Lankan banks in transition towards IFRS compliance
Today, more than 100 countries worldwide have adopted the
International Financial Reporting Standards (IFRS).
This global trend in enabling a common language for financial
reporting process started first in Europe, and still continues with for
instance India, Canada, the USA, and Japan also currently being in the
transition phase towards IFRS. Some Asian countries such as Indonesia
and Thailand have nearly finished the adoption process.
In Sri Lanka, the Institute of Chartered Accountants of Sri Lanka (ICASL)
also approved a policy to adopt IFRS by issuing Sri Lanka Financial
Reporting Standards (SLFRS) and Sri Lanka Accounting Standards (LKAS)
for annual financial periods beginning on or after 1 January 2012.
The IFRS Standards were created for all organization and companies
across industries. However, they pose severe challenges to some
industries more than others. A burden will be put on the professionals
involved in financial reporting for the banking and financial sector: a
thorough understanding of IFRS is indispensable in this function as its
application is more complex in any other industry.
As in all the other countries, Sri Lankan banks will need to invest
in internal resources to perform the transition.
Business processes need to be re-engineered, specific IT systems need
to be installed to manage the required data and information,
calculations and reporting.
Knowledge and flexibility will be key to ensure compliance with
accounting requirements in the future as well, given there will continue
to be changes in accounting practices in the next few years.
Despite of the significant effort and costs associated with the
change from local standards to IFRS, the benefits for banks are huge.
They include improved transparency, easier comparison, increased
shareholder value and correct management information, together with
consistency of reporting across jurisdictions and sectors.
IFRS implies improved transparency. Many of the so-called 'off
balance sheet items' will now be found on strictly regulated balances.
This new transparency will create awareness externally, but
internally, within the bank, correct values will lead to a more firm and
prudent banking.
With these new standards, comparison between companies is
facilitated. They will be more comparable, and by consequence, more
informative on the healthiness of the firms.
One of the buzzwords of IFRS, and IAS 39 more in particular, is
"shareholders value".
As a consequence of the improved transparency and comparability,
shareholders will gain more clarity about their investment, upon which
they can take sound investment decisions.
This is expected to boost share prices for the strong-performing Sri
Lankan companies; if there's more transparency, then Sri Lankan banks
should be more attractive to overseas investors."
Finally, for many financial institutions the introduction of IAS 39
gives them the opportunity to revise their - often outdated- systems
currently responsible for the reporting process.
As IAS 39 introduces a new way of accounting, it gives the financial
institutions the chance to switch to a modern system and perform a data
cleansing exercise to have more accurate results.
These are just some advantages with the introduction of the IAS and
IFRS standards in Sri Lanka which will give the financial institutions
the opportunity to become more transparent and to become an
international player both on the market penetration side as on the
investor side of the company. |
