IFRS has many challenges but is critical for progress

By Azhar Razak
Although Sri Lanka’s national accountancy body, Institute of Chartered Accountants of Sri Lanka (ICASL), is planning to harmonise Sri Lanka Accounting Standards (SLAS) in line with International Financial Accounting Standards (IFRS) beginning 2012, a local tax expert opines otherwise.He has cited complexities in its adoption in the local context.
 

According to N R Gajendran, chairman, Faculty of Taxation of ICASL, adoption of IFRS by large corporates will raise the present level of tax complexities while a true picture of a financial statement being far from represented.
 

“There are some areas in IFRS which would not be suitable in the local context and therefore the statements prepared under the IFRS will not represent a realistic picture of a given financial statement,” Gajendran, who is also a senior partner at Gajma and Company, told The Bottom Line.
 

However, other corporate leaders whom this paper spoke to, voiced a contrasting viewpoint of the whole issue.
 

They claim that any challenges in this transition process should be ironed out to move forward towards becoming globally accepted.

“The entire world is moving towards harmonisation of standards and therefore we have no point in postponing the adoption and becoming left out,” Nations Trust Bank chief executive officer Saliya Rajakaruna said.
 

He said that however, we should not rush through in this transition process since we need to give fair time for preparatory work and to solve the present issues and the complexities involved such as those in relation to Fair Value accounting, calculation of impairment estimates and other tax issues.
 

“Since there are issues relating to one another, there should be a higher level of coordination among the stakeholders involved in the transition,” Chief Financial Officer at Sampath Bank, Ranjith Samaranayake pointed out.
 

He said that for example, the tax department will have to solve its issues in relation to tax computation while corporates will have to incur additional costs by training employees of both finance and operational sectors and replace their computer systems.
 

“Many firms may be reluctant to adapt to it because of the additional disclosures required which increases the company’s transparency level. However, this should be taken in a positive light,” Samaranayake said.
 

Meanwhile, Reyaz Mihular, partner at KPMG Sri Lanka and head of advisory and IFRS for the Middle East and South Asia, said the adoption of IFRS will bring more credibility to financial reporting in Sri Lanka which will help the country to attract foreign capital.
 

“Convergence of IFRS will help Sri Lanka to attract foreign capital for industries in hospitality, infrastructure, banking and financial services,” Mihular outlined.
He emphasised that countries around the world from the developing to the developed have successfully managed the transition and he was of the view that convergence to IFRS was a welcome and positive change.
 

“Most of the companies in Sri Lanka are classified as smaller enterprises and therefore will not need to adopt IFRS. Even in the 234 listed firms in the Colombo Bourse only about 85 percent of them may be required to adopt,” Mihular said.
 

He added that a recent survey had revealed that companies were able to reduce cost of capital by 48 basis points because of adopting IFRS. International Financial Reporting Standards (IFRS) are gaining acceptance across the globe with more than 100 countries adopting it.
 

USA, Canada, India and Japan are some countries which are currently working on transitioning to IFRS.

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