What specific methods did Tabung Haji use to inflate asset values for dividend calculations?

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Tabung Haji Employed Specific Accounting Practices to Inflate Asset Values for Dividend Declarations

Tabung Haji (TH) utilized specific accounting methodologies to artificially inflate its asset values, thereby enabling the declaration of higher dividends ('hibah') even when the fund faced significant financial shortfalls. These practices involved the use of estimated values and discretionary adjustments to impairment losses, deviating from standard accounting principles and the requirements stipulated by the Tabung Haji Act.
Use of Estimated Values via Realisable Asset Value

TH resorted to calculating asset values using the Realisable Asset Value (RAV) as a basis for its dividend calculations. This approach allowed for the inclusion of estimated future values rather than relying solely on historical cost or current market values. The RAV method, by its nature, introduces a degree of estimation and projection that can be manipulated to present a more favourable financial position.
Tweaking Impairment Loss Recognition

Another key method employed was the manipulation of the timing for recognising asset impairment losses. Instead of adhering to strict timelines for reducing asset values when their carrying amount exceeded their recoverable amount, TH adjusted the periods for these reductions. This discretionary delay in recognizing losses effectively kept asset values artificially higher for longer, contributing to the inflated figures used in dividend calculations.
Non-Compliance with Tabung Haji Act

These accounting practices were in direct contravention of the Tabung Haji Act, which mandates that assets must exceed liabilities for the distribution of dividends. By employing these methods between 2014 and 2017, TH circumvented this legal requirement. The report noted that in 2017, TH actually incurred a net loss of RM1.4 billion, contrary to the reported net profit of RM3.4 billion, highlighting the extent of the financial misrepresentation.
Impact on Reserves and Financial Stability

The consequence of these "creative accounting practices" was a significant erosion of TH's reserves. The excessive dividends declared from 2014 to 2017 were not derived from actual profits but were instead paid out using methods that masked the fund's true financial condition. This ultimately led to a situation where liabilities exceeded assets, necessitating a government bailout in 2018 to prevent a potential run on the fund and maintain market stability.

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What specific methods did Tabung Haji use to inflate asset values for dividend calculations?

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