Views split on whether S'pore companies prepared for proposed changes

Views split on whether S'pore companies prepared for proposed changes

Imagine playing a game of chess in the dark.

Now imagine playing that game in the dark as the rules are being rewritten after every move.

Businesses around the world are in a situation just like that, having to deal with the uncertainties of the global economy on the one hand and evolving accounting rules on the other.

But accountants say the changing rules are generally a step in the right direction, as they ensure that everyone is playing the same game.

And while the implementation of these changes may present challenges, businesses would do well to invest in education.

Playing the same game

Accounting rules have always been subject to regular revisions, oftentimes a function of the need for accounts to reflect changing times accurately.

But, in recent years, some of the changes have also been motivated by one principle - convergence.

Financial reports do not always tell the same story, especially if they are prepared in different jurisdictions.

In the United States, the Financial Accounting Standards Board (FASB) sets rules manifested in the US' Generally Accepted Accounting Principles (GAAP); in most other parts of the world, the International Accounting Standards Board (IASB) holds court with the International Financial Reporting Standards (IFRS).

Since 2002, FASB and IASB have been trying to converge their differing standards.

A memorandum of understanding in 2006 ratcheted up the level of commitment to unify accounting standards around the world.

Those efforts, an ongoing project, have led to convergence in terms of treatment of financial instruments.

The rulemakers are also trying to bring together the rules relating to revenue recognition, leases and insurance contracts by the middle of next year, said Deloitte Singapore assurance and advisory partner Shariq Barmaky.

"There's been significant progress with the completion of a number of key projects," he said.

Obstacle course

But convergence has oftentimes been easier said than done.

The process is notoriously slow, with changes often taking years to bake before finally coming out of the oven.

Take the current debate over revenue recognition, for example.

IASB began seeking preliminary views on the subject back in December 2008.

It has been almost four years of consultations and revisions since then, and the IFRS on revenue recognition is not expected until the first half of next year, at the earliest.

Chris Johnson, a partner and head of audit assurance and risk management at Moore Stephens, said: "You can say it's been a very slow, drawn-out process, although you can also say they've achieved quite a lot."

He added that part of the complication came from the IASB and the FASB having historically had fundamentally different approaches to rule-setting.

Mr Johnson said: "The whole point is IASB is principle-based, and FASB is rules-based, so convergence is not a straightforward process. It's not an easy thing to do. It's two completely different approaches."

Initial expectations have also often had to be tempered by realities on the ground.

Ong Pang Thye, head of audit at KPMG here, said proposed changes to loan loss provisioning have faced issues from the field.

"This attracted significant criticism as the expected loss model is theoretically sound and the best available solution, but its practical application is very challenging," he said.

The ideals of true convergence have also been dampened somewhat as a result of the fundamental differences between the two rules bodies.

Last December, the chairs of IASB and FASB told their members that the current process of side-by-side convergence was not working as well as hoped, and that they were hoping to come up with a more effective way to achieve the goals.

There is also uncertainty about whether the US Securities and Exchange Commission will pursue the idea of "condorsement", in which the US will maintain US GAAP while also endorsing IFRS.

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