Japan deciding on IFRS

Feb 15, 2011

On February 7 and 8, 2011 members of the Accounting Standards Board of Japan and the Financial Accounting Standards Board (FASB) met to update each other on the progress they are making on convergence of their respective Accounting Standards with International Financial Reporting Standards (IFRS). This meeting is one of the many that FASB has undertaken with different International Accounting Standards Board to discuss the convergence of  U.S. GAAP with International Financial Reporting Standards.

 In terms of making a decision about convergence, for Japan it will be around 2012. For US, the Securities and Exchange Commission is expected to decide whether the FASB and IASB (International Accounting Standards Board) have made sufficient progress on convergence, and whether IFRS can eventually be incorporated into the U.S. financial reporting system.

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Sri Lanka getting ready to adopt IFRS

Jan 10, 2011

The Institute of Chartered Accountants of Sri Lanka (ICASL) plans to adopt new accounting guidelines for Sri Lankan companies in line with International Financial Accounting Standards starting 2012.

The Central Bank of Sri Lanka, in its Road Map Monetary and Financial Sector Policies for 2011 and beyond report released in January 2011 has included the initial steps to facilitate the adoption of  international standards. The reports states that changes would take place to Sri Lanka Accounting Standards (SLAS) 44 and 45 on financial instruments corresponding with International Accounting Standards of 32 and 39. Already work is under way to implement these changes starting from January 2012.

IFRS can soon add another country to its list of adopters.

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Move to IFRS leads to losses for Power companies in India

Jan 3, 2011

The adoption of IFRS beginning April of 2011 will have a big impact on both the Income Statement and the Balance Sheet of power companies in India. Under the present Indian GAAP, rate regulated assets/ liabilities are allowed to be recognized, so companies have recognized as an asset or liability- tariffs, fuel adjustments and advances against depreciation.

With the adoption of IFRS, such assets or liabilities will have to be removed from the financial statements. In terms of numbers the initial impact on account of these regulatory assets under IFRS can be as high as Rs.745 crore in case of Tata Power and Rs.1,034 crore for Reliance Infra.

This issue is not centered only on India. This IFRS rule affects power companies worldwide. Just as an example the regulatory assets and liabilities for the electricity companies in the US is estimated to be $675 billion and $450 billion, respectively, in 2007.

For the convergence and standardization of the accounting standards, such anomalies will have to be taken into stride.

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Convergence Project still on track

Dec 20, 2010

Recently the Financial Accounting Standards Board and the International Accounting Standards Board said they were on track to finish writing the new accounting standards for financial instruments, revenue recognition, leases, comprehensive income, and fair value measurement by June 2011 or earlier. The IASB is also on target to align its disclosure requirements for derecognized assets and other off-balance-sheet risks with U.S. rules and to finish its updates for consolidations and insurance contracts by the same date.

Due to the push to get these projects completed by mid 2011, some of the other joint projects the two boards are undertaking have been pushed back.  Those projects include an effort to reorganize the entire presentation of financial statements, a new standard for financial instruments that have characteristics of equity, and new rules for emission trading schemes and the consolidation of investment companies. The boards also are putting off further work on their conceptual framework.

Even though some projects are getting pushed back, there is definite headway being made on some of the key convergence standards.

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India on track for adoption of IFRS

Dec 16, 2010

Even thought the Indian version of the International Financial Reporting Standards (IFRS) has been altered here and there, the country is all set to implement the standards come April 2011.

In the first phase, companies on the Indian stock exchanges – Nifty 50 and BSE Sensex, firms whose securities are listed on stock exchanges outside the country, and all those having a net worth of R1,000 crore, would switch to the new accounting system.

Insurance and banking companies, however, would be required to migrate to the IFRS methodology from 2012, the circular said.

The Institute of Chartered Accountants of India (ICAI) has also set up a group, which includes members from the finance ministry, for identifying tax issues that may arise from the convergence issue. The group has prepared a draft report identifying certain options that could be adopted to achieve tax neutrality.

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IFRS adoption leads to increased net worth for Coal India

Nov 22, 2010

The move to adopt the International Financial Reporting Standards will boost Coal India Ltds’s net worth by $2.4 billion.

 The company adhering to the old accounting standards has on its books a $2.4 billion provision on account of the overburden removal reserve. This reserve was maintained as Indian mining accounting is based on mineable deposit and expected lifespan of a mine. In the initial period, the cost of mining was less, but it gradually increased as mining went deeper and thereby leading to a huge reserve balance.

 With the adoption of IFRS, the mining cost can now be calculated based on actuals and no provision for future mining is to be made. So the reserve can now be released leading to an increase in the net worth.

To put things in perspective, the present net worth of the company is $6 billion; the change to IFRS would bring the net worth up to $8.4 billion.

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UK getting set to adopt IFRS

Nov 8, 2010

The Accounting Standards Board (ASB) is ready to incur 78.9 million pounds in order to move to the International Financial Reporting Standards (IFRS). The new system would introduce across the business community, but the ABS insists the cost will be well worth it.

The rule book will be reduced from 2,000 pages to 400. The scope for auditing errors will also be reduced. The new standards would modernize and simplify the accounting system which would provide make it easier to read financial statements and benefit the investors and the market in general.

The system had been scrutinized and debated for 6 years and is expected to be fully in place by summer 2013. Transition costs for companies of medium to large size are expected to average 80 million pounds.

One question that arises associated with the changes that different economies are trying to implement to their accounting standards is whether it is the right time. With the global economy being fragile would it move the resources from strategizing about the future of the company to getting the books compliant with the new standards.

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The convergence project

Nov 8, 2010

October 2002 was a significant year in the history of accounting. The Norwalk Agreement , a memorandum of understanding was announced by Financial Accounting Standards Board and the International Accounting Standards Board (IASB). This was a significant step towards the formalization of  the commitment of the two organizations to converge the US and International accounting standards.

The FASB has has undertaken the following six key initiatives to further the goal of convergence of U.S. GAAP with International Financial Reporting Standards (IFRS):

  1. Joint projects being conducted with the IASB – Key projects under this are Revenue Recognition and Business Combinations
  2. The short-term convergence project. – These are projects where the convergence around high quality solutions to resolve differences between US GAAP and IFRS appear achievable in the short term .Solution could be selecting between existing existing U.S. GAAP and IFRS.
  3. Liaison IASB member on site at the FASB offices. – Having full time IASB member , James J. Leisenring, in residenece at the FASB office is a significant feature.
  4. FASB monitoring of IASB projects. IASB projects are monitored by the FASB based upon the FASB’s level of interest in the topic being addressed.
  5. The convergence research project. The FASB staff is currently working on a research project related to convergence. The project identifies and catalogs the substantive differences between U.S. GAAP and IFRS.
  6. Explicit consideration of convergence potential in all Board agenda decisions. Within the framework of the Board’s agenda criteria, all topics formally considered for addition to the FASB’s agenda need to be assessed for the possibilities for cooperation with the IASB (or another standard setter).

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Another drop out for IFRS

Nov 2, 2010

A couple of weeks ago, the Indian government announced dropping the new rule from International Financial Reporting Standards  that allows property developers to book sales only when the project is complete. Another announcement came out this week of dropping the government’s plans to introduce a new accounting norm for agriculture as part of the move to converge its accounting standards with globally adopted International Financial Reporting Standards (IFRS).

India will keep their present rules to guide the agricultural industry in maintaining their financial statements. Apart from agriculture the Indian government will depart or “carve out” compared to IFRS in real estate, property, plant and purchase and mergers to name a few key areas. 

The guideline based standards of IFRS have been met with general acceptance over the world, except some specific areas that the countries consider sensitive like banking where countries want to keep their own standards which usually are rule based.

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Mexican airport operator – an early adopter of IFRS

Oct 23, 2010

In January of 2009,the National Banking and Securities Commission made mandatory the presentation of financial statements prepared in accordance with IFRS starting  with the year ending December 31, 2012, but allowing for early adoption for the years 2008-2011, subject to prior notification to the CNBV and Mexican Stock Exchange (BMV). One of the early adopters of the requirement is the Mexican airport operator Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., known as OMA. The  operator announced that it will make early adoption of International Financial Reporting Standards (IFRS) (beginning a year ahead of the mandate with their first IFRS financial statements being year ending December 31, 2011, they will be considering the year 2010 as a transition year) and provided information on the estimated effects of the change.

It seems like the accounting standards world is coming closer to convergence and becoming totally global.


												
				

				
				

					

	
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IFRS a bane for Real Estate Companies in India

				
Oct 21, 2010

				
						
										
											
								
				
The Indian government is all set to drop the new rule from International Financial Reporting Standards (or as the accountants call it IFRS) that allows property developers to book sales only when the project is complete. In the present real estate market where the developers are already struggling to make ends meet, this new rule will push their income statement even further down.  The government has decided to allow the developers to follow the percent completion method, whereby the developers record revenue as they build the property, thereby showing a much healthier income statement.


 


Though the Indian government like many other country governments is trying to merge their rules to the IFRS, this departure from the international standards will definitely come as a relief for the local real estate organizations, especially in trying times like these. 


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