According to statement No.128, Earnings per share, a draft of statement of principles was issued by the IASC in October 1993 for public to comment. Due to the extensive use of earnings per share in financial statistics, the IASC’s goal was to commence as to the presentation and determination of EPS in which global comparisons would be permitted. Even with limitations in EPS data, earnings were determined differently in different national methods. The FASB and the IASC believe that in international financial reporting, a consistent determined denominator will be a significant improvement to accomplish international harmonization of the accounting standards for computing earnings per share. The board pursued its EPS project in conjunction with the IASC. The project focused on EPS calculation denominator in spite of the issues concerning earning purpose. IAS 33 Earnings per Share, was issued by the IASC at the same time as the issuance of this statement. The standard provisions are the same as the statement.
The goal of the project was international harmonization, so the presentation by the FASB in its initial decisions on the income statement and earnings per share to the IASC Steering Committee and the IASC Board in September 1996 was considered a preliminary conclusion. The board finally decided to keep the required presentation dual in the exposure draft. The Boards believes it is necessary to attain international harmonization in all phases with the IASC because the difference is only one of display and not one of a conceptual nature.
International Financial Reporting Standard No.5 was recently issued by The International Accounting Standards Board on Non-current Assets Held for Sale and Discontinued Operations (IFRS 5). The most recent idea of discontinued operation exposure by the international standard setters provided the EITF with a chance to develop harmonization internationally and remove a major issue that was creating a disagreement between international standards and US.
Monday, June 21, 2010
Searching for clarity in uncertain tax positions This paper spotlights uncertain tax positions (UTPs) under IFRS. It provides insights
This paper spotlights uncertain tax positions (UTPs) under IFRS (pdf, 1.4mb). It provides insights into the diversity of practices that have developed in the financial reporting and disclosure of UTPs, given the lack of direct guidance IAS 12 (Income Taxes) has in this area.
Bridging the IFRS GAAP
There are significant differences, both in terms of accounting principles as well as additional disclosure requirements, between IFRS and the Indian GAAP. The disclosures are expected to improve the quality of financial information. Although there are a host of disclosure requirements under IFRS, the focus is on key disclosures relating to financial instruments as envisaged under IFRS 7. IFRS 7 requires an entity to disclose information—market and liquidity risk—that enables the users to evaluate the nature and extent of risk, given the firm’s current exposure to financial instruments.
Most enterprises in India are exposed to foreign currency risk and interest rate risk, which fluctuate over time. Such entities are required to disclose the effect of a reasonable expected variation in the foreign exchange rate or interest rates for domestic/foreign currency borrowings. Internal preparation to put into place a system for obtaining the desired data to facilitate the disclosure is required. This may become quite critical for large entities that are highly geared or have significant exposures to foreign currencies and active treasury operations. Generally, entities hedge their foreign currency and interest rate risks through derivative products. This poses an additional challenge as the entity will have to ask the dealer, with whom the derivative is contracted, for the impact of the sensitivity test on these products.
In addition, an entity is also required to disclose how it manages its significant risks, e.g. credit, liquidity or capital. Therefore, it is imperative for an entity to have an approved risk management policy that deals with monitoring debt-equity, managing liquidity risk to overcome impediments in meeting short-term and long-term obligations.
Furthermore, IFRS 7 also requires the disclosure of fair value of each financial instrument beside its carrying value, hence providing better information on financial instruments to their users. This entails determination of fair value of each component at every balance sheet date. There is no doubt that IFRS would catapult India, Indian entities and its finance and accounting professionals to much greater heights. Given that it is a new subject with a host of new requirements that corporate India was ignorant of, only proper planning, laying down a detailed conversion plan and putting the required systems in place, will ensure a smooth convergence with IFRS.
Most enterprises in India are exposed to foreign currency risk and interest rate risk, which fluctuate over time. Such entities are required to disclose the effect of a reasonable expected variation in the foreign exchange rate or interest rates for domestic/foreign currency borrowings. Internal preparation to put into place a system for obtaining the desired data to facilitate the disclosure is required. This may become quite critical for large entities that are highly geared or have significant exposures to foreign currencies and active treasury operations. Generally, entities hedge their foreign currency and interest rate risks through derivative products. This poses an additional challenge as the entity will have to ask the dealer, with whom the derivative is contracted, for the impact of the sensitivity test on these products.
In addition, an entity is also required to disclose how it manages its significant risks, e.g. credit, liquidity or capital. Therefore, it is imperative for an entity to have an approved risk management policy that deals with monitoring debt-equity, managing liquidity risk to overcome impediments in meeting short-term and long-term obligations.
Furthermore, IFRS 7 also requires the disclosure of fair value of each financial instrument beside its carrying value, hence providing better information on financial instruments to their users. This entails determination of fair value of each component at every balance sheet date. There is no doubt that IFRS would catapult India, Indian entities and its finance and accounting professionals to much greater heights. Given that it is a new subject with a host of new requirements that corporate India was ignorant of, only proper planning, laying down a detailed conversion plan and putting the required systems in place, will ensure a smooth convergence with IFRS.
Friday, June 11, 2010
C&AG Of India Bags Award as External Auditor of WFP
The Executive Board of World Food Programme has approved the appointment of the Comptroller and Auditor General of India as the External Auditor of WFP for the period of 1 July 2010 to 30 June 2016 on 8th of June 2010. The process started in October 2009 with the issue of request for proposals (RFP) by the WFP.
India, Netherlands, Philippines, Pakistan and South Africa were the five countries who submitted their proposals. The proposals were evaluated on the basis of staff qualifications, training and experience, audit approach, quality control and communication process. Two candidates, India and South Africa emerged as clear front runners and were subsequently short-listed and invited to WFP Headquarters for formal presentation and interview.
The interviews and oral presentations took place at WFP Headquarters on 10 March 2010. On the basis of all elements of the process (technical scores, financial proposals and oral presentations) the Panel made its final evaluation and agreed unanimously that the best overall bid was that of the Comptroller and Auditor General of India.
The appointment is in the light of the CAG’s broad understanding of the operational environment of WFP, its qualified human resources, expertise in IT Audits and knowledge of various accounting frameworks including International Financial Reporting Standards (IFRS) and knowledge of International Public Sector Accounting Standards (IPSAS). The CAG of India also has rich experience in the audit of foodgrains management, which is the core area of operations of WFP.
With the appointment as external auditor of WFP, the Comptroller and Auditor General of India has added a new organization to its list of UN/ International organizations which it is currently auditing. The UN organizations are World Health Organization, World Tourism Organization, and International Maritime Organization, while other international organizations are International Organization for Migration and International Thermo Nuclear Reactor Organization. The CAG of India had earlier been the External Auditor of United Nations (UN) from1993 to 1999, Organization for Prohibition of Chemical Weapons (OPCW) from 1997 to 2003, International Centre for Genetic Engineering and Biotechnology (ICGEB) from 1996 to 2004 and Food and Agriculture Organization (FAO) from 2002 to 2008.
The Comptroller and Auditor General of India is also a key member of the International Organization of Supreme Audit Institutions (INTOSAI), which is the apex organization for the Auditors General (or their equivalents) worldwide. He chairs the important INTOSAI Committee on Knowledge Sharing and Knowledge Services and is closely associated with the work related to setting and revising standards, establishing audit best practices and preparation of audit guidance. He is also the Chairman of the Working Group on IT Audit (WGITA) of INTOSAI in recognition of his credentials in the audit of IT systems. Domestically over 350 audits of IT systems of diverse platforms and databases including ERP applications have been conducted. Internationally, the CAG has conducted audit of SAP and Oracle based ERP systems in World Health Organization, Food and Agricultural Organization and International Maritime Organization. The UN Panel of External Auditors has invited the CAG of India to share audit procedures on ERP implementations.
At the Asian level, the CAG of India was the Secretary General of Asian Organization of Supreme Audit Institutions (ASOSAI) till recently and continues to be a member of its Governing Board. He is closely associated with ASOSAI’s training, research and publication activities in the area of public auditing.
The CAG is also a member of the select group of Auditors’ General called the Global Working Group, which comes together every year to address current and emerging audit issues of concern that have surfaced in the wake of new challenges such as globalization, privatization and growth of Information Technology.
India, Netherlands, Philippines, Pakistan and South Africa were the five countries who submitted their proposals. The proposals were evaluated on the basis of staff qualifications, training and experience, audit approach, quality control and communication process. Two candidates, India and South Africa emerged as clear front runners and were subsequently short-listed and invited to WFP Headquarters for formal presentation and interview.
The interviews and oral presentations took place at WFP Headquarters on 10 March 2010. On the basis of all elements of the process (technical scores, financial proposals and oral presentations) the Panel made its final evaluation and agreed unanimously that the best overall bid was that of the Comptroller and Auditor General of India.
The appointment is in the light of the CAG’s broad understanding of the operational environment of WFP, its qualified human resources, expertise in IT Audits and knowledge of various accounting frameworks including International Financial Reporting Standards (IFRS) and knowledge of International Public Sector Accounting Standards (IPSAS). The CAG of India also has rich experience in the audit of foodgrains management, which is the core area of operations of WFP.
With the appointment as external auditor of WFP, the Comptroller and Auditor General of India has added a new organization to its list of UN/ International organizations which it is currently auditing. The UN organizations are World Health Organization, World Tourism Organization, and International Maritime Organization, while other international organizations are International Organization for Migration and International Thermo Nuclear Reactor Organization. The CAG of India had earlier been the External Auditor of United Nations (UN) from1993 to 1999, Organization for Prohibition of Chemical Weapons (OPCW) from 1997 to 2003, International Centre for Genetic Engineering and Biotechnology (ICGEB) from 1996 to 2004 and Food and Agriculture Organization (FAO) from 2002 to 2008.
The Comptroller and Auditor General of India is also a key member of the International Organization of Supreme Audit Institutions (INTOSAI), which is the apex organization for the Auditors General (or their equivalents) worldwide. He chairs the important INTOSAI Committee on Knowledge Sharing and Knowledge Services and is closely associated with the work related to setting and revising standards, establishing audit best practices and preparation of audit guidance. He is also the Chairman of the Working Group on IT Audit (WGITA) of INTOSAI in recognition of his credentials in the audit of IT systems. Domestically over 350 audits of IT systems of diverse platforms and databases including ERP applications have been conducted. Internationally, the CAG has conducted audit of SAP and Oracle based ERP systems in World Health Organization, Food and Agricultural Organization and International Maritime Organization. The UN Panel of External Auditors has invited the CAG of India to share audit procedures on ERP implementations.
At the Asian level, the CAG of India was the Secretary General of Asian Organization of Supreme Audit Institutions (ASOSAI) till recently and continues to be a member of its Governing Board. He is closely associated with ASOSAI’s training, research and publication activities in the area of public auditing.
The CAG is also a member of the select group of Auditors’ General called the Global Working Group, which comes together every year to address current and emerging audit issues of concern that have surfaced in the wake of new challenges such as globalization, privatization and growth of Information Technology.
Five IFRS issues that merit boards’ attention
From the perspective of corporate boards, what are the most important IFRS (International Financial Reporting Standards) issues that merit attention? When posed this question, N. Venkatram, IFRS Country Leader, Deloitte Haskins & Sells, Mumbai comes up with a list of five issues, viz. set the tone and develop an oversight plan; take a holistic view; determine timing and resource needs; understand the risks; and determine the need for board education.
“The board of directors needs to take a high-level overview role in the crucial phases during the process of convergence over the coming months, as the board along with the audit committee can help shape an organisation’s IFRS direction and strategy,” reasons Mr. Venkat during a recent telephonic interaction with Business Line.
Excerpts from the interview.
On setting the tone and developing an oversight plan.
The board has to champion the cause of establishing IFRS as an important initiative the organisation must prepare for. This helps provide appropriate buy-in from functions and business units.
Raising key questions early may ultimately determine the optimal adoption approach and help establish the proper tone at the top. The board should have an oversight plan for IFRS adoption, including the implementation process.
On the need for a holistic view.
The board should take a holistic approach to the conversion and ensure that the management analyses the potential effects of IFRS throughout the organisation, focusing not only on the impacts to accounting and systems, but also devoting attention to such areas as income taxes, sales contracts, loan agreements, and employee compensation arrangements.
The board should consider short- and long-term planning issues to determine what the organisation needs to do now versus later. The board should be mindful of opportunities in the IFRS conversion process that could translate into longer-term benefits, such as increased standardisation and centralisation of statutory reporting.
On the importance of determining the timing and resource requirements.
Early on, the board members should focus on overseeing the organisation’s approach, timeline, and budget for transition. The amount of time and resources companies have for preparation may be less than many would expect, and a thoughtful approach to conversion can help in controlling costs.
The board, along with the management, will have to assess whether there are sufficient internal resources available to engage in all aspects of the projects, else authorise management to identify and appoint suitable external providers.
On the imperative of understanding the risks.
Boards will have to be aware of potential risks, including the implications of waiting too long to develop a plan. Also, because IFRS is more principles-based than rules-based, it requires an increased use of professional judgment. The board should understand how management will ensure that IFRS is applied consistently throughout the organisation and how financial statement disclosures will be consistent with other industry participants.
On the tricky topic of board education.
The board will have to assess its educational needs and goals. If the board does not have a sufficient understanding of IFRS to exercise the appropriate level of oversight, it could result in the adoption of inappropriate policy elections.
IFRS provides an opportunity to reconsider accounting policy elections and implementation. Boards must understand and oversee policy elections, with a focus on achieving greater transparency and improved financial reporting
The board should develop a plan that outlines timely education for all members. Building proficiency will allow board members to lead a productive dialogue and provide useful insights in IFRS planning discussions.
What are the transition issues that organisations are likely to face?
The date that IFRS reporting becomes an external reality for many entities is April 1, 2011. The general focus on the changeover date of ‘April 1, 2011’ does, however, gloss over the fact that it is the financial reporting system (along with its collateral activities such as financing, contracting, processing, etc.) that is being converted and not simply the financial statements.
To get from here to there with minimum disruption and to reduce the risk of untimely completion will require an intelligent and systematic approach, which recognises the fact that certain components of an implementation plan will have early deadlines and that these would have to be adhered to, to avoid a last minute scramble to issue the initial set of financial statements prepared under IFRS.
IFRS-compliant data may have consequences for the organisation’s contracting and business practices. In particular, if the adoption of IFRS could have consequences for an organisation’s business condition, such as from contractual or tax consequences, prudent risk management would dictate that the organisation is aware of such consequences in advance of the date the consequences become real.
Finding solutions, or at least minimising adverse consequences, by amending or replacing arrangements prior to IFRS becoming effective may accelerate deadlines for completion of all or some of the changeover components before April 1, 2011.
Finally, the conversion experience of other jurisdictions indicates that there is an increased likelihood of errors in the initial implementation of IFRS. Since IFRSs are not static and keep on evolving, any further changes in IFRSs may challenge implementation capabilities. The best preventive mechanism would be to provide sufficient time for reflection and quality review prior to publication.
“The board of directors needs to take a high-level overview role in the crucial phases during the process of convergence over the coming months, as the board along with the audit committee can help shape an organisation’s IFRS direction and strategy,” reasons Mr. Venkat during a recent telephonic interaction with Business Line.
Excerpts from the interview.
On setting the tone and developing an oversight plan.
The board has to champion the cause of establishing IFRS as an important initiative the organisation must prepare for. This helps provide appropriate buy-in from functions and business units.
Raising key questions early may ultimately determine the optimal adoption approach and help establish the proper tone at the top. The board should have an oversight plan for IFRS adoption, including the implementation process.
On the need for a holistic view.
The board should take a holistic approach to the conversion and ensure that the management analyses the potential effects of IFRS throughout the organisation, focusing not only on the impacts to accounting and systems, but also devoting attention to such areas as income taxes, sales contracts, loan agreements, and employee compensation arrangements.
The board should consider short- and long-term planning issues to determine what the organisation needs to do now versus later. The board should be mindful of opportunities in the IFRS conversion process that could translate into longer-term benefits, such as increased standardisation and centralisation of statutory reporting.
On the importance of determining the timing and resource requirements.
Early on, the board members should focus on overseeing the organisation’s approach, timeline, and budget for transition. The amount of time and resources companies have for preparation may be less than many would expect, and a thoughtful approach to conversion can help in controlling costs.
The board, along with the management, will have to assess whether there are sufficient internal resources available to engage in all aspects of the projects, else authorise management to identify and appoint suitable external providers.
On the imperative of understanding the risks.
Boards will have to be aware of potential risks, including the implications of waiting too long to develop a plan. Also, because IFRS is more principles-based than rules-based, it requires an increased use of professional judgment. The board should understand how management will ensure that IFRS is applied consistently throughout the organisation and how financial statement disclosures will be consistent with other industry participants.
On the tricky topic of board education.
The board will have to assess its educational needs and goals. If the board does not have a sufficient understanding of IFRS to exercise the appropriate level of oversight, it could result in the adoption of inappropriate policy elections.
IFRS provides an opportunity to reconsider accounting policy elections and implementation. Boards must understand and oversee policy elections, with a focus on achieving greater transparency and improved financial reporting
The board should develop a plan that outlines timely education for all members. Building proficiency will allow board members to lead a productive dialogue and provide useful insights in IFRS planning discussions.
What are the transition issues that organisations are likely to face?
The date that IFRS reporting becomes an external reality for many entities is April 1, 2011. The general focus on the changeover date of ‘April 1, 2011’ does, however, gloss over the fact that it is the financial reporting system (along with its collateral activities such as financing, contracting, processing, etc.) that is being converted and not simply the financial statements.
To get from here to there with minimum disruption and to reduce the risk of untimely completion will require an intelligent and systematic approach, which recognises the fact that certain components of an implementation plan will have early deadlines and that these would have to be adhered to, to avoid a last minute scramble to issue the initial set of financial statements prepared under IFRS.
IFRS-compliant data may have consequences for the organisation’s contracting and business practices. In particular, if the adoption of IFRS could have consequences for an organisation’s business condition, such as from contractual or tax consequences, prudent risk management would dictate that the organisation is aware of such consequences in advance of the date the consequences become real.
Finding solutions, or at least minimising adverse consequences, by amending or replacing arrangements prior to IFRS becoming effective may accelerate deadlines for completion of all or some of the changeover components before April 1, 2011.
Finally, the conversion experience of other jurisdictions indicates that there is an increased likelihood of errors in the initial implementation of IFRS. Since IFRSs are not static and keep on evolving, any further changes in IFRSs may challenge implementation capabilities. The best preventive mechanism would be to provide sufficient time for reflection and quality review prior to publication.
Wednesday, June 2, 2010
The challenges of IFRS convergence for Indian Banks
Summary
The implementation of International Financial Reporting Standards (IFRS) for Indian Banks has been postponed to April 2012. In spite of extended timeline, the implementation challenges for convergence with IFRS for the banks in India would be daunting. The financial impact on the balance sheet and P&L account of banks would also be significant on account of convergence with IFRS particularly in areas relating to loan provisioning and fair value accounting of financial Instruments.
Analysis
Due to banking industry operating in a highly regulated environment, banking companies are subject to regulatory supervision and also require to maintain minimum capital adequacy requirements. IFRS requires increased use of management judgment and extensive use of fair valuation inputs & assumptions. The regulatory review & control process needs to be adjusted to factor in the inherent judgments involved in the application of IFRS. Additionally, application of IFRS may also result in higher loan impairment losses, thereby adversely impacting the available capital and capital adequacy ratios of banks.
Major Accounting Changes under IFRS:
In addition to the accounting changes between IFRS and Indian GAAP that have to be generally addressed by all companies along the path to convergence, banks in India face the following major additional accounting challenges.
Loan Impairment Losses:
IFRS prescribes an impairment model that requires a case by case assessment of the individual facts and circumstances surrounding the recoverability and timing of future cash flows for all major credit exposures. Based on the assessment of the facts of individual loan accounts, if there is an expectation that all contractual cash flows towards repayment or contracted full applicable interest would not be recovered, a loan account would be classified as impaired and impairment loss is to be measured on present value basis using the effective interest rate of the loan account as the discount rate. As per IFRS, provisions are permitted only to the extent that they relate to specified impairment losses that can be measured reliably and incurred. No general provisions are permitted for future or expected losses.
Hence under IFRS, loan losses are to be calculated based on an objective impairment assessment of the specific facts & circumstances of the credit exposures and based on the use of informed judgment. However under the current Indian GAAP / RBI guidelines, loan losses are provided for the non performing assets based on prescribed provisioning rates in a mechanical manner, without any such impairment assessment.
Fair value accounting of financial Instruments:
Under Indian GAAP, fair value accounting is rarely used. As per RBI guidelines, the entire investment portfolio of banks is to be classified under three categories, Held to Maturity, Available for Sale and Held for Trading. The investments under the Available for Sale and Held for Trading categories should be marked to market at prescribed intervals. The investments under the Held to Maturity category need not be marked to market.
Under IFRS, Held to Maturity classification, (which is currently valued at amortized cost) is unlikely to be available leading to fair value measurement for this substantial category of investment portfolio also, resulting in more volatility in the income statements of banks. Further fair values may be represented by market transaction prices, but the onus will be on the banks to prove that market prices represent fair values.
Derivatives Accounting:
Under IFRS, all derivatives are to be recognized on the balance sheet at fair values with changes in fair values being recognized in the profit & loss account, leading to more volatility in the income statements of banks. However if hedge relationship for the qualifying cash flows can be established, fair value measurement need not be applied to such derivatives.
Banks in India need to beef up their IT systems train their staff across all departments, re engineer their processes and take certain strategic decisions to minimize the volatility of income statements for seamless convergence to IFRS.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
This author consults with leading institutions through GLG
Questions for the author
Engage this author or other Accounting & Financial Analysis experts
Contributed by a Member of the GLG Accounting & Financial Analysis Councils
The implementation of International Financial Reporting Standards (IFRS) for Indian Banks has been postponed to April 2012. In spite of extended timeline, the implementation challenges for convergence with IFRS for the banks in India would be daunting. The financial impact on the balance sheet and P&L account of banks would also be significant on account of convergence with IFRS particularly in areas relating to loan provisioning and fair value accounting of financial Instruments.
Analysis
Due to banking industry operating in a highly regulated environment, banking companies are subject to regulatory supervision and also require to maintain minimum capital adequacy requirements. IFRS requires increased use of management judgment and extensive use of fair valuation inputs & assumptions. The regulatory review & control process needs to be adjusted to factor in the inherent judgments involved in the application of IFRS. Additionally, application of IFRS may also result in higher loan impairment losses, thereby adversely impacting the available capital and capital adequacy ratios of banks.
Major Accounting Changes under IFRS:
In addition to the accounting changes between IFRS and Indian GAAP that have to be generally addressed by all companies along the path to convergence, banks in India face the following major additional accounting challenges.
Loan Impairment Losses:
IFRS prescribes an impairment model that requires a case by case assessment of the individual facts and circumstances surrounding the recoverability and timing of future cash flows for all major credit exposures. Based on the assessment of the facts of individual loan accounts, if there is an expectation that all contractual cash flows towards repayment or contracted full applicable interest would not be recovered, a loan account would be classified as impaired and impairment loss is to be measured on present value basis using the effective interest rate of the loan account as the discount rate. As per IFRS, provisions are permitted only to the extent that they relate to specified impairment losses that can be measured reliably and incurred. No general provisions are permitted for future or expected losses.
Hence under IFRS, loan losses are to be calculated based on an objective impairment assessment of the specific facts & circumstances of the credit exposures and based on the use of informed judgment. However under the current Indian GAAP / RBI guidelines, loan losses are provided for the non performing assets based on prescribed provisioning rates in a mechanical manner, without any such impairment assessment.
Fair value accounting of financial Instruments:
Under Indian GAAP, fair value accounting is rarely used. As per RBI guidelines, the entire investment portfolio of banks is to be classified under three categories, Held to Maturity, Available for Sale and Held for Trading. The investments under the Available for Sale and Held for Trading categories should be marked to market at prescribed intervals. The investments under the Held to Maturity category need not be marked to market.
Under IFRS, Held to Maturity classification, (which is currently valued at amortized cost) is unlikely to be available leading to fair value measurement for this substantial category of investment portfolio also, resulting in more volatility in the income statements of banks. Further fair values may be represented by market transaction prices, but the onus will be on the banks to prove that market prices represent fair values.
Derivatives Accounting:
Under IFRS, all derivatives are to be recognized on the balance sheet at fair values with changes in fair values being recognized in the profit & loss account, leading to more volatility in the income statements of banks. However if hedge relationship for the qualifying cash flows can be established, fair value measurement need not be applied to such derivatives.
Banks in India need to beef up their IT systems train their staff across all departments, re engineer their processes and take certain strategic decisions to minimize the volatility of income statements for seamless convergence to IFRS.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
This author consults with leading institutions through GLG
Questions for the author
Engage this author or other Accounting & Financial Analysis experts
Contributed by a Member of the GLG Accounting & Financial Analysis Councils
Tuesday, June 1, 2010
India Clarifies IFRS Convergence Issues , by Robin Pilgrim, LawAndTax-News.com, London
The 'Core Group', constituted by the Indian Ministry of Corporate Affairs, to manage convergence of Indian Accounting Standards with the International Financial Reporting Standards (IFRS) from the year 2011, has published certain clarifications of earlier announcements about the changeover, as follows:
Companies covered in Phase I will prepare their financial statements for 2011-12 in accordance with converged accounting standards but will show previous years’ figures as per non-converged accounting standards.
However, there will be an option to add an additional column to indicate converged accounting standards figures, had these been applied in that previous year. Companies which make this additional disclosure will, for this purpose, convert their opening balance sheet as at the date on which this previous year commences and, in that case, a further conversion of the opening balance sheet for the year for which the financial statements are prepared will not be necessary.
Companies covered in 2nd / 3rd phase will have an option to apply converged accounting standards only for the financial year commencing on April 1, 2011 or thereafter.
Phase I companies (other than banking companies, insurance companies and non-bank financial companies), converting their opening balance sheet as at April 1, 2011 to converged accounting standards will be determined according to criteria pertaining on balance sheet dates as at March 31, 2009 or the next balance sheet prepared after that date. This applies to:
* Companies which are part of the NSE – Nifty 50;
* Companies which are part of the BSE – Sensex 30;
* Companies whose shares or other securities are listed on stock exchanges outside India; and
* Companies, whether listed or not, which have a net worth in excess of INR10bn (USD222m).
As per the proposed roadmap for Banks and NBFCs, in phase I, converting their opening balance sheet as at April, 1, 2013 to converged accounting standards will be determined according to criteria pertaining on balance sheet dates as at March 31, 2011 or the next balance sheet prepared after that date. This applies to:
* Banks - i.e. all scheduled commercial banks and those urban co-operative banks which have a net worth in excess of INR3bn (USD66m);
* NBFCs - i.e. finance companies which are part of NSE – Nifty 50;
* companies which are part of BSE – Sensex 30;
* and companies, whether listed or not, which have a net worth in excess of INR 10bn (USD222m).
With regard to parent companies covered in any one of the three phases for the changeover to converged accounting standards, having subsidiaries, joint ventures or associates not covered under the same phasing plan, the consolidated financial statements are to be prepared with converged accounting standards in accordance with the same timetable as the parent company.
When one or more companies in a group fall in a phase other than the phase applicable to the parent company, they can continue to prepare stand-alone accounts according to the phase applicable to them, but the parent may need to make convergence amendments to these accounts for the purposes of consolidation. Such subsidiaries, joint ventures or associate companies may opt for early adoption of converged accounting standards.
Once a company starts following converged accounting standards on the basis of the eligibility criteria, it will be required to follow such accounting standards for all the subsequent financial statements even if any of the eligibility criteria does not subsequently apply to it.
For the purpose of calculation of qualifying net worth of companies, the following rules will apply:
* The net worth will be calculated as per the audited balance sheet of the company as at March 31, 2009 or the first balance sheet for accounting periods which end after that date;
* The net worth will be calculated as the Share Capital plus Reserves less Revaluation Reserve, Miscellaneous Expenditure and Debit Balance of the Profit and Loss Account;
* For companies which are not in existence on March 31, 2009, the net worth will be calculated on the basis of the first balance sheet ending after that date.
The rules for calculation of qualifying net worth to be recommended to the scheduled commercial Banks/ urban cooperative Banks/ NBFCs are as follows:
* The net worth will be calculated as per the audited balance sheet of the scheduled commercial Banks/ urban co-operative Bank/NBFC as at March 31, 2011 or the first balance sheet for accounting periods which ends after that date;
* The net worth will be calculated as the Share Capital plus Reserves less Revaluation Reserve, Miscellaneous Expenditure and Debit Balance of the Profit and Loss Account;
* For scheduled commercial Banks/ urban co-operative Banks/NBFCs which are not in existence on March 31, 2011, the net worth will be calculated on the basis of the first balance sheet ending after that date;
Despite the intention to converge Indian standards with IFRSs, the Core Group accepts that some deviations will remain. When the notified converged accounting standard is not fully consistent with the IAS/IFRS as issued by the IASB, Indian companies will continue to follow converged accounting standards as notified by the Government of India and not adopt IFRS.
Companies covered in Phase I will prepare their financial statements for 2011-12 in accordance with converged accounting standards but will show previous years’ figures as per non-converged accounting standards.
However, there will be an option to add an additional column to indicate converged accounting standards figures, had these been applied in that previous year. Companies which make this additional disclosure will, for this purpose, convert their opening balance sheet as at the date on which this previous year commences and, in that case, a further conversion of the opening balance sheet for the year for which the financial statements are prepared will not be necessary.
Companies covered in 2nd / 3rd phase will have an option to apply converged accounting standards only for the financial year commencing on April 1, 2011 or thereafter.
Phase I companies (other than banking companies, insurance companies and non-bank financial companies), converting their opening balance sheet as at April 1, 2011 to converged accounting standards will be determined according to criteria pertaining on balance sheet dates as at March 31, 2009 or the next balance sheet prepared after that date. This applies to:
* Companies which are part of the NSE – Nifty 50;
* Companies which are part of the BSE – Sensex 30;
* Companies whose shares or other securities are listed on stock exchanges outside India; and
* Companies, whether listed or not, which have a net worth in excess of INR10bn (USD222m).
As per the proposed roadmap for Banks and NBFCs, in phase I, converting their opening balance sheet as at April, 1, 2013 to converged accounting standards will be determined according to criteria pertaining on balance sheet dates as at March 31, 2011 or the next balance sheet prepared after that date. This applies to:
* Banks - i.e. all scheduled commercial banks and those urban co-operative banks which have a net worth in excess of INR3bn (USD66m);
* NBFCs - i.e. finance companies which are part of NSE – Nifty 50;
* companies which are part of BSE – Sensex 30;
* and companies, whether listed or not, which have a net worth in excess of INR 10bn (USD222m).
With regard to parent companies covered in any one of the three phases for the changeover to converged accounting standards, having subsidiaries, joint ventures or associates not covered under the same phasing plan, the consolidated financial statements are to be prepared with converged accounting standards in accordance with the same timetable as the parent company.
When one or more companies in a group fall in a phase other than the phase applicable to the parent company, they can continue to prepare stand-alone accounts according to the phase applicable to them, but the parent may need to make convergence amendments to these accounts for the purposes of consolidation. Such subsidiaries, joint ventures or associate companies may opt for early adoption of converged accounting standards.
Once a company starts following converged accounting standards on the basis of the eligibility criteria, it will be required to follow such accounting standards for all the subsequent financial statements even if any of the eligibility criteria does not subsequently apply to it.
For the purpose of calculation of qualifying net worth of companies, the following rules will apply:
* The net worth will be calculated as per the audited balance sheet of the company as at March 31, 2009 or the first balance sheet for accounting periods which end after that date;
* The net worth will be calculated as the Share Capital plus Reserves less Revaluation Reserve, Miscellaneous Expenditure and Debit Balance of the Profit and Loss Account;
* For companies which are not in existence on March 31, 2009, the net worth will be calculated on the basis of the first balance sheet ending after that date.
The rules for calculation of qualifying net worth to be recommended to the scheduled commercial Banks/ urban cooperative Banks/ NBFCs are as follows:
* The net worth will be calculated as per the audited balance sheet of the scheduled commercial Banks/ urban co-operative Bank/NBFC as at March 31, 2011 or the first balance sheet for accounting periods which ends after that date;
* The net worth will be calculated as the Share Capital plus Reserves less Revaluation Reserve, Miscellaneous Expenditure and Debit Balance of the Profit and Loss Account;
* For scheduled commercial Banks/ urban co-operative Banks/NBFCs which are not in existence on March 31, 2011, the net worth will be calculated on the basis of the first balance sheet ending after that date;
Despite the intention to converge Indian standards with IFRSs, the Core Group accepts that some deviations will remain. When the notified converged accounting standard is not fully consistent with the IAS/IFRS as issued by the IASB, Indian companies will continue to follow converged accounting standards as notified by the Government of India and not adopt IFRS.
IFRS for SMEs: Eine Alternative für den Einzelabschluss aus Sicht des deutschen Mittelstandes?
-- The objective of the IFRS for SMEs is to provide SMEs an attractive accounting alternative according to international standards. The paper analyses the differences compared to the German-GAAP and highlights the consequences for medium-sized entities in Germany.
Derivatives | Convergence Of Ifrs, Us Gaap And Indian Gaap And Its Impact On
Consistent, comparable and understandable financial information is the lifeblood of commerce and investing. Presently, there are two sets of accounting standards that are accepted for international use–the U.S. Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) issued by the London-based International Accounting Standards Board (IASB). Foreign subsidiaries of U.S. multinationals use U.S. GAAP. Many foreign companies, attracted to listing in the U.S. have to confront various problems like compliance with U.S. GAAP and the onerous Sarbanes-Oxley Act.
In search of a new financial order: one global standard for financial reporting makes sense. Accounting Standards in India will undergo significant change from 1st April 2011, when the IFRS (International Financial Reporting Standards) come into force as per the recent proposal of The Institute of Chartered Accountants of India. Countries of the European Union, Australia, New Zealand and Russia have already adopted IFRSs for listed enterprises. China has decided to adopt IFRS from 2008 and Canada from 2011.
If 2011 is the year when we would be totally aligning our standards with the IFRS, then what would happen in terms of inter-period comparisons because the numbers that would emerge after convergence to IFRS would be based on different accounting principles than those based on Indian GAAP ?. In order to breathe meaning in the numbers and enable inter-period comparison, it is essential that similar accounting principles should have been used from one period to another. Besides, you would need IFRS-trained professionals in India for which the Institute of Chartered Accountants of India would need to impart special training to its students and members alike.
In India, the accounting standards or accounting-related requirements are issued not only by the ICAI(Institute of Chartered Accountants of India) but also by various other regulatory bodies, such as SEBI (Securities and Exchange Board of India), RBI (Reserve Bank of India) and the IRDA (Insurance Regulatory and Development Authority). They now not only need to be consistent with each other but also with the IFRS.
The Central Government in pursuance of Section 211 of the Companies Act 1956 has issued a notification prescribing accounting standards for companies, and these standards direct us to the Accounting Standards issued by the ICAI. Since ICAI is now leaning on implementing IFRS with effect from 1st April 2011, the Government would find it essential to treat complying with IFRS as satisfactory compliance with Section 211 of the Companies Act 1956.
Closing the GAAP
The demise of U.S. GAAP has accelerated this decade. While the SEC currently looks to FASB to set U.S. GAAP, it is the SEC that retains ultimate responsibility. U.S. GAAP has been extensively used since the 1930s, and until recently was widely used around the world. However, its shortcomings are also well known, including approximately 200 pieces of fragmented U.S. GAAP on revenue recognition, some of which are not based on consistent concepts.
U.S. GAAP has evolved over the years to become overly complex and onerous as evidenced by the large number of countries and companies abandoning it. One recent example is
NEC Corporation, the Japanese electronics giant. NEC announced on September 21, 2007, “that it was not able to complete a U.S. GAAP-required analysis relating to software, maintenance, and service revenues.” In essence, the company said it simply cannot figure out U.S. GAAP revenue recognition rules and will stop trying, resulting in suspended trading on the NASDAQ.
It is possible that companies listed in the U.S. could be allowed to report their financial results using standards set by IASB instead. Giving companies a choice of accounting standards might create an opportunity for forum shopping.
In India, one of the big impediments to implementation of IFRS in India is in the case of Mergers and Acquisitions where the High Court approval is required. The High Court has got the authority to stay application of accounting standards or to prescribe accounting requirements in the case of merger and amalgamation situations. All this would deter smooth transition to IFRS in India.
Besides, deferral of VRS cost or ESOP accounting being based on intrinsic method, though a departure from IFRS is essential bearing in mind the needs and requirements of the Indian economy.
In addition, Schedule VI of the Companies Act, 1956 is also not in complete compliance with the IFRS and they need to be reconciled as well.
The RBI also prescribes accounting requirements for banks, such as accounting for derivatives or provision for non-performing assets, and these requirements of the RBI are currently at variance with the IFRS.
Managements compensation, stock options, debt covenants, tax liability and distributable profits are all based on Indian GAAP and AS (Accounting Standards) at present. Now all the salary structure, compensation structure will have to be renegotiated by most senior employees who have variable methods of compensation. For example, the variable pay component of most TCS employees is about 30 % of the total compensation package and this variable pay being based on items of Profit/Loss Account which will be defined differently under IFRS, the entire compensation package will need to be revised.
Recently, the SEC (Securities and Exchange Commission) of the US eliminated the GAAP reconciliation requirement as a part of Form 20-F for foreign issuers. Almost simultaneously, the Commission issued a Concept Release that would enable U.S. issuers to drop GAAP and use International Financial Reporting Standards.
Statements of financial position, comprehensive income and cash flows
Perhaps the biggest potential change is a different look to financial statements. Although nothing has been decided, the IASB and FASB are striving to create a cohesive presentation of financial information that will likely do away with a single net income number, or “bottom-line.” Instead, the working proposal would require three separate statements: a statement of financial position, a statement of comprehensive income, and a statement of cash flows.
In search of a new financial order: one global standard for financial reporting makes sense. Accounting Standards in India will undergo significant change from 1st April 2011, when the IFRS (International Financial Reporting Standards) come into force as per the recent proposal of The Institute of Chartered Accountants of India. Countries of the European Union, Australia, New Zealand and Russia have already adopted IFRSs for listed enterprises. China has decided to adopt IFRS from 2008 and Canada from 2011.
If 2011 is the year when we would be totally aligning our standards with the IFRS, then what would happen in terms of inter-period comparisons because the numbers that would emerge after convergence to IFRS would be based on different accounting principles than those based on Indian GAAP ?. In order to breathe meaning in the numbers and enable inter-period comparison, it is essential that similar accounting principles should have been used from one period to another. Besides, you would need IFRS-trained professionals in India for which the Institute of Chartered Accountants of India would need to impart special training to its students and members alike.
In India, the accounting standards or accounting-related requirements are issued not only by the ICAI(Institute of Chartered Accountants of India) but also by various other regulatory bodies, such as SEBI (Securities and Exchange Board of India), RBI (Reserve Bank of India) and the IRDA (Insurance Regulatory and Development Authority). They now not only need to be consistent with each other but also with the IFRS.
The Central Government in pursuance of Section 211 of the Companies Act 1956 has issued a notification prescribing accounting standards for companies, and these standards direct us to the Accounting Standards issued by the ICAI. Since ICAI is now leaning on implementing IFRS with effect from 1st April 2011, the Government would find it essential to treat complying with IFRS as satisfactory compliance with Section 211 of the Companies Act 1956.
Closing the GAAP
The demise of U.S. GAAP has accelerated this decade. While the SEC currently looks to FASB to set U.S. GAAP, it is the SEC that retains ultimate responsibility. U.S. GAAP has been extensively used since the 1930s, and until recently was widely used around the world. However, its shortcomings are also well known, including approximately 200 pieces of fragmented U.S. GAAP on revenue recognition, some of which are not based on consistent concepts.
U.S. GAAP has evolved over the years to become overly complex and onerous as evidenced by the large number of countries and companies abandoning it. One recent example is
NEC Corporation, the Japanese electronics giant. NEC announced on September 21, 2007, “that it was not able to complete a U.S. GAAP-required analysis relating to software, maintenance, and service revenues.” In essence, the company said it simply cannot figure out U.S. GAAP revenue recognition rules and will stop trying, resulting in suspended trading on the NASDAQ.
It is possible that companies listed in the U.S. could be allowed to report their financial results using standards set by IASB instead. Giving companies a choice of accounting standards might create an opportunity for forum shopping.
In India, one of the big impediments to implementation of IFRS in India is in the case of Mergers and Acquisitions where the High Court approval is required. The High Court has got the authority to stay application of accounting standards or to prescribe accounting requirements in the case of merger and amalgamation situations. All this would deter smooth transition to IFRS in India.
Besides, deferral of VRS cost or ESOP accounting being based on intrinsic method, though a departure from IFRS is essential bearing in mind the needs and requirements of the Indian economy.
In addition, Schedule VI of the Companies Act, 1956 is also not in complete compliance with the IFRS and they need to be reconciled as well.
The RBI also prescribes accounting requirements for banks, such as accounting for derivatives or provision for non-performing assets, and these requirements of the RBI are currently at variance with the IFRS.
Managements compensation, stock options, debt covenants, tax liability and distributable profits are all based on Indian GAAP and AS (Accounting Standards) at present. Now all the salary structure, compensation structure will have to be renegotiated by most senior employees who have variable methods of compensation. For example, the variable pay component of most TCS employees is about 30 % of the total compensation package and this variable pay being based on items of Profit/Loss Account which will be defined differently under IFRS, the entire compensation package will need to be revised.
Recently, the SEC (Securities and Exchange Commission) of the US eliminated the GAAP reconciliation requirement as a part of Form 20-F for foreign issuers. Almost simultaneously, the Commission issued a Concept Release that would enable U.S. issuers to drop GAAP and use International Financial Reporting Standards.
Statements of financial position, comprehensive income and cash flows
Perhaps the biggest potential change is a different look to financial statements. Although nothing has been decided, the IASB and FASB are striving to create a cohesive presentation of financial information that will likely do away with a single net income number, or “bottom-line.” Instead, the working proposal would require three separate statements: a statement of financial position, a statement of comprehensive income, and a statement of cash flows.
IASB - Request for comment on FASB Financial Instruments Exposure Draft
On May 26, 2010, the US Financial Accounting Standards Board (FASB) released a proposed Accounting Standards Update that contains proposals for a new comprehensive standard on financial instruments. Under the FASB’s proposals, many financial assets and financial liabilities would be measured at fair value in the primary financial statements. This is different from the mixed measurement model that is used in IFRS 9 Financial Instruments for financial assets. The appendix to the FASB exposure draft contains a high level comparison of the boards’ respective approaches. The IASB is asking its constituents to submit comment letters on the FASB proposal. Because this project is part of the global convergence project, it is important for the FASB to receive feedback on the proposed model from the international community.
Sound Corporate Governance Vital for MENA's Insurance Industry
May 31, 2010 (Al-Bawaba via COMTEX) --
Under the patronage of HE Sultan Bin Saeed Al Mansoori, the UAE Minister of Economy, Hawkamah, the Institute for Corporate Governance today held a Workshop focused on corporate governance best practices in the Middle East and North Africa's (MENA) insurance industry. Under the theme 'The Changing Landscape in the Insurance Industry', the Workshop explored the main challenges facing the insurance sector and the governance practices that can build trust and credibility in the industry. Speakers at the Workshop stressed on the need for implementing sound corporate governance in line with international standards in order to realise the MENA insurance industry's vast potential for growth. Delivering the Key Note Address, HE Sultan Bin Saeed Al Mansoori, the UAE Minister of Economy said the insurance and financial sector should be at the forefront of adopting modern corporate governance and transparency measures. "From a wide perspective, the insurance sector is where the public puts their faith in. It is their hedge against the uncertainties in the world. The insurance sector is a critical pillar in the overall functioning of the market. A strong insurance sector implies robust economic fundamentals," he said. He said the Securities and Commodities Authority issued the Regulation for Corporate Governance and Institutional Discipline Standards for public joint stock companies in April 2007 as part of its efforts to raise transparency and disclosure. "This was based on the Authority's commitment to its mission of developing the markets, in line with the global emphasis on corporate governance standards. The regulation took into consideration the UAE market realities too, and also derived synergies from the learning of other countries in corporate governance practices," he said. The Minister further added that the Authority outlined a transitional period of three years for making the implementation of these standards obligatory for all concerned companies. Delivering the Welcome Note at the Workshop, HE Ahmed Humaid Al Tayer, Governor of DIFC called on "lawmakers, regulators, companies, and stakeholders in the MENA region's insurance industry to express a firm commitment to raising standards of corporate governance." All key players need to participate in and support the development of higher standards," he stressed. He further said that MENA insurance companies need to harmonise their understanding and implementation of corporate governance with international standards and vigilantly monitor compliance. "The management of insurance companies should build strong corporate governance frameworks that create an empowered Board of Directors, a solid control environment, increased levels of transparency and disclosure and well-defined shareholders," he added. Speaking about DIFC's support for corporate governance development, HE Ahmed Humaid Al Tayer said: "Here in DIFC, we clearly recognise the vast potential of the insurance industry and the role of robust regulations and corporate governance in driving its growth. Accordingly, we have created a clear and transparent legal and regulatory regime that supports strong corporate governance. DIFC's world-class prudential rules for insurers, re-insurers and captives are in line with the highest international standards of regulation and supervision. Dr. Nasser Saidi, Executive Director of Hawkamah and Chief Economist of the DIFC Authority called on insurance regulators and commissioners in the Middle East and North Africa region to implement corporate governance reform. Regulators, he said, should work to ensure the development of well-regulated insurance markets and provide ongoing supervision. He urged regulators to encourage companies to adopt the corporate governance principles outlined by the International Association of Insurance Supervisors (IAIS) for insurance companies and to adopt uniform insurance corporate governance standards and guidelines. He also called on regulators in the region to upgrade insolvency laws. At an industry level, he said the region's insurance sector should take efforts to ensure that accounting, actuarial and auditing standards are comprehensive, documented, transparent and consistent with international standards. He stressed on the importance of the insurance industry to adopt International Financial Reporting Standards (IFRS); the guidelines of the Islamic Financial Services Board (IFSB); and the standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) for Shari'a compliant insurance. This Workshop formed part of Hawkamah's wider initiative to raise corporate governance standards in the insurance sector in the MENA region. In 2007, Hawkamah established a MENA Corporate Governance Task Force with a mandate to develop a set of corporate governance guidelines for the insurance sector and build the corporate governance capacity of the industry. The Task Force, comprised of members of the Arab Forum of Insurance Regulatory Commissions (AFIRC) and private sector representatives, has contributed significantly to identifying the corporate governance challenges of the insurance industry in the region and provided vital recommendations for industry development. In March 2009, the Task Force issued the Hawkamah-AFIRC Policy Brief on Corporate Governance for the Insurance Industry, which outlined basic corporate governance standards for the insurance sector in MENA. Key issues that were discussed at the Workshop included the role of regulators; corporate governance reform; duties and liabilities of directors and officers; Risk Governance, Roles and Responsibilities of the Board and the Risk Culture; and the role of corporate governance in preventing financial crime, including money laundering, terrorism financing, market abuse and fraud.. The workshop was designed to be of particular relevance to directors, senior managers, compliance officers and insurance professionals in the MENA region.(C) 2010 Al Bawaba (www.albawaba.com)
Under the patronage of HE Sultan Bin Saeed Al Mansoori, the UAE Minister of Economy, Hawkamah, the Institute for Corporate Governance today held a Workshop focused on corporate governance best practices in the Middle East and North Africa's (MENA) insurance industry. Under the theme 'The Changing Landscape in the Insurance Industry', the Workshop explored the main challenges facing the insurance sector and the governance practices that can build trust and credibility in the industry. Speakers at the Workshop stressed on the need for implementing sound corporate governance in line with international standards in order to realise the MENA insurance industry's vast potential for growth. Delivering the Key Note Address, HE Sultan Bin Saeed Al Mansoori, the UAE Minister of Economy said the insurance and financial sector should be at the forefront of adopting modern corporate governance and transparency measures. "From a wide perspective, the insurance sector is where the public puts their faith in. It is their hedge against the uncertainties in the world. The insurance sector is a critical pillar in the overall functioning of the market. A strong insurance sector implies robust economic fundamentals," he said. He said the Securities and Commodities Authority issued the Regulation for Corporate Governance and Institutional Discipline Standards for public joint stock companies in April 2007 as part of its efforts to raise transparency and disclosure. "This was based on the Authority's commitment to its mission of developing the markets, in line with the global emphasis on corporate governance standards. The regulation took into consideration the UAE market realities too, and also derived synergies from the learning of other countries in corporate governance practices," he said. The Minister further added that the Authority outlined a transitional period of three years for making the implementation of these standards obligatory for all concerned companies. Delivering the Welcome Note at the Workshop, HE Ahmed Humaid Al Tayer, Governor of DIFC called on "lawmakers, regulators, companies, and stakeholders in the MENA region's insurance industry to express a firm commitment to raising standards of corporate governance." All key players need to participate in and support the development of higher standards," he stressed. He further said that MENA insurance companies need to harmonise their understanding and implementation of corporate governance with international standards and vigilantly monitor compliance. "The management of insurance companies should build strong corporate governance frameworks that create an empowered Board of Directors, a solid control environment, increased levels of transparency and disclosure and well-defined shareholders," he added. Speaking about DIFC's support for corporate governance development, HE Ahmed Humaid Al Tayer said: "Here in DIFC, we clearly recognise the vast potential of the insurance industry and the role of robust regulations and corporate governance in driving its growth. Accordingly, we have created a clear and transparent legal and regulatory regime that supports strong corporate governance. DIFC's world-class prudential rules for insurers, re-insurers and captives are in line with the highest international standards of regulation and supervision. Dr. Nasser Saidi, Executive Director of Hawkamah and Chief Economist of the DIFC Authority called on insurance regulators and commissioners in the Middle East and North Africa region to implement corporate governance reform. Regulators, he said, should work to ensure the development of well-regulated insurance markets and provide ongoing supervision. He urged regulators to encourage companies to adopt the corporate governance principles outlined by the International Association of Insurance Supervisors (IAIS) for insurance companies and to adopt uniform insurance corporate governance standards and guidelines. He also called on regulators in the region to upgrade insolvency laws. At an industry level, he said the region's insurance sector should take efforts to ensure that accounting, actuarial and auditing standards are comprehensive, documented, transparent and consistent with international standards. He stressed on the importance of the insurance industry to adopt International Financial Reporting Standards (IFRS); the guidelines of the Islamic Financial Services Board (IFSB); and the standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) for Shari'a compliant insurance. This Workshop formed part of Hawkamah's wider initiative to raise corporate governance standards in the insurance sector in the MENA region. In 2007, Hawkamah established a MENA Corporate Governance Task Force with a mandate to develop a set of corporate governance guidelines for the insurance sector and build the corporate governance capacity of the industry. The Task Force, comprised of members of the Arab Forum of Insurance Regulatory Commissions (AFIRC) and private sector representatives, has contributed significantly to identifying the corporate governance challenges of the insurance industry in the region and provided vital recommendations for industry development. In March 2009, the Task Force issued the Hawkamah-AFIRC Policy Brief on Corporate Governance for the Insurance Industry, which outlined basic corporate governance standards for the insurance sector in MENA. Key issues that were discussed at the Workshop included the role of regulators; corporate governance reform; duties and liabilities of directors and officers; Risk Governance, Roles and Responsibilities of the Board and the Risk Culture; and the role of corporate governance in preventing financial crime, including money laundering, terrorism financing, market abuse and fraud.. The workshop was designed to be of particular relevance to directors, senior managers, compliance officers and insurance professionals in the MENA region.(C) 2010 Al Bawaba (www.albawaba.com)
ACCA calls on G20 to drive reform of the global financial agenda
KUALA LUMPUR, Monday 31 May 2010 (Bernama) -- As the Group of Twenty nations (G20) prepare to meet in Toronto next month, the Association of Chartered Certified Accountants (ACCA) are putting forward recommendations for global policy-makers.
Around 1,500 delegates, including heads of state, will convene for two-days, beginning June 26, to discuss the global financial crisis and assess the progress made on the road to recovery.
ACCA Chief Executive Helen Brand said the association was asking world leaders to deliver on promises made at previous summits and go further in their efforts towards financial sector reform, robust accounting standards and strong sustainable growth.
"A repetition of a catastrophe on this scale is something neither governments, the public nor the global business community could countenance.
"We feel the crisis has provided both an incentive and an opportunity for the wholesale financial reform which will lead to a sustainable global economy," she said.
In a paper themed, "Recovery and New Beginnings", the ACCA commended the pledges made by the G20 to date, but said further action was required in several areas.
It said the G20 should turn its stated commitment to integrity in financial institutions into reality by encouraging moves to instil ethical business codes and better risk management functions in the financial and corporate sectors.
Brand said the G20 must seriously consider separatig retail and investment banking.
"The G20 should now take concrete steps towards the implementation of International Financial Reporting Standards (IFRS) and ensure accounting standards are free from undue political influence.
"Sustainability and tackling climate change should be embedded in the G20's agenda and ingrained in business practice through the use of a global carbon reporting standard," she added.
Though the G20 has existed since the financial crisis in Asia in 1999, it was only at last year's Pittsburgh summit that it was designated the premier forum for international economic cooperation.
Clearly, Brand said there remained much to do.
Given the leadership it has shown thus far, Brand said ACCA was calling for the G20 to be made a permanent fixture with broader global governance role.
Meanwhile, the President of ACCA Malaysia Advisory Committee Datuk Mohd Nasir Ahmad was quoted in the statement as saying that Malaysia should take an interest in the progress although it was not part of the group.
"Their actions will have an impact on global financial recovery and will affect our conditions as well," he added.
However, Mohd Nasir questioned the structure of the forum itself, saying that it was unclear how the interests of smaller economies were represented at the table.
"While the G20 may be more inclusive than the G8, some introspection is needed to make sure it is truly representative and avoid accusations that it is an exclusive club," he said.
Around 1,500 delegates, including heads of state, will convene for two-days, beginning June 26, to discuss the global financial crisis and assess the progress made on the road to recovery.
ACCA Chief Executive Helen Brand said the association was asking world leaders to deliver on promises made at previous summits and go further in their efforts towards financial sector reform, robust accounting standards and strong sustainable growth.
"A repetition of a catastrophe on this scale is something neither governments, the public nor the global business community could countenance.
"We feel the crisis has provided both an incentive and an opportunity for the wholesale financial reform which will lead to a sustainable global economy," she said.
In a paper themed, "Recovery and New Beginnings", the ACCA commended the pledges made by the G20 to date, but said further action was required in several areas.
It said the G20 should turn its stated commitment to integrity in financial institutions into reality by encouraging moves to instil ethical business codes and better risk management functions in the financial and corporate sectors.
Brand said the G20 must seriously consider separatig retail and investment banking.
"The G20 should now take concrete steps towards the implementation of International Financial Reporting Standards (IFRS) and ensure accounting standards are free from undue political influence.
"Sustainability and tackling climate change should be embedded in the G20's agenda and ingrained in business practice through the use of a global carbon reporting standard," she added.
Though the G20 has existed since the financial crisis in Asia in 1999, it was only at last year's Pittsburgh summit that it was designated the premier forum for international economic cooperation.
Clearly, Brand said there remained much to do.
Given the leadership it has shown thus far, Brand said ACCA was calling for the G20 to be made a permanent fixture with broader global governance role.
Meanwhile, the President of ACCA Malaysia Advisory Committee Datuk Mohd Nasir Ahmad was quoted in the statement as saying that Malaysia should take an interest in the progress although it was not part of the group.
"Their actions will have an impact on global financial recovery and will affect our conditions as well," he added.
However, Mohd Nasir questioned the structure of the forum itself, saying that it was unclear how the interests of smaller economies were represented at the table.
"While the G20 may be more inclusive than the G8, some introspection is needed to make sure it is truly representative and avoid accusations that it is an exclusive club," he said.
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