ASEAN Linkage - accounting and reporting ... · ASEAN Linkage - accounting and reporting seminar ... Introduction 3 . PwC 4 Introduction IFRS Thailand Malaysia Singapore IFRS with

ASEAN Linkage - accounting and reporting seminar 18 May 2012

www.pwc.com/th

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Agenda

1. Introduction

2. Business reporting environment

3. Comparison of significant GAAP differences

4. Getting ready for the roadshow

2

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Introduction

3

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Introduction

IFRS

Thailand Malaysia Singapore

IFRS with some local

modifications

Adopted most of IFRS

2009

IFRS in 2012 except certain

standards

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Business reporting environment

5

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Malaysia

6

Business and reporting environment

Insert Picture for Malaysia

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Overview of capital market

7

• Stock Exchange - Bursa Malaysia (MYX)

• Main market

• ACE market

• Financial reporting of listed companies is regulated by Securities Commission (SC).

Business and reporting environment - Malaysia

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• Listing process

- Similar to Thailand - Submit prospectus

- Obtain approval from the Securities Commission Malaysia

- Obtain listing eligibility approval from the MYX

• Listing criteria

- Main market - Profit test/Market capitalisation test

- ACE market – must have a sponsor


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Overview of independent oversight body

9

• Applies ISQC 1 from 1 January 2010

• Audit Oversight Board (AOB) - established by Securities Commission Malaysia


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Auditors

10

• Any professional qualification but :

― must be registered as a Malaysian Institute of Accountants (MIA) member, and

― Obtain a licence from the MoF.

• Auditors of listed companies:

― Must register with the AOB

― Annual registration & file review

• Auditors of banks – Big 4 only

Overview


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Auditors

11

• Big-4 generally perform well under AOB review for ISQC 1 compliance

• Minimum 120 hours of training for every 3 years

• English competency

Quality of auditors


Auditor rotation • 5 years partner rotation

• 2 years cooling period

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Accountants

12

• No specific qualification required for accountants – generally have CPAs

• Quality

- Board spectrum between top tier and lower tier companies


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Accounting standards development

13


Malaysian Accounting Standards Board

MFRS for PAEs from 2012

Separate set of standards for NPAEs

For listed companies – must also disclosed break down of realised and unrealised profit.

All financial statements must be prepared under Malaysian GAAP

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Financial reporting requirements – Listed companies

14

Q1 Q2 Q3 Q4

60 days Quarterly

review (unaudited & unreviewed)

Quarterly review

(unaudited & unreviewed)

Quarterly review


Due within

Audited financial

statements

120 days


Quarterly report (un audited &

unreviewed)

Annual report 6 months

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Auditing standards development

15

• Issued by the Malaysian Institute of Accountant (MIA)

• Adopted ISA Clarity in 2010

• Full ISA compliance


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Singapore

16

Business and reporting environment


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• Stock Exchange – Singapore Stock Exchange (SGX)

• Main Board

• Catalyst

• Financial reporting of listed companies is regulated by Accounting Corporate Reporting Authority (ACRA).

Business and reporting environment - Singapore

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• Listing process

- Similar to Thailand and Malaysia

• Listing criteria

- 3 years track record/continuous management

- Minimum pre-tax profit or minimum market capitalisation


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Overview of independent oversight body

19

• Applies ISQC 1 from 1 January 2010

• Oversight by ACRA


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Auditors

20

• Must be a Singapore CPA

• Must register with SICPA

• Sign as audit firm

Overview


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Auditors

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• Big-4 generally perform well

• Minimum 120 hours of training for every 3 years

• English competency

Quality of auditors


Auditor rotation • 5 years partner rotation

• 2 years cooling period

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Accountants

22

• No specific qualification required for accountants – generally have CPAs

• Quality

- Board spectrum between top tier and lower tier companies


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Accounting standards development

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Accounting Standards Council (ASC)

Singapore Financial Reporting Standards (SFRS)

• All companies subject to financial reporting apply the same set of accounting standards.

• IFRS, US GAAP, UK GAAP are also allowed

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Q1 Q2 Q3 Q4

45 days if market cap >

S$75m

Quarterly review


Quarterly review


Due within


Quarterly report (un audited &

unreviewed)

45 days if market cap <

S$75m

Half year (unaudited & unreviewed)

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Q1 Q2 Q3 Q4 Due within

Unauditedannual

announcement

60 days


Annual report 120 days

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Auditing standards development

26

• Adopted ISA Clarity in 2010 Singapore Standards on Auditing (SSA)

• Full ISA compliance


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Comparison of significant GAAP differences

27

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Malaysia

28

Business and reporting environment - Malaysia Comparison of significant GAAP Differences


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MFRS vs IFRS

29

IFRS MFRS Key differences

IAS 41 Agriculture No existing MFRS

• Agricultural assets are carried at cost under MFRS.

IFRIC 15 Agreements for the Construction of Real Estate

No existing MFRS

• Revenue from property development is always accounted for using percentage of completion method.

Comparison of significant GAAP Differences

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Singapore

30


Insert Picture for Singapore

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Singapore FRS vs IFRS

31

IFRS Singapore FRS

Key differences

IAS 12 Income Taxes FRS 12 • No deferred tax is accounted for temporary difference arising from foreign income not yet remitted to Singapore if: a) the entity is able to control the

timing of the reversal of the temporary difference; and

b) it is probable that the temporary difference will not reverse in the foreseeable future.

• Under IAS 12, deferred tax for temporary difference arising from such unremitted foreign income is required.


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IFRS Singapore FRS

Key differences

IAS 16 Property, Plant and Equipment (PPE)

FRS 16 • For an enterprise which had revalued its PPE before 1 January 1984 (in accordance with the prevailing accounting standard at the time); or performed any one-off revaluation on its PPE between 1 January 1984 and 31 December 1996 (both dates inclusive), there will be no need to revalue those assets in accordance with paragraph 29 of FRS 16.


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IFRS Singapore FRS

Key differences

IAS 27 Consolidated and Separate Financial Statements

FRS 27 • The ultimate holding company or any intermediate parent of a company that seeks exemption from consolidation to produce consolidated financial statements that are available for public use. These consolidated financial statements need not comply with any specific accounting framework.

• IAS 27 requires that those consolidated financial statements comply with IFRS.


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IFRS Singapore FRS

Key differences

IFRIC 15 Agreements for the Construction of Real Estate

INT FRS 115 • The standard residential property sales in Singapore that meet certain criteria would require such sales to be accounted for on a percentage-of-completion method.


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Thailand

35


Insert Picture for Thailand

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TFRS vs IFRS

36

IFRS TFRS Key differences

IFRS 1 First-time Adoption of International Financial Reporting Standards

No existing TFRS

• IFRS 1 applies to an entity that moving from national GAAP to IFRS on its first IFRS financial statements and interim reports.

• It contains a number of optional exemptions and mandatory exceptions to the requirement for retrospective application.


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TFRS vs IFRS

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IFRS 3 Business Combinations

TFRS 3 • IFRS 3 limits the choice to non-controlling interests that are present ownership instruments and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation and requires the acquirer to measure all other components of non-controlling interest at the acquisition-date fair value, unless IFRSs require another measurement basis.


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TFRS vs IFRS

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IFRS 4 Insurance Contracts

No existing TFRS

• IFRS 4 applies to all issuers of insurance contracts whether or not the entity is legally an insurance company. It does not apply to accounting for insurance contracts by policyholders.

IFRS 7 Financial Instruments: Disclosures

No existing TFRS

• IFRS 7 applies to all risks arising from all financial instruments, except certain instruments listed in the standard.


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TFRS vs IFRS

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IFRS 8 Operating Segments

TAS 14 Segment Reporting

• Under TAS 14, segments are either business or geographical.

• IFRS 8 replaces IAS 14 Segment Reporting. It uses a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes.


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TFRS vs IFRS

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IAS 12 Income Taxes TAS 12 • IAS 12 gives an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value.

IAS 17 Leases TAS 17 • IAS 17 has removed the requirement for land title to pass before land leases can qualify as finance leases.

IAS 19 Employee Benefits

TAS 19 • TAS 19 has provided 4 optional transitional provisions.


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TFRS vs IFRS

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IAS 24 Related Party Disclosures

TAS 24 • IAS 24 gives an exemption from all of the disclosure requirements for transactions between government-related entities and the government, and all other government-related entities.

• IAS 24 revises and simplifies the definition of a related party.


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TFRS vs IFRS

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IAS 41 Agriculture No existing TFRS

• All biological assets are measured at fair value less costs to sell, with the change in the carrying amount reported as part of profit or loss from operating activities.

• Agricultural produce harvested from an entity’s biological assets is measured at fair value less costs to sell at the point of harvest.


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Typical GAAP differences for

Thai companies in selected industries

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Typical GAAP differences for Thai companies in selected industries

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• Functional currency

• Accounting for derivatives

• Deferred taxes

Oil & Gas

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• Functional currency


• Deferred taxes

• Arrangement which may contains a lease (IFRIC 4)

Utilities

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• Deferred taxes

• Arrangement which may contains a lease (IFRIC 4)

• Service concession

• Customer Loyalty Programmes

Telecommunication

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• Deferred taxes

• Revenue recognition

• Accounting for biological assets

Food and agricultural

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• Revenue recognition & Customer loyalty programmes


• Deferred taxes

Consumer products

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• Revenue recognition – percentage of completion vs completion method

• Deferred taxes

Real estates

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Financial reporting

requirements – for Banks

50


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Financial reporting requirements – for Banks

51


- Annual

• submit audited financial statements to Bank Negara Malaysia (BNM) within 3 months after the close of each financial year.

- Interim • submit quarterly and half-yearly financial reports to BNM no

later than 4 weeks after the end of each interim period.


Submission requirements

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- Annual

• publish a complete set of the financial statements within 14 days after the general meeting, in at least two local daily newspapers.

- Interim • disclose in the websites on a quarterly and half-yearly basis, not

later than 8 weeks after the close of the interim period.

Publication requirements


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- Annual

• Immediately after the figures are available, but in any event not later than 60 days after the relevant financial period.

- Interim

• Immediately after the figures are available, but in any event not later than 45 days after the quarter end

Submission requirements


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TFRS vs IFRS – Financial instruments

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IAS 39 Financial Instruments: Recognition and Measurement

No existing TFRS

• All financial assets and financial liabilities are measured initially at fair value under IAS 39.

• The measurement of financial instruments after initial recognition depends on their initial classification. All financial assets are measured at fair value except for loans and receivables, held-to-maturity assets.

• Loans and receivables and held-to-maturity investments are measured at amortised cost.


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No existing TFRS

• Financial liabilities are measured at amortised cost using the effective interest method unless they are classified at fair value through profit or loss.


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No existing TFRS

• ‘Hedging’ is the process of using a financial instrument (usually a derivative) to mitigate all or some of the risk of a hedged item. ‘Hedge accounting’ changes the timing of recognition of gains and losses.

• There are three types of hedge relationship: • Fair value hedge • Cash flow hedge • Net investment hedge


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IAS 32 Financial Instruments: Presentation

TAS 107 Financial Instruments: Disclosure and Presentation

• IAS 32 revises the scope and definitions of financial assets, financial liabilities, and equity instruments, in order to comply with IFRS 9 and IAS 39.

• It also provides additional guidance, illustration examples on classification of contracts settled in an entity’s own equity instruments, puttable instruments, and treasury shares.


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IFRS 7 Financial Instruments: Disclosures

No existing TFRS

• IFRS 7 applies to all risks arising from all financial instruments, except certain instruments listed in the standard.


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Getting ready for the roadshow

59

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• Who are our target audience?

• What do they want to know?

• How best to market the Company – what makes your company an attractive investment?

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• Consider what the investors want to know e.g.

• Management discussion & analysis

• Future business plan & forecast

• Growth Story

• Dividend payment ability and WHT

• Narrative GAAP differences and/or GAAP Reconciliation


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GAAP Reconciliation

• Reconciliation of statement of financial positions

• Reconciliation of income statement

• Reconciliation of statement of comprehensive income

• Reconciliation of earnings per share and diluted earnings per share

• Notes to reconciliations

TFRS Reconciliation

adjustments IFRS

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GAAP Reconciliation

Assume Company A has the following differences between TFRS and IFRS:

Company A has a forward contract at fair value gain of Baht 120,000,000. Under TFRS, Company A does not record any gain or loss on forward contract.

Company A does not record any deferred tax assets and liabilities. If IAS 12 is applied, Company A will have net deferred tax assets of Baht 50,00,000.

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GAAP Reconciliation

Notes 2011 Baht (million)

Net profit under TFRS 1,000

Unrealised gain on forward contract a 120

Deferred income tax, including tax effect on the above adjustment

b 50

Net profit under IFRS 1,170

Income statement reconciliation – Format 1:

Note: May consider presenting reconciliation for two or three years if needed.

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GAAP Reconciliation

Notes TFRS 2011

(million)

Recon adjustments

2011 Baht

(million)

Revenue 8,000 - 8,000

Cost of goods sold a (5,000) - (5,000)

Gross profit 3,000 - 3,120

Other income 50 120 170

SG&A expenses (1,500) - (1,500)

Profit before tax 1,550 120 1,670

Taxation b (550) 50 (500)

Net profit after tax 1,000 170 1,170

Income statement reconciliation – Format 2:

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GAAP Reconciliation

Notes 2011 Baht (million)

Net assets under TFRS 30,000

Unrealised gain on forward contract a 120

Deferred income tax, including tax effect on the above adjustment

b 50

Net assets under under IFRS 30,170

Statement of financial position reconciliation:

Note: May consider presenting reconciliation for two or three years if needed.

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GAAP Reconciliation

Statement of financial position reconciliation (Cont’d):

Format:

- No specific format:

- Reconciliation of net assets or

- Line-by-line reconciliation

- Reconciliation of total assets, total liabilities and total equity

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GAAP Reconciliation

Notes to reconciliation example:

Note a: Fair value of derivative

As at 31 December 2011, the Company has an outstanding of a forward contracts to hedge USD/Baht exchange rate. Under TFRS, there is no specific accounting standard on accounting for derivative. The Company does not recognise any unrealised gains or losses on forward contracts in its income statement.

Under IFRS, in accordance with IAS 39 Financial Instruments: Recognition and Measurement, derivatives are recognised at fair value on statement of financial position. Any fair value changes on derivatives are recognised in income statement in the period in which the changes occur, unless hedge accounting is applied. The Company does not apply hedge accounting for this transaction. Under IFRS, the unrealised fair value gain on forward contract of Baht 120 million resulted in an increase in net profit before tax with a corresponding increase in net assets of Baht 120 million as at 31 December 2011.

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GAAP Reconciliation


Note b: Deferred taxes

• Consider disclosing:

• Current accounting policy

• Accounting policy under IFRS

• Sources of deferred taxes, including details of each statement of financial position items with deferred tax implications

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GAAP Reconciliation


Note b: Deferred taxes

Under TFRS, the Company does not recognise any deferred taxes on temporary differences. Under IFRS, IAS 12 Income taxes required recognition of deferred tax assets or liabilities using liability method.

The following table shows analysis of net deferred tax assets under IFRS:

Deferred tax assets

Deferred tax liabilities

Net deferred tax assets

Baht (million) Baht (million) Baht (million)

Depreciation (114)

Provision for retirement benefits 200

Derivative asset (36)

200 (150) 50

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Summary

• Planning & marketing – “Investment story”

• Prepare to explain the differences

• Accounting and financial reporting differences

• Reconciliation vs narrative differences

• Consider the availability of resources & time and effort required

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Q & A

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If you need more information, please contact:

Sinsiri Thangsombat

Director, Assurance

Tel: 02-3441419

Email: [email protected]

Kanokporn Tirabanchasak

Senior Manager, Assurance & Capital Markets Group

Tel: 02-3441465


Sanicha Acrakittilarp

Senior Manager, Assurance

Tel: 02-3441314


Chanchai Chaiprasit

Partner, Assurance

Tel: 02-3441373


Thank y0u

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(express or implied) is given as to the accuracy or completeness of the information contained

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and/or "PwC" refers to the individual members of the PricewaterhouseCoopers organisation in

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ASEAN Linkage - accounting and reporting ... · ASEAN Linkage - accounting and reporting seminar ... Introduction 3 . PwC 4 Introduction IFRS Thailand Malaysia Singapore IFRS with