By Dinali Goonewardene
A luncheon presentation was held by the Association of Chartered Certified Accountants (ACCA) and KPMG Ford Rhodes Thornton on ‘International Financial Reporting Standards Implementation – The Next Steps,’ with the aim of promoting knowledge of IFRS before their adoption in Sri Lanka in January 2012.
Speaking at the presentation V. Venkataramanan, Executive Director Advisory Services, KPMG India said it was necessary to see if we had the technical skills and had fully explored accounting and regulatory choices. “How do we stack up vis-à-vis our peer group?” he questioned. Companies don’t want to share the outcome of their processes with anyone, he said.
Other issues which needed to be addressed he said were whether there was an IT strategy in place for sustainable implementation, how many reporting cycles we have produced IFRS compliant financial statements and how we have managed to include stakeholders in information gathering.
“Many people have not made any IT systems changes and if you believe that you need robust systems in place in the process, what systems have to be changed now? How many of you have spoken to shareholders about the significance of these standards other than a generic statement? Please engage stakeholders: shareholders and customers,” Venkataramanan said.
The role of top management is to set the tone on transition to IFRS – someone who is the carrot and the stick. It is necessary to identify a mentor and set up a steering committee. It is vital that people from various departments are involved not just the accounts and finance department.
There should be understanding of the requirements of resources and their training needs. It is necessary to understand the impact of Management-Information-System reporting and budgetary systems.
The role of the governing body and auditors: The transition to IFRS would require thoughtful and ongoing oversight by the Audit Committee and Board of Directors and Committees and Boards will have to focus on the major elements such as what are the implications of making the transition to IFRS. How can the Audit Committee gain comfort that everything is in place? It is imperative that auditors better understand the system and judgement involved in the application of IFRS. Auditors and accountants need to constantly upgrade their skills.
The whole idea of implementing IFRS is to achieve global compatibility. To achieve best in class of business does not change because of IFRS but the way we analyse business does. Companies would need to educate analyst and investors on the impact of adoption of IFRS as they may not have knowledge or experience of IFRS.
S. Nagarajah, Executive Vice President Finance at DFCC Bank moderating at a panel discussion addressed the broad challenges that from a banks perspective they would face. He said most banks have a Financial Year ending in December and for accounting periods from 1 January 2012 the time required shifts to 1 January 2011 because the results have to be restated. Some of the legacy accounts will come in to focus when the adjustments are made, he said.
With regard to banks there are differences in interest recognition where the focus is on the effective interest rate and the valuation of listed shares.
With 2012 financial statements two aspects will be considered – how the Central Bank is going to report and what the IFRS requires you to do, whether to run parallel systems. Rather than wait till 2012 it is necessary to do a half year review. It is necessary to adopt a pragmatic approach so there are no surprises at the year end.
“Listed companies require interim reports to be prepared. There may be a regulatory review saying that for three quarters parallel IFRS restatement is not required,” he said.