“Adoption of IAS can greatly facilitate free movement of capital”: Mihular
Wednesday, 26 February 2014 00:00
Following are excerpts of an interview with Reyaz Mihular, the Managing Partner of KPMG Sri Lanka and Board Member of KPMG’s Middle East & South Asia (MESA) Regional ClusterBy Catherine WeerakkodyQ: What are the factors that give rise to differences in the development of rules in financial reporting between countries?A: The key differences in the rules relating to financial reporting lie between the US GAAP and the IFRS, where the US GAAP is rules-based while the IFRS is principles-based. The reason for these differences can be traced to the cultural differences between the US and the UK. The US environment thrives on rules which determine what is allowed and not allowed, while the UK has always adopted a principles-based approach to decision making in the field of financial reporting. IFRS, which owes its origins to the UK, has continued to follow the principles=based approach which has received acceptance around the world.Q: Why are there differences in the approach taken to regulation of financial reporting between countries?A:Again here the approach is influenced by the legislative environment in the different jurisdictions. Those having a legal environment similar to the US tend to favour US GAAP while the rest of the world influenced by Commonwealth principles tends to favour IFRS.
Q: Who should be responsible to ensure compliance of accounting standards?A: An independent body having representation from all the relevant stakeholders.
Q: What is the cost of overregulation and the increase in number of rules?A: Tends to make the body of accounting rules too cumbersome and difficult to apply and in the process you may become a slave to ticking off the application of the rules rather than representing the true state of affairs of the company.
Q: Should we adopt a common set of standards across the globe (convergence of IFRS and US GAAP)?A:Yes, without a doubt. And going by the rate of adoption across the world, IFRS seems to have the best chance of succeeding. It is not conceivable that the world will adopt the national GAAP of a single country however powerful that country may be!
Q: In future would we see a move towards rules-based or principle-based standards?A:I believe we will continue to see accounting standards developed on a principles-based basis but with greater use of application guidance which may have some rules associated with how these principles should be applied.
Q: How can the development of accounting standards improve the flow of capital between countries and the movement of talent?A: Development of accounting standards will definitely improve the flow of capital between countries on account of the level playing field that it brings about to the reporting of financial results across the countries and the elimination of uncertainty that arises from the use of different types of national GAAP in the different countries which carries a cost associated with it. Also a common accounting language across different countries will facilitate free flow of talent across countries on account of the familiarity with a common reporting language across different countries.
(The writer is a passed finalist of CIMA and a final year undergraduate student in England.)