Sri Lanka

Progress of IFRS Implementation and

Implementation Issues

Nishan FernandoMember (Former Chairman 2009-2013) – Accounting Standards Committee

Chairman – SLFRS Implementation and Interpretation Committee

1

IFRS Convergence in Sri Lanka

Full convergence with effect from Jan 1, 2014

Rapid transformation period: Jan 1, 2012 to Jan 1, 2014

Jan 1, 2012 – Convergence with IFRS 2011 version

Jan 1, 2013 – Convergence with IFRS 2013 version without

consolidation package

Jan 1, 2014 – Full convergence

Policy decision to adopt all IASB pronouncements in line

with IASB effective date

IFRS 9, 14 and 15 have been adopted

2

Sri Lanka Financial Reporting Framework

Full SLFRS Framework

SLFRS – in line with IFRS (All IFRS adopted as SLFRS)

LKAS – in line with IAS (All IAS adopted as LKAS)

IFRIC and SIC Pronouncements

Statements of Alternative Treatment (SOAT)

SLFRS for SME

SLFRS for Smaller Entities

Statements of Recommended Practice and Guidance

3

Sri Lanka Financial Reporting FrameworkStatements of Alternative Treatment (SOAT)

Basis of Issue

Significant issues impacting businessin general or an industry as a whole

A deviation from the extant Standard

is justified

Proposed treatment is in line with the

thinking of IASB

Issued as an Alternate Treatment

Gazetted

SOAT Issued

Super Gain Tax with retrospectiveapplication

Right to use of land on lease

Accounting for Bearer Plants at Cost

(Early Adoption)

Comparative figures in interim FS

Deferral in application of IFRIC-15

Revaluation of PPE for SME

4

Sri Lanka Financial Reporting FrameworkStatements of Recommended Practice

Basis of Issue

Significant issues impacting businessin general or an industry as a whole

No Specific Standard within SLFRS

Proposed treatment is in line with the

thinking of IASB

Issued as a Recommended Practice

Gazetted

SORP Issued

Business Combinations underCommon Control

Not for Profit and Non Governmental

Organisations

5

Sri Lanka Financial Reporting FrameworkStatements of Reporting Guidance

Basis of Issue

Issues referred to FRSIIC and toTechnical Help Desk

Interpretations and Clarifications

based on extant Standards and

Framework

If significant and useful in general a

SORG is issued

Otherwise posted as FAQ

Not Gazetted

SORG Issued

Impracticability to Revalue Landthroughout the island within a year

Disclosures pertaining to Directors

and other KMP

Deferred Tax for Companies having

Tax Holidays

Segregation of Insurance business to

life and general

Recognition of Goodwill in financial

sector consolidation

Recognition of Goodwill resulting from

application of M&A Code inacquisition

6

Segmentation of Entities

7

CompaniesCompanies Act

Private CompaniesCompanies Act

SBESLAAS Act

Segmentation of Entities for Financial Reporting

Specified Business Enterprises

Banks, Insurance Companies, Finance Companies, Leasing

Companies, Factoring Companies

Unit Trusts, Fund Management Companies, Unit Trusts

Stock Exchanges, Stock Brokers and Stock Dealers

Listed Companies

Public Corporation engaged in sale of goods or provision of

services

8

Segmentation of Entities for Financial Reporting

Specified Business Enterprises

Any other Company falling into any one of the following:

Turnover > LKR 500Mn (~ USD 3.6Mn)

Equity > LKR 100Mn (~ USD 0.7Mn)

Gross Assets > LKR 300Mn (~ USD 2.2Mn)

Liabilities to banks and financial institutions > LKR 100Mn (~ USD 0.7Mn)

Employees > 1000

9

Segmentation of Entities for Financial Reporting

Small and Medium sized Entities

Prepare General Purpose Financial Statements

Not SBEs

Not Public Interest Entities

Smaller Entities

Revenue < LKR 100Mn (~ USD 0.72Mn) and Equity < LKR 50Mn

(~ USD 0.36Mn)

Not required to prepare Consolidated Financial Statements

Does not hold assets in a fiduciary capacity

10

Applicable Financial Reporting Framework

Specified Business Enterprises (SBE)

Sri Lanka Accounting and Auditing Standards Act No. 15/1995

Preparation and Filing FS in accordance with full SLFRS

11

Applicable Financial Reporting Framework

Non Private Companies

which are not SBE

Companies Act No. 7/2007

Preparation and Filing of FS

audited by CA

No Financial Reporting

Framework is defined

Must apply either full SLFRS orSLFRS for SME

12

Applicable Financial Reporting Framework

Private Companies which

are not SBE

Companies Act No. 7/2007

Preparation of FS for Share

holders but filing is not

mandatory

No Financial Reporting

Framework is defined

Can apply full SLFRS or SLFRSfor SME but not mandatory

13

Applicable Financial Reporting Framework

‘Smaller’ Entities

Private Companies and Un-incorporated Entities ‘smaller’ in size

Can apply SLFRS for Smaller Entities

14

Entities other than SBE and Non Private Companies

Companies are not subject to mandatory Financial Reporting

Framework

Depends on the shareholder’s requirements

Depends on the other users such as Department of Inland Revenue andFinancial Institutions

Audit may be carried out by a non-CA

Not obliged to follow ISA

Not subject to Code of Professional Conduct and Quality Control

15

Applicable Financial Reporting Framework

Standard Setting and Implementation

Standard Setting

Council of The Institute of Chartered Accountants of Sri Lanka

Assisted by Accounting Standards Committee

Implementation and Interpretation

SLFRS Implementation and Interpretation Committee of CASL

SLFRS Education Committee of CASL

Financial Reporting Faculty of CASL

Technical Committees of CIMA, ACCA and CMA

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Detailed study by the ASC and TT

ASC and CA Technical Team

ASC considers any significant differences from ED and/or any significant issues not

addressed

ASC recommends the Standard to the Council

of CASL for adoption

Gazette

Published in Gazette

Translation in to national languages

Round table

When IASB issues an ED or DP

Exposure of ED in SL

Public SeminarRSSG/ AOSSG/

IASB Stakeholder comments

Compilation of Comments

on ED

CFO Forum

Standard Setting Process

When IASB issues the Final Standard

Awareness and Education Continues

Awareness and Education Continues

Compliance and Oversight

Registrar of Companies

Non Private Companies

Accounting and Auditing Standards Monitoring Board

Specified Business Enterprises

Securities Exchange Commission

Listed Companies, Stock Brokers, Unit Trusts

Central Bank

Banks and Financial Institutions

CA Sri Lanka

SBE and non Private Companies through Audit Quality Control

18

Implementation Challenges

Resource constraints in IFRS application

Impact of IFRS on taxation

Lack of reliability in Fair Values due to Level 3 inputs

Lack of other professionals used for measurement

Inconsistency in valuations by different valuers

Mindset that ‘Compliance is complex’

Criticism that IFRS are for Developed Economies

Translation of Standards in to Local languages

19

Implementation Efforts

Train the Trainer programs, Seminars and Workshops

Application level training programs in regions

SLFRS Interpretation and Implementation Committee

Technical help desk

E-Learning platform for SLFRS Education

Valuation Guidelines

Regional seminars on SLFRS for SME

SLFRS for Smaller Entities

20

Knowledge Sharing and Assistance

Providing Technical Training on IFRS

Accounting and Auditing Standards Board of Bhutan

Auditor General’s Office in Republic of Maldives

Providing Technical Assistance in setting up PAO

Accounting and Auditing Standards Board of Bhutan

Auditor General’s Office in Republic of Maldives

Papua New Guinea

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Sri Lanka

Thank You

Nishan FernandoMember (Former Chairman 2009-2013) – Accounting Standards Committee

Chairman – SLFRS Implementation and Interpretation Committee

22