Accounting Update: The Reality of Implementing IFRS

by Angie Mak, 05 July 2010

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topics:
Accounting and Regulations Auditing

tags:
accounting standards fair value fair value accounting fair value measurement IASB IFRS international financial reporting standards Mazars Pascal Jauffret

International Financial Reporting Standards (IFRS) is already in use in Hong Kong and Singapore. India will start phasing it in for listed companies between 2012 and 2014. Technically, China has not adopted IFRS, although it says that its new Accounting Standards for Business Enterprises (ASBE) covers all major areas of IFRS literature.

Pascal Jauffret, partner and Head of Asia Pacific IFRS desk at Mazars, categorises Asia’s into three groups: those that have implemented IFRS, those that are in the process of doing so, and those that have not adopted it. He sat down with CFO Innovation’s Angie Mak to discuss the road ahead for companies, given Asia’s unique IFRS situation.

What are the first things that CFOs need to know about IFRS?

What is critical for them is to know where IFRS is used and where it is not, so far. Depending on their own environment, IFRS may be mandatory for them.

As an example, [if a company] from London is applying IFRS, all their subsidiaries globally have to use the same reporting method, even if locally, they are using a different [financial reporting] language for regulatory purposes. If that company wants to invest and consolidate, or carry out an M&A deal, they have to convert this target into their own language. They have to absorb it.

If you have your headquarters in one of the 120 countries around the world that already apply IFRS, that’s something you’re already doing, [but] IFRS will also [continue to] affect you because there are new standards coming in.

What’s the situation in Asia?

Asia is quite unique, because you have three different areas: jurisdictions that already use IFRS, such as Hong Kong, Singapore and Australia; the countries on the way [to implementing it], such as Korea, Japan and Thailand, Malaysia, India, Indonesia; and the third area that hasn’t set anything, such as Vietnam and China.

Suppose you are in the third group. You would say, I’m not concerned with IFRS. But if you do any transactions overseas, the [involved parties] would like to understand [your financials]. For a company in Indonesia, for instance — even though Indonesia has not yet adopted IFRS — if the investors are based in Hong Kong, Singapore, or London, what they know is this [IFRS reporting] language. When we work with [an Indonesian entity] in setting a new bond, a new M&A deal or a new structure, we are moving away from the local regulatory environment. It’s as if [the company] were already applying IFRS.

Whether it is for mandatory purpose or whether it’s for the investors, the companies have to work in the IFRS environment.

Before I came to Asia, I was in Europe, advising banks and lawyers. When they pitched M&A deals, I told them they’d better have in mind that the CFO now has to get into the picture not only for cash flow or legal regulations. The CFO has to be prepared for the way all these deals will be presented in the financials.

If you don’t take this into the picture when you design the deal, you may have the best lawyers, but the presentation of the financials may not be the one you decided at the very beginning.

Previously, everybody considered that what counts [in a deal] would be the just the end results. But now, people are very sensitive to the volatility, to the EBITDA.

CFO innovation ASIA

Accounting Update: The Reality of Implementing IFRS

Accounting Update: The Reality of Implementing IFRS

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