With over 100 countries having thus far adopted the International Financial Reporting Standards (IFRS) and the deadline for Sri Lankan bank compliance with IFRS looming (1 January 2012, set by the Central Bank), the question to ask is, are local banks ready? In an exclusive interview, Secretary General of the Sri Lanka Banks’ Association Upali De Silva discusses the main concerns facing local banks and what they can do to ensure a smooth transition of the highly complex IFRS process:
Q: Do you think that banks have sufficient time to implement IFRS?
A: The Central Bank has given banks until 1 January 2012 but we still have concerns, so we are in the process of discussing with auditors and the Institute of Chartered Accountants and the Central Bank, in order to get an extension on the deadline. IFRS was initially to be implemented this year but was postponed to 2012.
Q: Why was that?
A:Well, it’s very complex, and not just to Sri Lanka: most other countries around the world have found it very complicated, banks find it tough to unravel the complexities of IFRS because of the vast portfolio of financial products and services that most banks have but we’ve been liaising very closely with external auditors, the Institute of Chartered Accountants and the Central Bank. The most important thing however, is that all banks are totally committed to adopting IFRS.
Q: Could you elaborate on some of those complexities?
A: For example, full convergence in 2012 would mean that in presenting 2012 accounts at the end of the year 2012, will require showing comparative figures for 2011 too in IFRS compliant numbers. This is one critical issue the SLBA will discuss with ICASL and the Central Bank.
Q: How will the SL economy benefit from banks adapting IFRS?
A: Adopting IFRS would result in the country conforming to a set of global accounting standards and it will encourage overseas investors who need not have concerns of different local accounting standards when evaluating the financial status of local organisations. In fact this will be a big boost to investor confidence.
Q: What are the main risks in an IFRS implementation project? How should banks manage them?
A: I can’t see any issues other than maybe impairment provisioning having to be on an incurred loss model as against the present time based provisioning for loan losses. We may see different types of impairment assessment in banks, resulting in difficulty in comparison. It’s really the complexity of the whole project that is one of the main concerns, since it requires additional resources in IT, HR, time and training.
Q: So this would be a costly affair for banks?
A: Yes, to a certain extent, in bringing in expertise, training people, system enhancements which can be time consuming and complex in itself, and of course auditors charges may increase.
Q: What should banks be focusing on to meet this challenge and who should they involve beyond the finance team?
A: Mainly time management, and we are doing all we can to buy more time to ensure a smooth transition – given that banks are being very cooperative and working closely with the Institute of Chartered Accountants in Sri Lanka will help as they are really the regulatory body that can extend advice on the subject. Within banks it is required that other than the finance team, other divisions such as loan divisions, Operational divisions too contribute towards the overall exercise.
Q: How can banks ensure effective knowledge transfer to team members?
A: Thorough training of personnel is the most important aspect here. I recently met with certain accounting officials from London and even they said that most accounting personnel found the whole operation to be quite complicated. The world has come a long, way since then in identifying issues and I believe that most banks, the bigger ones especially, have already made much progress and I believe are on the right track.