IFRS augurs well for international confidence - Sinhaputhra MD

The new accounting standard "International Financial Reporting Standards" scheduled to be introduced to the formal banking and finance sector by December 31, 2011, has become a focal point to both the industry, regulators and auditors.

Commenting on its impact on the main concern area of asset valuation to current market trends, Sinhaputhra Finance PLC's Managing Director Ravana Wijeyeratne said that based on its application certain companies may have such large gaps thus directly affecting their net book values and hence possible impacts to share prices.

In such a scenario the possibility for companies having fixed assets such as buildings and properties carrying values below market will have positive impacts, whilst the reverse could also occur. Hence it depends entirely on the individual financial institution.

Overall, it is still early to comment accurately was his view. He noted that with the efforts made by the Central Bank and leading audit companies in organizing seminars; the possible impacts of IFRS are becoming clearer to the industry.

He commented that whilst our accounting standards were primarily rule based in the past that the new IFRS standards would embrace a principle based system.

He further added that even principle based system will need discussion between regulators and the industry so it reflects a true and fair picture and welcomed the suggestion made for the industry to table a paper. According to Wijeyeratne a member of the Finance Houses Association's executive committee, the Chairman of the Council Kamal Yatawara had appointed a committee headed by Shermal Jayasooriya to invite experts as well as other CFO's of the sector to formulate such a paper drawing from the experience of other countries with mature practices, and taking into account local conditions and limitations.

In essence IFRS aims to report financial performance as true to its economic circumstances. The system is globally embraced by Europe, Latin America, East Asia including China, Australia etc, but with notable exceptions of the USA and India.

However it is learnt that India welcomes same over a period of time. Sri Lanka, in general has been quick to incorporate such international standards historically, and this is consistent with past approaches, but may not have always been the best and at times premature. However on this occasion, the inclusive manner in which this task is approached is highly appreciated by the industry and may pay positive dividends.

Accountants and interested parties who were familiar with SLAS will now come across the abbreviations SLFRS and LKAS which have different corresponding numbers to previous sections.

The standards will incorporate areas handling more sophisticated instruments, and more prudent approaches to issues learnt over recent experiences in financial markets.

In a nutshell, IFRS highlights that historical cost is not reflective of the current day, and that nobody would consider selling their stakes at net book value for this reason.

In essence IFRS reduces the gap between the Balance sheet and real market values bringing in better substance to financial statements adding to investor confidence.

The balance sheets of Sri Lanka with this standard in full force will be recognizable, understandable and comparable by investors globally.

All this augurs well for International investor confidence in a market which is geared to propel with nine percent growth rates requiring a doubling of GDP to USD 100 billion in a matter of five years.

Financial markets will be under enormous stress and rapid growth will be experienced if the targets are to be met. Hence the foundation of IFRS with respect to local factors will help to keep this progress without "cracks", Wijeyeratne said.