Critical insight into financial reporting

A conference for Audit Committees and CEOs on their roles and governance responsibilities arising from the impending changes as a result of Sri Lanka’s Convergence with International Financial Accounting Standards was organized recently by Ernst & Young, in Colombo.

The well-attended conference was conducted by Managing Partner for Financial Accounting Advisory Services in the Asia Pacific, Mark Seddon, who counts over 20 years experience in the provision of accounting and business risk advisory services.

The Institute of Chartered Accountants of Sri Lanka (ICASL) has adopted International Financial Reporting Standards, known in Sri Lanka as Sri Lanka Financial Reporting Standards (SLFRS), with effect from January 1, 2012.

Convergence with International Financial Accounting Standards is an important step towards achieving the global trend in enabling a common language for the financial reporting process.

The objective of this conference was to offer an insight to participating CEOs and CFOs on critical areas such as the governance framework, and how Boards and Audit Committees need to engage and align successfully to the new financial reporting norms.

Setting the tone for the conference, Seddon pointed out that the adoption of the new standards could be leveraged upon as a major change initiatives rather than a mere accounting exercise, thereby positively impacting the businesses and its operations.

He discussed some key concerns that participating heads of companies would have to keep in mind while inducting these new financial reporting standards into their organizations. Some of the issues under the spotlight at the conference were: the current status of the new standards; timeline for issue; lessons learned from his experiences leading multinational conversions in Australia and the US; the different adoption approaches and models that have been used when looking at conversions; the pitfalls and pros and cons of different approaches to conversions and the timeline. Also brought into sharp focus were the key questions that will need to be asked by the Audit Committee of management in respect of the conversion - how to appropriately frame the questions so as to make sure that management delivers the information needed in order to fulfill the Audit committee governance requirements.

Explaining the minutia of the new standards, Seddon went on to boost the enthusiasm of the participants by adding that though an element of the rule based approach will come into the new standards, at the moment it is still a principles-based model, which is helpful because it leaves room for interpreting the standard as it is appropriate for each organization.

Addressing audit committee members, he said, “Critically if you are moving into a new paradigm for financial reporting it is clearly going to require the oversight of the audit committee. There will be many choices to be made but will you be provided with management recommendations to approve? Are you in a position to consider whether the right choices are being made for your organization? Many of these decisions and responsibilities fall on the shoulders of the Audit committee, as part of their oversight role, particularly as the Audit Committee signs off on the Financial Statements, Accounting Policies and recommendations.”

Engaging CFOs next, Seddon stated CFOs would need to express their expectations of the conversion, decide what form of leadership and steering committee will be put in place and what one of the recurring questions at the Conference was how an organization should tackle the different accounting frameworks used across their operations.

In response, Mark Seddon said: One of the major issues I think yet to be dealt with under the new standards is that there is going to have to be accommodation for you to get the full benefit of one single platform and not have two IFRSs (equivalent to SLFRS) running, as well as a regulating framework.