Why did Tabung Haji use RAV instead of financial statement values for profit distribution?

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Tabung Haji utilised Realisable Asset Value (RAV) for profit distribution calculations based on its interpretation of the Tabung Haji Act 1995.

Tabung Haji management did not rely on the asset and liability values presented in its official financial statements when determining profit distributions. Instead, the institution opted to use Realisable Asset Value (RAV) to satisfy the stipulations of the Tabung Haji Act 1995. This approach led to higher asset valuations in the RAV calculation, particularly as no adjustments were made for investments whose market prices had significantly declined.
Tabung Haji's Interpretation of the Act

The core of Tabung Haji's justification for using RAV stemmed from its interpretation of Section 22 of the Tabung Haji Act 1995. Management contended that this section did not provide a clear definition of "assets." Consequently, the institution asserted its prerogative to determine the appropriate valuation methods for these assets, a stance that diverged from using standard financial statement figures.
Implications of Using Management Estimates

The use of management estimates, rather than valuations by independent professional valuers, posed a significant risk. Economists noted that relying on internal estimates for Realisable Asset Value (RAV) could lead to "overly optimistic" asset valuations, as management has a vested interest in the reported financial position. While not necessarily indicating manipulation, these internal estimates lack the assurance provided by independent assessments, potentially inflating the perceived financial strength of Tabung Haji.
Potential for Unsustainable Profit Distributions

By valuing assets above their actual realizable amounts, the RAV could appear higher than warranted, creating a misleading impression of Tabung Haji's financial health. This practice could facilitate the distribution of dividends, or hibah, at levels exceeding prudent financial management standards. The Royal Commission of Inquiry's report highlighted that RM4.044 billion of the institution's property asset valuations for 2017 were based solely on management estimates, with only RM556 million supported by professional valuers.

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Why did Tabung Haji use RAV instead of financial statement values for profit distribution?

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