A number of countries in the Mekong region are progressing steadily towards the adoption of IFRS Standards. Representatives from Myanmar, Laos, Cambodia and Vietnam gathered at an online conference hosted by the ASEAN Federation of Accountants and ACCA to discuss the challenges and benefits of implementation, and to hear from representatives from the International Accounting Standards Board (IASB), the Big Four, the World Bank and a recent successful adopter, Malaysia.
IFRS Standards have many benefits, chief among them increased transparency and accountability in financial statements. They equip not only investors or lenders with the information they need to make decisions, but they also equip management with critical information to enhance internal operations and governance.
There is also evidence to suggest that application lowers the cost of capital and makes its allocation more efficient.
‘Stable and reliable financial reporting frameworks such as IFRS help mitigate the risk associated with market investment,’ said Bonnie Sirois, senior government specialist for finance management at the World Bank. She suggested that Mekong economies applying IFRS Standards might benefit from increased foreign direct investment and wider international economic participation.
But while there are many benefits, there are also significant challenges associated with implementation, particularly in emerging economies. Participants discussed difficulties that they had observed at each stage of the adoption journey while stressing that there were means available for overcoming each.
Perhaps one of the biggest challenges is the often-wide gap between local financial reporting standards and full IFRS Standards. Such gaps can make harmonisation a lengthy process.
Yen San Chan, a partner in KPMG Singapore’s department of professional practice, suggested that companies start their journey by undertaking a thorough gap analysis. She stressed in particular the need to locate early on the information and data they would need to report under IFRS Standards and to ensure it is in the correct format.
‘Companies need to make sure they prepare carefully at each of the assessment, design, implementation and sustained application phases’
‘An ecosystem needs to be in place for the smooth implementation of IFRS,’ Chan explained. ‘Companies need to make sure they prepare carefully at each of the assessment, design, implementation and sustained application phases.’
She also noted one of the larger challenges in emerging economies: having enough IFRS-trained accountants to train in-country preparers. She advised that as well as reaching out to other transitioned countries and to the IASB for assistance, one of the most important steps was to persuade employees of the benefits.
‘There are wider business implications to IFRS, and it’s very important to make sure your stakeholders understand that,’ she said.
No loss of sovereignty
Other participants attempted to allay fears surrounding specific in-country challenges. Bee Leng Tan, executive director at the Malaysian Accounting Standards Board, spoke about the successful experience Malaysia had with implementation.
She urged participants that concerns about loss of sovereignty were misplaced. ‘It’s important not to be emotional about it,’ she said and explained that even complex issues like assessing fair value for agricultural produce could be solved in consultation with the IASB.
‘Just because you are a smaller economy doesn’t mean the IASB is going to ignore you,’ she added. She also said it was essential to engage across the region to absorb lessons from those who were at different stages in the adoption process.
One of the key challenges in implementing IFRS Standards is in obtaining continuing funds for the work. Sirois suggested that multiple pots of funding existed to help countries with implementation and that interested countries should ‘write a letter to their World Bank country management office indicating a proposal for funds and stating their needs’.
Perhaps the most significant step for countries is to obtain a translation of the standards into the national language. IASB member Rika Suzuki described the work of the IASB’s Translation, Adoption and Copyright team, saying that it was essential to transition work in newly adopting countries. The IASB allows one official translation per language to ensure the most consistent approach possible.
Lessons down the line
It’s true that adopting IFRS Standards is not the simplest of processes, but speakers reassured participants that their problems were surmountable, and that the benefits of IFRS far outweighed the costs. Sirois suggested that the economic pressures exerted by Covid-19 made this an ideal time to adopt.
‘IFRS helps companies and governments predict future capital outlays, assess risk and manage scarce resources during a time of constraint,’ she said.
‘It is more important than ever that technical partners, development partners and the accounting profession come together to support implementation.’
Find more information on the webinar, including a detailed write-up of the discussion