IFRS standards: Meeting the need for more transparency

From 2018 onwards, companies will need to align themselves with the new IFRS accounting standards aiming to simplify reporting and make it less prone to manipulation. Corporates are in dire need of a wake-up call regarding the implementation of these standards.

The new requirements in relation to IFRS 9 Financial Instruments, the new accounting standards set by the International Accounting Standards Board (IASB), will come into effect on 1^st January 2018. Their aim is to simplify reporting by companies, to make it more transparent and better aligned with their business.

With only 13 months to go, companies need to develop a plan to ensure their systems and processes can meet these new requirements. In this context, KPMG Mauritius recently organized a workshop covering three important new IFRS Standards, namely IFRS 9 (financial instruments), IFRS 15 (revenue from contracts with customers) and IFRS 16 (leases). The session was run by Melissa Stevens and Shehnaaz Suleman, respectively Senior Manager and Manager, KMPG South Africa.

The essence of the new standards is about revenue recognition and the measurement of financial instruments, explained Melissa Stevens. “The real key idea that we wanted to bring across is that these standards are coming very soon and as of 2018/2019, they will be in effect. They are fundamentally different from the current accounting principles,” she stated.

There is a huge shift and process that will need to be undertaken in the intervening years to make sure that by the time the standards become effective clients are absolutely ready to implement them, according to her.

Therefore, the first step to be taken by companies like KPMG to gear up for this major shift has to be education; which can be demonstrated through such workshops. Once the understanding is there, discussions need to be initiated, along with engagement with clients, as well as with other practitioners in business.

KPMG is trying to simplify these concepts because they are very theoretical, commented Shehnaaz Suleman. “It is time to think about their practical applications and to start conversation with regulators, clients and all the entities that are going to be impacted about the transition towards the new standards,” she highlighted.

The idea behind such workshops is to also make sure there is an understanding about where the industry is heading and what are the challenges it comprises, since clients are on the lookout for the practical implications, highlighted Desiré Lan, Partner, KMPG Mauritius.

Valuation of financial assets

It is to be noted that IFRS 9 came along following the financial crisis since it is more about how financial assets are valued, Desiré Lan explained. “There is pressure from the regulators to reflect more on business reality, since everything seemed so rosy before the financial crisis,” he said. The issue and importance of transparency in reporting however is not a new one and has been raised several times.

How do these new standards differentiate themselves and aim for impactful change? The answer lies in the way implementation of these principles is carried out, since the standards are designed to achieve more disclosures and the communication of important details. “It is not the policy or theory but actually the way it is implemented that will get us to the right outcome,” stated Melissa Stevens.

The new standards, in Shehnaaz Suleman’s view, come with very less room for manipulation, even though people always find loopholes. “The cool thing is that all three standards are driving to the same objective. There is interplay between them for transparent reporting,” she added.

How is the Mauritian business community faring in the face of the upcoming changes? Different industries are at different levels in terms of preparedness, answered Desiré Lan. The banking sector however has already started picking up and will have to undergo major changes in terms of systems for example, since IFRS 9 is not just a quick adjustment.