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[Thai Economics Library | Archives| Currency Crisis 2007| Entrepreneurs]
November 17, 2009

IFRSthailand

International accounting standards in Thailand
Benefits and progress being made

By Jon Fernquest

accounting booksComplying with international accounting standards known as IFRS will provide companies and investors in Thailand with two major advantages:

1. Foreign companies operating in Thailand will not have to keep two sets of accounts.

2. Investors will be able to better understand the meaning behind a company's financial statements and therefore do a better job investing their funds in promising ventures.

Former US Fed Chairman Paul Volker, an advocate of one single set of accounting standards worldwide, was in the news yesterday defending international accounting standards from corporate interference in the US (Read New York Times article).

Much the same information as today's article was covered by another Bangkok Post article last week (Read article).

Today's article begins after the vocabulary:

(Photo above right of an old style accountant's desk and account books well before the days when computerized accounting systems started to be used.)

standards - acceptable levels of quality or achievement
progress - the process of gradually improving and achieving goals
complying - following rules or laws
IFRS (International Financial Reporting Standard) - standards and practices for reporting accounting information to the public designed for use all over the world (See Wikipedia)
accounting - the work of keeping and checking financial records for a company or organization (See Wikipedia)
accounting standards - laws that describe how amounts must be recorded in a company's accounting books or financial records
keep two sets of accounts, keep two sets of books, financial records - record all the business activities of a company in the company accounting records 
financial statements - a document that shows a company's financial performance during a time period, includes profit or loss during the period and balance sheet 
funds - money to be used for a specific purpose
promising ventures - business deals or projects that are likely to succeed
Fed - the name of the US central bank (See Wikipedia)
Fed Chairman - the head of the US central bank (See Wikipedia)
advocate - recommend publicly
corporate interference - companies trying to make the standards weaker or change them to favour their business

Implications from international reporting standards

13/11/2009
 
A recent topic of conversation within accounting and financial circles in Thailand has been the roadmap to International Financial Reporting Standard (IFRS) conversion, as drawn up by the local Federation of Accounting Professionals (FAP), the Stock Exchange of Thailand and the Securities and Exchange Commission (SEC). Although it may appear a long road at first - SET50 companies will not be required to comply until Dec 31, 2011 at the earliest - the first balances required to be stated under IFRS are those as at Jan 1, 2010, which is only a few months away. Suddenly, there is a lot more reason for listed companies to start acting now.

implications of Y - the things that are likely to happen as a result of Y happens, things caused by Y 
international reporting standards, international financial reporting standards - accounting standards and practices designed for eventual use all over the world
a roadmap - a plan
conversion - changing into a different state or form
drawn up - written
Federation of Accounting Professionals (FAP) - national professional organisation for accountants in Thailand 
SET50 companies - the top 50 companies on the stock exchange of Thailand in terms of market capitalization (See Wikipedia)
market capitalization - the total value of all a company's stock shares  (See Wikipedia)
comply - follow rules
balances required to be stated under IFRS - the first accounting numbers that need to be reported publicly under the new IFRS accounting rules

IFRS will not just affect those companies listed on the SET. Indeed, it is already a reality for many companies here. The local operations of European, Singaporean and Australian listed companies already are required to report to their parent companies under IFRS. IFRS adoption in Thailand will mean that it is no longer necessary to prepare two separate sets of accounts, one for local reporting and one for the group. The results in Thailand will be the same as those reported to the head office. Conversely, Thai companies with operations overseas will be able to bring those results into the group's reporting without any further adjustment. In both cases, this should save time, resources and money.

already a reality - situation already exists
adoption - start using
IFRS adoption - start using IFRS accounting standards
a set of accounts, a set of accounting records - all the accounting records that record the business activities of a company 
prepare two separate sets of accounts - when a company records its business activities in two different ways to meet two different sets of requirements

For potential investors into Thailand, this is positive. For example, a European bank looking to acquire a stake in a Thai bank will be better and more easily able to calculate the implications for its own financial position of any investment. Furthermore, the integration of the newly acquired company into the organisation's global accounting system will be smoother.

acquire a stake in a Thai bank - buy part of a Thai bank
financial position - the financial situation or balance sheet of a company
calculate the implications for its own financial position of any investment -
integration - joining things together into one unit so that they work together 

A key concept of IFRS is "fair value" accounting, which involves the valuation of assets and liabilities at an amount that would be paid between two independent parties on an arm's length basis. The reality is not so simple. How do you value a brand acquired through an investment or financial instruments with no market price? Companies may have to resort to appointing external experts for such valuations.

key concept - important main idea
fair value - expert estimate of the market price of a good, service, or asset, taking into many factors (See Wikipedia)
fair value accounting - accounting that uses "fair values" of assets in accounting records
independent - not connected to the business in any way 
parties - people or companies entering into a business arrangement or deal
independent parties - parties entering into a business arrangement or deal that are not connected in any way
at arm's length - distant, detached, independent, without intimacy
[transaction] on an arm's length basis - when the parties to a transaction are independent and on an equal footing (See Wikipedia)
resort to Y - have to do Y (no other alternative)
external experts - experts outside the company
valuations - an estimate of the value of something 
 
All this places additional pressure on finance departments and audit firms as they bring their staff up to speed with a new set of accounting standards and rules. Auditors have a key role to play in the convergence to IFRS as they must ensure that their clients are fully compliant. But Thailand is in the fortunate position of being able to call upon the experience of its neighbours, Singapore and Hong Kong, who have already gone through this difficult process.

bring their staff up to speed - train their employees so that they have the needed skills
auditors - accountants whose job is to check the accounting records of companies and organisations for accuracy (See Wikipedia)
convergence - two things moving towards each other
convergence to IFRS - accounting standards moving towards IFRS standard
compliant - following rules

The issues created by converting to IFRS are not always immediately obvious. For example, human resources departments may need to amend employment contracts or revise KPIs if, as a result of IFRS, the criteria for the timing of the recognition of income and expense change. Indeed, some profits may never be realised under IFRS.

Human Resources (HR) - the department of a company that deals with employees (recruitment, administration, management and training of employees) (See Wikipedia)
amend - change
revise - change, improve, and rewrite
KPIs (Key Performance Indicators) - measures used to help a company determine how successful it is, measuring progress towards long-term organizational goals, answering the question: "What is really important to different stakeholders?" (See Wikipedia)
criteria - the rules and standards for making a decision
recognize (verb) - show a number or "figure" in accounting records
recognition (noun) - the act of showing a number or "figure" in accounting records
recognition of income and expense - show the company's income and expense in accounting records
the timing of Y - deciding on the right time for event Y to happen
criteria for the timing of the recognition of income and expense - the rules used to decide when to best show certain income and expenses (for tax purposes or other reasons)
realise profits - when a company loses money 
realise losses -  actually loses money
profits may never be realised - the company may never make a profit

Another example would be where IFRS obliges a company to renegotiate its financing agreements because the change in would lead to a asset and liability recognitionbreach in existing financing covenants. Under IFRS, certain types of equity may be reclassified as a liability or additional liabilities need to be recognised. Some financial instruments may never have been accounted for previously.

X obliges Y to do Z - X requires Y to do Z
asset and liability recognition - the act of recording the value of an asset or liability on accounting records
breach - break a promise or agreement
covenants - a formal written legal agreement
breach in existing financing covenants - break a formal legal agreement dealing with financing 
liabilities need to be recognised -
financial instruments - an investment (stock, bond, derivatives) that can be and sold and reduced to cash in an organised market

It is not only the companies that are converting that will be thinking about the impact of IFRS. Analysts and investors also will need to be educated on the concepts and new issues raised. Equally importantly, regulators must consider how their own requirements will be affected. This can be illustrated by considering the impact on one regulator here in Thailand, the Bank of Thailand, for whom capital adequacy ratios would need to be reconsidered in light of a balance sheet prepared under IFRS.

converting -  changing from using one system to another system
impact - effects or changes it will cause
capital adequacy ratios - liquid assets (can be easily changed into money) as a percentage of loans
reconsidered - think again about some issue
X in light of Y - must do X because Y is true

For Thailand, it is reasonable to expect short-term pain during the conversion process for all those involved. But this can be tempered by drawing on the experiences of those countries that already use IFRS. The future for high-quality financial reporting in Thailand is definitely bright.
tempered - reduced or changed by
drawing on the experiences of - learning from the experiences of

Jonathan Fryer is a UK Chartered Accountant working for Mazars Thailand. Contact ifrs@mazars.co.th

Chartered Accountant - the first professional organisation of accountants in the world formed in 1854 (See Wikipedia)

(Source: Implications from international reporting standards, Jonathan Fryer, 13/11/2009, link)

Posted by Jon Fernquest at 04:42 PM | | Comments (0)


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