Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.
This article appeared in the April 1, 2008 issue of the Bangkok Post.
By Nangnoi Charoenthaveesub and Sukhumaporn Wong-ariyaporn
The adoption of internationally recognised accounting standards may make Thai companies more competitive on a global level. At the same time, it could boost investor confidence in the country. However, the transition from Thailand's current accounting standards to globally recognised International Financial Reporting Standards (IFRS) may prove to be a challenge.
IFRS were adopted by European Union member states in 2005. Now more than 100 countries have converted their national Generally Accepted Accounting Principles (GAAP) to IFRS, or IFRS-based standards. In the US, convergence with IFRS is still in progress.
Countries that have already adopted or are in the process of implementing IFRS have experienced a number of challenges. A recent survey by PricewaterhouseCoopers looked at how the challenges varied in different territories. Our findings were as follows:
1. Different regulatory processes: National processes to amend laws and regulations to adopt IFRS as national GAAP standards vary from country to country. Some jurisdictions (such as Singapore, Norway, Thailand and EU member states) incorporate the text of individual standards into their laws or regulations. Others (such as Hong Kong, Indonesia, Israel and South Africa) simply specify that IFRS is required for certain entities.
2. Amendments and selection: One of the most obvious areas where differences in IFRS implementation are created is in national amendments and selective adoption. Most countries have either amended the standards or haven't adopted standards that are harmonised with their national laws or accounting practices.
Other countries have made amendments that conflict with IFRS compliance. New Zealand, for instance, has removed a number of options and alternatives, such as the indirect cash flow method.
Individual amendments, however, are not the only cause of differences in IFRS practice from country to country. Translation and interpretation based on past customs and practice in the absence of International Accounting Standards Board (IASB) official interpretations or guidance can cause inadvertent differences between IFRS and IFRS-based national GAAPs.
3. Timetables for adoption vary: The survey found that the different processes and varying timetables for adoption of new or amended IFRS can cause temporary differences in accounting treatments between countries. While most countries tend to take a few months to adopt new standards, some can take much longer.
The period between IASB issuing and local adoption is one to three months in Australia, Hong Kong, Israel, Norway, Singapore, South Africa, and Turkey. It's three to 12 months in the European Union and New Zealand, and more than two years in Indonesia and Thailand.
The Securities and Exchange Commission of Thailand (SEC) and the Federation of Accounting Professions (FAP) recently announced their intention to fully adopt an IFRS accounting framework for all companies in the Thai capital market. Those on the SET 50 and SET 100 will be the first targeted for mandatory full IFRS adoption. The deadline for adoption is likely to be in 2011. However, before we reach 2011, listed companies may choose to implement IFRS with local options.
For companies outside the capital market, local standards will still apply. This means that there will be a two-tier reporting framework for companies in Thailand, as separate accounting standards will be required for non-listed companies.
The Federation of Accounting Professions is making progress in its bid to converge Thai GAAP with IFRS. For example, all new standards issued by the FAP are committed to be in line with IFRS. At present, 19 out of 30 Thai Accounting Standards are consistent with IFRS, and 17 are in the drafting process. In 2007, 12 revised standards and a new standard were issued in conformity with IFRS.
The best way for companies to meet IFRS requirements is to prepare early. However, the ease of conversion to IFRS will depend on a firm's complexity. Management needs to analyse the impact on the numbers and how accounts will be reported differently under IFRS. Training is required for people both inside and outside the finance department, as many will need to understand the implications.
Some listed Thai companies have begun preparing by analysing the differences between Thai GAAP and IFRS and the impacts of these differences. As a consequence, management should have fewer concerns when they reach the transitional date.
Nearly everyone realises that applying IFRS in Thailand will be challenging. However, bringing Thai Accounting Standards to be in line with IFRS would help investors to ensure transparency of financial data and would also be beneficial for those who are involved in cross-border trade. Investors want the ability to compare Thai companies with their international counterparts. Full convergence will result in the increased globalisation of the Thai capital market.
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