IFRS: A Look At The Global Accounting Landscape

IFRS: A Look At The Global Accounting Landscape

by ManiFebruary 06, 2014, 2:10 pm

The insurance IFRS project that IASB is currently working has potential to make substantial improvement to current financial reporting, notes CITI in its recent report.

Sarah Deans and Terence Fisher of Citi Research in their recent report titled ‘An Investor’s Annual Guide to IFRS Accounting’ anticipate a new standard on revenue recognition to be issued in H1 2014.

Taking stock of IASB’s major projects, the analysts point out IASB is currently working on four major projects viz.: (a) Revenue project relating to replacing existing rules on when revenue is reported, (b) Leases project bringing all leases on balance sheet, (c) Financial instruments project covering replacement of IAS 39 (which has been identified as a high priority following the credit crisis) and (d) Insurance project addressing first comprehensive IFRS for insurance.

Two new IFRS in 2014

The following table highlights the list of IFRS at January 2014:

image001-3

The Citi analysts point out that the International Accounting Standards Board (IASB) failed again in 2013 to deliver final standards for any of the four major projects it has been working on for several years. However, the analysts anticipate two important new IFRS standards to be published in 2014 viz.: revenue and financial instruments. The following table captures the overview of proposed revenue recognition framework:

image002-1

However, the analysts are less optimistic that the other two projects viz.: insurance and leases will be completed, though they anticipate significant decisions to be made on both the projects.

Dwelling further into the insurance IFRS, the analysts point out that the insurance project has the potential to make asubstantial, positive improvement to current financial reporting. They point out that currently there is no comprehensive IFRS framework for accounting forinsurance liabilities, implying large diversity in accounting practices amongst insurers, and a resulting lack of comparability of insurance company balance sheets and results.

However, the Citi analysts don’t’ envisage the new IFRS to be issued until 2015 or mandatory until 2018.

Financial instruments IFRS – no significant improvement

The Citi analysts point out that the financial instruments project was initially billed as the IASB’s fix for the perceived accounting problems associated with the 2008 credit crisis, in particular insufficient loan provisioning, overly complex accounting rules in IAS 39. However the analysts don’t envisage the current IFRS 9 proposals as substantially improving accounting on any of these counts.

Highlighting some of the other developments in their report, the Citi analysts point out that three new IFRS viz.: IFRS 10, 11 and 12 are to take effect from January 1, 2014 in the EU.

The Citi analysts anticipate a new standard on revenue recognition to be issued in H1 2014 which is expected to have significant implications for telecoms sector, which will need to move away from cash accounting for bundled contracts.

As reported earlier, in 2012, the Securities and Exchange Commission issued a report without making any recommendation or timeframe for adopting IFRS. The Citi analysts don’t expect the US to adopt IFRS in the foreseeable future. The following table summarizes the status of IFRS adoption in various countries:

image003-1

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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