What is the significance of announcing profit distribution based on audited results?

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The Significance of Announcing Profit Distribution Based on Audited Results

Announcing profit distribution solely based on audited financial results is crucial for enhancing the integrity of financial reporting and bolstering depositors' confidence in Lembaga Tabung Haji (TH). This practice aligns with recommendations from the Royal Commission of Inquiry (RCI) aimed at ensuring good governance, transparency, and financial sustainability. TH has been implementing this approach since 2022, a move that has coincided with an increase in profit distribution rates.
Enhanced Financial Reporting Integrity and Depositor Confidence

The decision to declare profit distributions only after audited financial results are finalized significantly strengthens the credibility of TH's financial reporting processes. This adherence to audited figures provides a more accurate and reliable basis for profit distribution, thereby increasing the trust and confidence that depositors place in the institution. This measure directly addresses concerns raised by the RCI regarding TH's financial reporting and profit distribution practices prior to 2018.
Alignment with Royal Commission of Inquiry Recommendations

The RCI's recommendations were pivotal in shaping TH's current profit distribution policy. Specifically, the commission advised that profit distributions should be declared exclusively based on audited financial statements. This guidance underscores the importance of good governance, transparency, and financial sustainability principles, all of which are now embedded in TH's operational framework. TH has been actively implementing this recommended approach since 2022.
Rising Profit Distribution Rates and Prudent Management

The adoption of audited results for profit distribution has coincided with a positive trend in the rates declared. Profit distribution has seen a steady increase, rising from 3.10% in the financial year 2023 to 3.25% in 2024, and is projected to reach 3.50% in 2025. This marks the highest rate of distribution in eight years, reflecting TH's commitment to managing the savings of its over 9.8 million depositors in a prudent, transparent, and sustainable manner.
Addressing Past Financial Reporting Irregularities

The RCI report highlighted significant issues with TH's past financial reporting, particularly for the financial year 2017. It was noted that the financial statements for that year did not fully adopt Malaysian Financial Reporting Standards (MFRS). Had MFRS been fully applied, TH would have reported a net loss of approximately RM1.4 billion, a stark contrast to the reported net profit of RM3.4 billion. The RCI also found TH's use of the realisable asset value (RAV) method inconsistent with Section 22 of the Tabung Haji Act concerning asset valuation. Furthermore, the RCI stated that TH's profit distribution approach between 2014 and 2017 did not comply with the Act, as profits were distributed from depositors' own funds, impacting financial reserves and creating unsustainable expectations of high distribution rates. This resulted in an asset-liability deficit gap that widened from RM352 million in 2014 to RM4.093 billion by 2017.

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What is the significance of announcing profit distribution based on audited results?

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