On 6 and 7 September, local banks will be given a leg up by Providence Networks and Solutions who have organised a two-day workshop on International Financial Reporting Standards (IFRS) with renowned international guest speakers and consultants to boot. The IFRS Academy will see nearly 180 participants from the local banking sector come together to learn how to tackle the 1 January, 2012 deadline set by the Central Bank, in implementing IFRS.
Some of the guest speakers at the free workshop at Hotel Taj Samudra will include Dr. Sarath Amunugama as chief guest and the Secretary of the European Bankers Association.
The workshop hopes to shed light on what has been called ‘an incredibly complex’ standard.
The new standard was introduced to the country by the Institute of Chartered Accountants of Sri Lanka (ICASL) which has taken steps to adopt IFRS by issuing a Sri Lanka Financial Reporting Standards (SLFRS) and Sri Lanka Accounting Standards (LKAS) for annual financial periods.
But despite the International Financial Reporting Standards (IFRS) being swiftly implemented across the globe (with over a 100 countries having adapted it), Sri Lanka has been lagging: Secretary General of the Sri Lanka Bank’s Association Upali De Silva, who recently spoke on the topic of IFRS put the delays in implementation down to complexity of the standard, which he states many other bigger countries struggled to understand at the beginning.
De Silva said, “…bringing in expertise, training people, system enhancements — which can be time consuming and complex in itself, are some of the challenges banks face. 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,” but he went on to state that the world has come a ‘long way’ since then in identifying issues that he firmly believes that most banks, the bigger ones especially have already made progress and are on the right track.
USA, Canada, India and Japan are some countries which are currently in a transitional process to IFRS. According to De Silva, the benefits of a smooth IFRS transition that would result in the country conforming with a set of global accounting standards, will encourage overseas investors who need not have concerns of different local accounting standards when evaluating the financial status of local organisations and in turn will boost investor confidence.
For the economy, a marked increased growth of international business, by encouraging international investing would be likely.
For the industry, as a whole, it will be able to raise capital from foreign markets at lower cost if it can create confidence in the minds of foreign investors that their financial statements comply with globally accepted accounting standards.
And for the men behind the operation: Convergence with IFRS benefits accounting professionals in a way that they will be able to sell their services as experts in different parts of the world. The thrust of the movement towards convergence has come mainly from accountants in public practice. It offers them more opportunities in any part of the world if same accounting practices prevail throughout the world.
According to the statement by ICASL, all existing IAS’s and IFRS’s will be adopted with effect from 1 January, 2012 to comply with international accounting standards in all material respects in order to bring ‘more credibility’ to financial reporting in Sri Lanka.
For many banks, convergence with IFRS is expected to have a significant impact on their financial position and financial performance, directly affecting key parameters such as capital adequacy ratios and the outcomes of valuation metrics that analysts use to measure or evaluate performance.
However, in addition several challenges on the path to convergence, that are applicable to all companies, banking companies in Sri Lanka are faced with a very short deadline.
Manil Jayesinghe, Partner at Ernst and Young recently voiced concerns that the banking industry was not 100% prepared for the 2012 deadline. Jayesinghe attributed the delays in implementation to inadequate resources and the previous war scenario but stated that the banks should have been working on IFRS implementation.
Jayesinghe said, “Now they’re at a crunch. However, this can be sorted out with the right resources. There will be a cost involved: for example in bringing in consultants and experts, the changing of systems (IT) as well as changes to management and training but the bank’s success depends on how good or bad a bank’s current system is.
He went on to warn that the risks for banks are many: the new application can change the way banks are used to reporting and seeing standards and they will have to prepare to exercise a certain amount of judgment because none of the transactions provide black and white answers.
On top if this factor is that the standard is like ‘a moving goal post’ according to Jayesinghe. Currently two more standards have been released and by the end of this year, there are more to come.
Jayesinghe said, “What’s important is that we need to stop looking at these standards as a chore, the end result we want is to make better reports so that the big economic decision makers out there make better economic decisions.
IFRS has evolved over the years and will continue to evolve due to the complexities of the operations that companies deal in. From 2012 onwards, Sri Lanka will envelope such changes no sooner the changes are issued. Hence, being compliant with SLFRS as of now, is a moving target but one that the IFRS Academy will hopefully bring closer to local bank’s grasp.