-invoicing is not just a system change. It’s a complete mindset shift. A reliable partner will be a critical part of ensuring a seamless transition and maximising your investment.

    “We are currently working very closely with some of the API and IT solution providers,” adds Eunice. “Aside from tax services and outsourced accounting services, we can provide our clients with an integrated service, including the IT component with a PEPPOL-Enabled Solution.”

    BoardRoom offers a range of services to support you with your e-invoicing implementation. From standalone comprehensive project management service to training workshops or ad hoc consulting, we can tailor a solution to your needs. As your strategic partner, the BoardRoom team will help you to navigate the transition with ease.

    “As outsourced accountants and tax experts, we can work with the finance team to advise them on strategically leveraging the e-invoicing data for tax optimisation,” explains Eunice. “For example, we can identify the deductible expenses immediately and ensure we maximise the tax credit and tax deduction without delay.”

    Your partner in e-invoicing

    With the right experts on your side, you will set your business up with a strategic advantage to leverage the benefits of the e-invoicing requirements. Learn more about BoardRoom’s e-invoice solutions to save you time and money for your e-invoicing transition and beyond. Our expert accounting and tax teams will ensure a smooth and compliant transition, providing you with support every step of the way.

    Contact BoardRoom for more information:

    Eunice Hooi

    Eunice Hooi

    Managing Director Asia, Tax

    E: [email protected]

    T: +60-3-7890 4800

    Related Business Insights

    An Introduction to AGMs in Malaysia

    An Introduction to AGMs in Malaysia

    An Introduction to AGMs in Malaysia

    firstpagedigital

    The Annual General Meeting (AGM) is an annual meeting where a company’s shareholders and board of directors come together. It plays an important part in facilitating effective corporate governance in Malaysia, acting as a crucial forum for direct dialogue between shareholders and the management team. With AGMs, companies can enable transparent decision-making and strategic direction setting and solidify investor confidence. In this guide, we explore the regulatory requirements, preparation processes, best practices for conducting AGMs in Malaysia, and how to ensure compliance and foster stakeholder engagement.

    Overview of Corporate Governance in Malaysia

    The Malaysian Companies Act 2016, which establishes basic requirements for company formation and permits businesses to specify their control structure in their Memorandum and Articles of Association, defines the corporate governance framework in Malaysia. The Companies Act ensures that local businesses operate within a framework that serves the best interests of all stakeholders by emphasising transparency, accountability, and the protection of stakeholders’ rights.

    Regulatory requirements for AGMs in Malaysia

    The Companies Act 2016 lays the foundation for conducting AGMs. It emphasises transparency, accountability, and shareholder engagement; it ensures companies in Malaysia operate in a manner that is not only compliant but also ethically sound and reflective of stakeholders’ best interests. This backdrop supports a business environment where informed decision-making and strategic foresight are not just encouraged but required.

    Businesses in Malaysia must conduct AGMs within six months after the end of their fiscal year according to the Companies Act. These meetings must take place in Malaysia and can be in physical, virtual, or hybrid modes. The regulation sets quorum requirements, which require at least two members to be present, as well as a minimum 21-day notice period for all participants, while a 28-day notice period is advised to enhance corporate governance.

    Key Agenda Items of AGMs

    AGMs support open communication between a company’s board, management, and shareholders, as well as accountability inside the organisation. Their crucial significance in the field of corporate governance is highlighted by a number of functions and responsibilities.

    Election of Directors
    Electing or re-electing members of the company’s board of directors is one of the primary functions of an AGM. This ensures shareholders’ interests are accurately represented by the board.
    Appointment of Auditors
    AGMs include the appointment of auditors for the coming fiscal year so the company’s financial dealings can be transparently and independently verified, maintaining trust among stakeholders.
    Approval of Financial Statements and Annual Reports
    The company’s annual reports and financial statements are delivered to the shareholders for approval. This gives shareholders a comprehensive view of the company’s financial performance and health while reaffirming the company’s commitment to transparency.
    Approval of Financial Statements and Annual Reports

    Preparing for an AGM

    Before holding an AGM, a company must go through a thorough preparation process, and it usually includes the following steps:

    Agenda Setting

    The board of directors sets a detailed agenda for the AGM with input from the company secretary, covering points such as financial reporting, dividends and election of directors.

    Regulatory Compliance

    The company secretary then ensures the AGM’s compliance with the Companies Act 2016 and relevant securities regulations in Malaysia, and verifies all necessary documents.

    Communication with Shareholders

    The company secretary drafts and sends out AGM notices, which include the date, time, location and agenda, with a minimum 21-day notice period for shareholder preparation.

    Proxy Voting Process

    Shareholders are given instructions on how to appoint a proxy who can vote on their behalf in case of their absence. The company secretary collects and verifies all the proxy forms.

    Enhancing Shareholder Communication

    Several efforts are made to enhance shareholder communication leading up to the meeting, including Q&A forums, dedicated hotlines, or information sessions.

    Conducting an AGM

    Once the preparation stage is completed, the Annual General Meeting (AGM) will be conducted in compliance with a set of formal procedures and protocols, which include:

    Meeting Procedures and Protocols

    The AGM begins with the chairperson opening the meeting, followed by a roll call to establish the presence of a quorum. The meeting agenda guides the discussion of each item in turn.

    Quorum Requirements

    A minimum of two shareholders, either in person or by proxy, constitutes a quorum for an AGM unless the company’s constitution states otherwise.

    Presentation of Reports and Resolutions

    Documents such as the directors’ report and the annual financial report are given to the shareholders. These reports offer a thorough summary of the business’s accomplishments and financial status over the last 12 months. Resolutions are put forward to shareholders for voting after the presentations. These may include the appointment of auditors, the reelection of directors, and the approval of the financial statements.

    Shareholder Rights and Participation

    Shareholder participation is a key element in any AGM in Malaysia, as it enables stakeholders to have a meaningful impact on the company’s operation and development.

    Their participation usually includes the following activities and rights:

    Voting Procedures

    Voting allows shareholders to exercise their rights and influence the company’s decisions. Shareholders can vote in person or via proxy for each resolution. This could be done via a show of hands or electronic voting.

    Resolutions

    Resolutions are formal decisions that shareholders vote on during the AGM, which can include the approval of financial statements, election or re-election of board members, mergers, acquisitions, or changes in the company’s constitution.

    Q&A Sessions

    These sessions enable shareholders and the company’s board of directors to communicate directly. In particular, shareholders can raise questions, seek clarifications, and express concerns regarding the company’s operations, financial health and strategies.

    Recent Developments and Best Practices

    In recent years, there have been numerous changes to AGMs in Malaysia. The majority of these have been propelled by simultaneous worldwide developments in technology and increased awareness of Environmental, Social, and Governance (ESG) principles.

    Virtual and Hybrid Meetings

    The adoption of digital formats for has increased significantly around the world, including Malaysia. Even with physical meetings making a comeback in 2023, virtual meetings accounted for 58% of all meetings in Malaysia.

    ESG Prioritisation

    ESG topics have gained prominence in corporate governance. Shareholders increasingly demand transparency and action on issues such as climate change and sustainable business practices through resolutions at AGMs. Bursa Malaysia has also introduced the new enhanced Sustainability Reporting Framework, aimed at facilitating businesses in embracing global standards for disclosing ESG-related information. By strengthening your ESG compliance, companies can help attract investment, improve your corporate reputation and minimise your risk of penalties for non-compliance.

    Best Practice Guide

    Bursa Malaysia has released the Best Practice Guides on AGMs, which provide a thorough framework for navigating the changing environment. These principles assist businesses in adopting international best practices, ensuring regulatory compliance, and organising productive meetings. They address useful issues, including how to improve shareholder involvement, how to employ technology for distant voting, and how to enable open dialogue about ESG issues.

    Environmental, Social, and Governance (ESG) principles

    Challenges and Mitigation Measures

    Companies conducting AGMs often encounter several challenges, including securing widespread shareholder engagement and navigating the logistical intricacies of hybrid meeting formats. To tackle these issues, companies in Malaysia are advised to implement different measures for each area.

    Enhancing Shareholder Engagement
    Companies can leverage technology to make AGMs more accessible, such as digital tools, live streaming, e-voting and interactive Q&A sessions in order to increase shareholder engagement. Companies can also facilitate clear communication by providing agendas and instructions for digital participation in the pre-meeting materials. Last, but not least, mechanisms can be put in place for shareholder feedback so that the AGM procedures can be improved.
    Managing Hybrid Meeting Complexities
    To manage hybrid meetings more effectively, companies should select a reliable platform that enables both virtual and physical participation. The meeting services provider should provide technical support and conduct rehearsals to ensure a smooth AGM execution.
    Ensuring Regulatory Compliance
    To guarantee adherence to rules, companies need to stay informed about the instructions issued by Bursa Malaysia and the Companies Commission of Malaysia (SSM). If there is a need, companies should obtain expert advice from professional corporate secretarial services providers like BoardRoom to ensure that you comply with regulations related to AGMs in Malaysia.

    How Can BoardRoom Offer Support for Your AGM in Malaysia?

    BoardRoom offers comprehensive share registry services, managing more than 350 AGMs and meetings every year in Malaysia. With a strong focus on enhancing engagement, streamlining proceedings, and ensuring regulatory requirements are met, BoardRoom empowers businesses in your AGM preparation.

    Contact us today to discuss your AGM needs and make your next AGM a seamless experience.

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    How to Conduct Effective ESG Due Diligence in Malaysia

    How to Conduct Effective ESG Due Diligence in Malaysia

    How to Conduct Effective ESG Due Diligence in Malaysia

    firstpagedigital

    Businesses today face increasing pressure and expectations from their stakeholders to operate responsibly, ethically, and sustainably. This means that they not only need to consider the financial implications of their activities but also the environmental, social, and governance (ESG) aspects. These factors can have significant impacts on the long-term success and viability of a business.

    How can businesses ensure that they are addressing the ESG aspects of their activities comprehensively and effectively? How can they identify and evaluate the ESG risks and opportunities that they face and take appropriate actions to mitigate the risks or capitalise on the opportunities? How can they demonstrate and communicate their ESG performance and progress to their stakeholders? This is where ESG due diligence comes in.

    What is ESG?

    ESG stands for Environmental, Social, and Governance. These are the three main categories of criteria that measure the sustainability and ethical impact of a business.

    ESG criteria can help investors, customers, employees, and other stakeholders evaluate how an organisation performs on the following aspects:

    Environmental
    This refers to how a business protects the environment and minimises its negative effects on natural resources, climate, and biodiversity. Some examples of environmental criteria are greenhouse gas emissions, energy efficiency, waste management, and water conservation.
    Social
    How does a business treat its people and the communities where it operates? The social criteria answer this question by looking at aspects such as labour standards, human rights, diversity and inclusion, health and safety, and customer satisfaction.
    Governance
    A business that manages and governs itself with integrity and transparency is more trustworthy and accountable. The governance criteria help measure this by looking at elements like board structure, executive compensation, business ethics, anti-corruption, and transparency.

    ESG criteria are not fixed or universal but rather depend on the industry, market, and context of each business. Different stakeholders may have different expectations and preferences for ESG performance and disclosure. Therefore, companies need to conduct ESG due diligence to identify and address the most relevant and material ESG issues for their operations and stakeholders.

    Due diligence

    What is Due Diligence in ESG?

    Due diligence in ESG is the process of identifying, evaluating, and addressing a business’s ESG risks and opportunities. Organisations may do this for various purposes, such as mergers and acquisitions, investment decisions, compliance and reporting, and stakeholder engagement. It helps them understand their ESG performance, liabilities, and potential and align their ESG strategies, policies, and practices with the best practices and standards in their industry and market. Due diligence in ESG also assist companies in demonstrating and communicating their ESG commitment and contribution to their stakeholders and the wider society.

    What Are the Steps Involved in ESG Due Diligence?

    ESG due diligence can vary depending on the scope, objective, and context of the process.

    However, a general framework for ESG due diligence can consist of the following steps:

    Scoping

    Begin by clearly defining the purpose, scope, and timeline of the ESG due diligence Identify key ESG issues, stakeholders, and relevant information sources to shape the direction of the evaluation.

    Screening

    Initiate the process with a preliminary assessment of the business’s ESG risks and opportunities. Prioritise the most significant and relevant issues, setting the stage for further in-depth investigation and necessary actions.

    Assessing

    Delve into a comprehensive analysis of the business’s ESG performance, identifying gaps and potential areas for improvement. Verify collected ESG information, benchmark against industry standards, and assess alignment with best practices to provide a thorough evaluation.

    Implementing

    Translate findings into a proactive ESG action plan. Develop and implement strategies based on the evaluation, outlining clear goals, indicators, and targets. Allocate resources and responsibilities strategically to ensure effective execution of the action plan.

    Monitoring and reviewing

    Keep a vigilant eye on ESG performance, tracking progress and impact. Regularly review and assess results and communicate outcomes to stakeholders. Adjust and enhance the ESG due diligence process as needed, ensuring continuous improvement.

    Malaysia due diligence process

    What Is the Importance of ESG Due Diligence?

    ESG due diligence is not only a good practice but also a strategic necessity for businesses that want to succeed in the long term.

    It can help organisations to:

    • Enhance their financial performance: ESG due diligence can help businesses identify and capitalise on the ESG opportunities that can improve their efficiency, innovation, and competitiveness. It can also help them mitigate and manage the ESG risks that can affect their profitability, liquidity, and solvency.
    • Strengthen their reputation: ESG due diligence empowers companies to showcase not just their commitment but also their active contribution to ESG concerns valued by stakeholders. It acts as a foundation for building and sustaining trust, loyalty, and satisfaction among stakeholders. Additionally, ESG due diligence serves as a protective shield, averting potential reputational damage and crisis scenarios.
    • Foster their sustainability: ESG due diligence propels organisations towards aligning their operations with ESG principles that support sustainable development. It serves as a guiding force, steering them to create positive ESG impacts. In turn, these benefits not only their immediate stakeholders but also contribute to the broader well-being of the community and the environment.

    Are There Any Tools or Bodies That Help with ESG Due Diligence?

    Various tools and bodies can help businesses with ESG due diligence, including:

    • ESG frameworks and standards: These are sets of guidelines and criteria defining and measuring the ESG performance and impact of a business. Some examples are the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures (TCFD), and the UN Principles for Responsible Investment (PRI).
    • ESG ratings and indices: These are tools that evaluate and compare the ESG performance and impact of a business. Notable examples encompass the Dow Jones Sustainability Indices (DJSI), the FTSE4Good Index Series, the MSCI ESG Ratings, and the Sustainalytics ESG Risk Ratings. For publicly listed companies in Malaysia, having a strong ESG rating can be a useful tool in demonstrating real sustainability action and compliance with exchange regulations.
    • ESG and auditors: These are professionals who provide ESG due diligence services and advice to businesses. They help enterprises conduct ESG due diligence, develop ESG action plans, and report ESG results and outcomes.

    Common Challenges Faced in ESG Due Diligence

    ESG due diligence is not without its challenges.

    Some of the common challenges faced by businesses in conducting ESG due diligence are:

      Data quality and availability
      Companies face challenges due to scarce, inconsistent, or unreliable ESG data, especially in emerging markets or sectors. This complicates data collection, verification, analysis, and accurate reporting of ESG performance.
      Resource constraints
      ESG due diligence, particularly for SMEs or newcomers, is time-consuming, complex, and costly. Balancing ESG objectives with resource constraints requires careful allocation of resources and expertise.
      Stakeholder engagement
      Managing diverse stakeholders—regulators, customers, employees, suppliers, investors, and communities—in the context of ESG is challenging. Identifying, engaging, and satisfying their varied ESG interests demands a nuanced approach, including handling conflicts and trade-offs.
      Importance of ESG Due Diligence

      How Can BoardRoom Help You with ESG Due Diligence?

      BoardRoom is a leading corporate and advisory services provider in Malaysia and the Asia-Pacific region. BoardRoom can help you with ESG due diligence by offering the following:

      • ESG advisory: As a leading corporate services provider in Malaysia and the Asia-Pacific region, BoardRoom provides ESG expertise in multiple APAC jurisdictions . Tailoring strategies to your needs, BoardRoom assists in designing and implementing ESG initiatives, including due diligence, action plans, and reporting.
      • ESG compliance: BoardRoom helps ensure seamless ESG compliance with local regulatory requirements. BoardRoom also aids in preparing and submitting ESG disclosures, keeping your business aligned with evolving requirements.
      • ESG solutions: Access cutting-edge ESG reporting tool through BoardRoom. Facilitating connections with stakeholders, BoardRoom’s ESG Access enhances collaboration, and incorporate functionalities for reviewing, validating, and auditing. Stakeholders can contribute, review, and endorse reporting timelines, all within one platform. Our entity reporting feature allows you to easily organise users into groups (entities) and control/assign ESG metrics specific to each group, so you can improve decision making, identify growth opportunities and manage group risks. .

      If you are interested in ESG due diligence and how BoardRoom can help you, contact us today for a consultaion.

      Contact BoardRoom for more information:

      Tina Thomas_profile

      Tina Thomas

      Head of Environmental, Social and Governance

      E: [email protected]

      T: +60-3-7890 4800

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      ESG Reporting 101: A Definitive Guide for Malaysian Companies

      ESG Reporting 101 A Definitive Guide for Malaysian Companies

      ESG Reporting 101: A Definitive Guide for Malaysian Companies

      firstpagedigital

      ESG reporting is gaining popularity in the business world, especially in the wake of the COVID-19 pandemic and the growing awareness of environmental and social issues. But what exactly is ESG reporting, and why is it important for companies? In this blog, we will answer these questions and provide you with some practical tips on how to do ESG reporting effectively and efficiently.

      What is ESG?

      ESG stands for Environmental, Social, and Governance and constitutes the fundamental pillars for evaluating a company’s performance impact on the environment, society, and its governance structure.

      It encapsulates a diverse array of considerations:

      Environmental
      Scrutinise the company’s management of its carbon footprint, waste, water, energy, biodiversity, and natural resources.
      Social
      Examine the company’s treatment of employees, customers, suppliers, communities, and stakeholders. Evaluate commitments to diversity, inclusion, health, safety, human rights, and customer satisfaction.
      Governance
      Investigate how the company conducts its business with ethics and transparency. Assess measures ensuring accountability, compliance, risk management, anti-corruption, and meaningful shareholder engagement.
      ESG Reporting

      What is ESG Reporting?

      ESG reporting is the process of disclosing and communicating the company’s ESG performance to its internal and external stakeholders. It can take various forms, such as:

      • Sustainability Reporting: A comprehensive document encompassing the company’s economic, environmental, and social performance. It outlines sustainability goals, strategies, and policies.
      • Integrated Reporting: A succinct report that combines financial and non-financial performance. It includes the company’s value creation model, risks, opportunities, and future outlook.
      • ESG Disclosure: A specific report or section focusing on the company’s ESG performance, metrics, and initiatives. This often aligns with recognised frameworks or standards.

      What is the Difference between ESG and Sustainability Reporting?

      While ESG and sustainability are often used interchangeably, they are not the same. Sustainability reporting is the overarching concept that encompasses ESG reporting and covers a wider range of topics beyond ESG factors, including supply chain management, community engagement, human rights and more. On the other hand, ESG reporting is a more focused and measurable approach, assessing and reporting on topics such as carbon emissions, employee diversity, business ethics, etc. to its stakeholders.

      Why is ESG Reporting Important for Companies

      Why is ESG Reporting Important for Companies?

      ESG reporting is not only a matter of compliance or reputation but also a strategic tool that can bring many benefits to companies, including:

      Enhancing trust and credibility
      By showcasing a commitment to sustainability and social responsibility, ESG reporting enables companies to cultivate trust and credibility. Stakeholders, including investors, customers, employees, regulators, and society, witness a transparent dedication to ethical practices.
      Improving performance and competitiveness
      Unveiling ESG risks and opportunities, ESG reporting becomes a catalyst for companies to enhance their market performance and competitiveness. It serves as a dynamic tool to attract and retain talent, customers, and capital, fostering a culture of innovation and sustainable growth.
      Contributing to the global goals
      ESG reporting plays a pivotal role in aligning companies with international aspirations, such as the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement on climate change. It allows companies to showcase their positive impact, emphasising their contribution to global challenges and collaborative solutions.

      ESG Reporting Frameworks

      There are many ESG reporting frameworks and standards available in the market, each with its own scope, methodology, and indicators.

      Some of the most widely used and recognised ones are:

      Global Reporting Initiative (GRI)

      Used by over 10,000 organisations worldwide, GRI is a leading sustainability reporting framework. It offers universal standards and indicators covering economic, environmental, and social aspects, including sector-specific topics. GRI facilitates alignment with other standards like the SDGs, TCFD, and IRF.

      Integrated Reporting Framework (IRF)

      IRF promotes integrated thinking and reporting by connecting financial and non-financial performance. It provides principles guiding the content, structure, and governance of integrated reports, demonstrating how companies create value for stakeholders.

      Sustainability Accounting Standards Board (SASB)

      Focused on ESG disclosure for investors, SASB provides industry-specific standards and metrics, ensuring material, comparable, and decision-useful information. Covering 77 industries across 11 sectors, SASB addresses environmental, social, and governance aspects of ESG.

      Task Force on Climate-Related Financial Disclosures (TCFD)

      TCFD aims to enhance the disclosure and management of climate-related risks and opportunities. Offering recommendations and guidance on governance, strategy, risk management, metrics, and targets, TCFD supports companies and investors in addressing climate-related issues.

      ESG Reporting Best Practices

      ESG reporting can be a complex and challenging process, but it can also be a rewarding and beneficial one.

      Here are some best practices that can help you do ESG reporting effectively and efficiently:

        Define purpose and scope
        Before commencing ESG reporting, clarify your purpose, scope, and objectives. Identify your target audience, stakeholders, and the relevant topics and indicators. Determine the frameworks and standards you want to follow or align with.
        Engage stakeholders
        ESG reporting is a dialogue, not a one-way communication. Engage stakeholders throughout the process, understanding their needs, addressing feedback, and inviting them to join your sustainability journey. Communicate ESG performance transparently.
        Collect and manage data
        Systematically collect and manage qualitative and quantitative data using reliable methods and tools. Ensure accuracy, completeness, timeliness, and comparability. Document data sources, methodologies, assumptions, and limitations. Provide assurance or verification when needed.
        Report and improve
        ESG reporting is an ongoing cycle. Regularly report performance using appropriate formats. Benchmark against peers, industry standards, and best practices. Set goals, monitor progress, and learn from feedback. Continuously improve the ESG reporting process and quality.

        Is ESG Reporting Mandatory?

        In Malaysia, ESG reporting has been made mandatory for all public listed companies since 2016. The Malaysian government and the Securities Commission Malaysia (SC) promote ESG reporting through initiatives like:

        • The Malaysian Code on Corporate Governance (MCCG): This code outlines corporate governance principles for Malaysian companies, including a section on sustainability. It mandates the disclosure of sustainability policies, practices, and performance in annual reports, encouraging an integrated reporting Companies are also urged to use recognised frameworks like GRI standards.
        • The Sustainable and Responsible Investment (SRI) Framework: This framework aims to boost the SRI ecosystem in Malaysia. Providing criteria and guidelines for SRI funds, SRI sukuk, SRI indices, and SRI tax incentives, it supports alignment with SDGs, TCFD, and IRF.
        • The ESG Index Series: This series of indices measures the ESG performance of Malaysian companies using the FTSE4Good Bursa Malaysia Index methodology. Comprising indices like FTSE4Good Bursa Malaysia Index, it serves as a benchmark for investors and companies to assess and enhance their ESG performance.
        Tailored support with transfer pricing in Malaysia

        How Can BoardRoom Help?

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        Our guide to Performance Share Plans

        Our guide to Performance Share Plans

        Our guide to Performance Share Plans

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        Performance share plans (PSPs) are a type of long-term incentive scheme that rewards employees with shares of the company based on the achievement of certain performance goals. In Malaysia, PSPs are becoming more popular among companies as a way to align the interests of employees and shareholders, motivate and retain talent, and foster a culture of ownership and accountability.

        What are Performance Share Plans (PSPs)?

        Performance share plans (PSPs) constitute a type of equity compensation where employees earn the right to receive company shares contingent on meeting or surpassing predefined performance goals across a typically three to five-year period. These objectives span financial, operational, or strategic metrics, such as earnings per share, revenue growth, return on equity, customer satisfaction, or market share. The number of awarded shares hinges on factors like an employee’s role, individual performance, and overall company performance.

        In contrast to stock options that grant the right to purchase shares at a fixed price, performance shares involve no payment from employees. However, these shares are subject to vesting conditions, requiring employees to stay with the company until the performance period concludes and performance criteria are met. Failure to meet targets may result in a reduced share allocation or none at all.

        Understanding Performance Share

        Types of performance metrics used in PSP

        There are three primary performance metrics commonly employed in performance share plans in Malaysia: Total Shareholder Return (TSR), Earnings-Based, and Strategic Goals.

        Total Shareholder Return (TSR) Performance Shares
        TSR performance shares tie the number of awarded shares to the company’s total shareholder return relative to a peer group or market index over the performance period, typically three to five years. For instance, if the company’s TSR ranks in the top quartile, employees may receive 150% of the target shares.

        While aligning employee and shareholder interests, TSR performance shares may be influenced by external factors beyond employee control, including market conditions and investor sentiment. This approach may not necessarily reflect the underlying value creation or long-term strategy of the company, focusing more on short-term fluctuations in share prices.
        Earnings-Based Performance Shares
        Earnings-based performance shares link the number of awarded shares to achieving specific earnings-related metrics like earnings per share, net income, operating profit, or cash flow. This method aims to incentivise employees to improve the profitability and efficiency of the company. It provides a clear and transparent way to communicate and track performance goals and expectations to employees.

        However, earnings-based performance shares may be susceptible to manipulation or distortion by accounting policies, adjustments, or one-off items. They may also fall short in capturing non-financial aspects of performance, such as customer satisfaction, innovation, or social responsibility. Additionally, this approach may inadvertently encourage short-termism or excessive risk-taking as employees focus on boosting earnings in the current period.
        Strategic Goals Performance Shares
        Strategic goals performance shares correlate the number of awarded shares with the accomplishment of specific strategic objectives such as market share, customer retention, product development, or environmental, social, and governance (ESG) criteria. Intended to motivate employees toward the company’s long-term vision, these shares foster a culture of innovation, collaboration, and social responsibility.

        Though flexible to tailor performance criteria to the company’s industry and strategic priorities, strategic goals performance shares may be difficult to define, measure, and verify, leading to a potential lack of comparability or consistency. The performance criteria may also vary across different business units, functions, or regions, which can create conflicts or trade-offs for employees who must balance competing or contradictory goals, such as profitability and sustainability.

        How Performance Share Plans work

        Ever wondered about the inner workings of performance share plans? Let’s lay it out step by step:

        1. Setting the Scene: The company starts by defining the performance period, target shares, and metrics for each employee or group.
        2. Conditional Grants: At the beginning of the performance period, employees receive a conditional right to secure target shares, contingent on meeting specific conditions.
        3. Performance Focus: During the performance period, employees work towards achieving set goals while the company monitors and evaluates progress.
        4. Outcome Assessment: As the performance period concludes, the company calculates the actual shares awarded to each employee, ranging from 0% to 200% of the target.
        5. Delivery Process: The company delivers the shares, either as actual stocks or a cash equivalent, deducting applicable taxes and fees.
        Advantages of Performance Shares

        Advantages of performance shares

        Performance share plans offer several benefits to both the company and the employees, such as:

        Aligned Objectives
        Employees and shareholders unite in the common goal of increasing the company’s value and share price.
        Talent Retention
        A powerful tool for motivating and retaining talent, rewarding employees for contributing to the company’s success.
        Culture of Ownership
        Fosters a culture of ownership and accountability, engaging employees in the company’s performance.
        Tailored Approach
        Offers flexibility and diversity, allowing companies to choose from various performance metrics and customise plans for different employee levels, roles, or situations.
        Enhanced Compensation Package
        Elevates the attractiveness and competitiveness of the compensation package, complementing the base salary and other benefits.

        Performance share restrictions & risk

        It’s important to remember that not all smooth sailing with performance share plans. Here are the constraints and risks to be mindful of:

        • Shareholder Dilution: Issuing new shares may dilute the ownership and earnings of existing shareholders.
        • Administrative Challenges: Implementation involves complexities and increased costs, including designing, monitoring, and complying with accounting, tax, and legal regulations.
        • Uncertainty and Volatility: The value and number of shares are subject to change based on performance and market conditions, introducing unpredictability.
        • Potential Misalignments: Performance metrics may not always align with the true value creation or long-term strategy, potentially incentivising undesirable behaviours or outcomes.

        For expert insights into the implementation and optimisation of performance share plans in Malaysia, consider exploring the services offered by BoardRoom, a leading provider of employee stock options plan services and more. Contact us today to learn more!

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