An Overview of IFRS Adoption in ASEAN – Part Two
By: Dezan Shira & Associates
Editor: Maxfield Brown
In part two of this three part series on the state of IFRS adoption in the Association of South East Asian Nations, ASEAN Briefing highlights the alignment of Indonesia and Thailand with international reporting standards.
Projected by many analysts to be among the fastest growing economies over the next 35 years, Thai and Indonesian authorities have made significant strides towards the adoption of IFRS. However, despite this progress, differences between International reporting standards and respective national GAAP make a careful review of existing and planned requirements of critical importance.
Regulation of financial reporting in Indonesian is carried out by the Indonesian Financial Accounting Standards Board (Dewan Standar Akuntansi Keuangan – DSAK IAI) via a mandate from the Indonesian Institute of Accountants (IAI). Pursuant to this mandate, the DSAK maintains Indonesian Financial Accounting Standards (Standar Akuntansi Keuangan – SAK) which remain the dominant form of financial reporting regulation within the archipelago.
Currently SAK is broken down in two tiers:
- Tier 1 –SAK: applies to listed companies and other entities with significant public accountability.
- Tier 2 – SAK ETAP: applies to entities with low public accountability.
Note: Separate accounting standards set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) are also permitted for Sharia based companies.
SAK Convergence with IFRS
Following a public commitment to IFRS convergence in 2008, the Indonesian government has been in the process of harmonizing its standards with IFRS. Current harmonization revolves around the chronological adoption of past IFRS with emphasis on closing the gap between Indonesia’s adoption status and the most up to date International standards. As of 2015, Indonesia Financial Accounting Standards are equivalent to IFRS effective in 2014 and represent a one year delay with up to date IFRS.
Although this process of adoption has substantially reduced the gap between IFRS and SAK, a roadmap for full convergence has yet to be established and many areas of divergence remain. In addition to substantive differences between SAK and IFRS, the issuance of Indonesian reporting standards in Bahasa Indonesian – without an official translation – creates serious concerns over the manner in which standards could be interpreted.
While IFRS for SME have yet to be implemented in Indonesia, and there are no plans to do so in the near future, it should be noted that Tier 2 – SAK ETAP is largely based on the international standards for SMEs. In the event that convergence with IFRS for SME is attempted, it is highly likely that SAK ETAP would form the basis for this transition.
Established under the Accounting Professions Act of 2004, the Federation of Accounting Professionals of Thailand (FAP) is tasked with the regulation of financial reporting within the kingdom. Current standards are issued by the FAP’s Accounting Standards Committee (ASC) and codified in national GAAP – known commonly as Thai Financial Reporting Standards (TFRS).
IFRS and TFRS (Thai Financial Reporting Standards)
TFRS have made great strides in harmonization with IFRS in recent years. As of January 1st 2014, the nation’s guidelines represent a near word-for-word compliance with IFRS (effective 2012). Although the extent of Thai adoption is impressive, those considering investment should note the following standards that have yet to be adopted by the ASC:
- Industry specific standards – to be effective January 1st, 2017
- IFRS 4 Insurance Contracts
- IAS 41 Agriculture
- Financial Instruments Standards – to be adopted in 2016 and effective from 2019
- IAS 32 Financial Instruments: Presentation,
- IAS 39 Financial Instruments: Recognition and Measurement,
- IFRS 7 Financial Instruments: Disclosures,
- IFRS 9 Financial Instruments.
In addition to International Accounting standards currently pending adoption in Thailand, TFRS also contain many national elements that extend beyond the mandate set by the International Accounting Standards Board (IASB). The following Thai accounting standards (TAS) and Guidelines fall into this category and should be noted as they are not comparable to existing international standards:
- Thai Accounting Standards
- TAS 101 Doubtful Debt and Bad Debt
- TAS 103 Disclosures in the Financial Statements of Bank and Similar Financial Institutions
- TAS 104 Accounting for Troubled-Debt Restructurings
- TAS 105 Accounting for Investments in Debt and Equity Securities
- TAS 106 Accounting for Investment Companies
- TAS 107 Financial Instruments: Presentation and Disclosure
- Guideline on Accounting for Stock Dividend
- Guideline on Accounting for Business Combinations Under Common Control
- Guideline on Accounting for Treasury Stock
Future TFRS Convergence with International Standards
Concerning continuing convergence with IFRS, the FAP’s articulated harmonization policy commits to the adoption of international regulations no later than one year from their effective date. This is largely a result of the significant time constraints that translation of IFRS into Thai has placed on the FAP. It should also be noted that Thailand has been actively cooperating with the IASB on this issue and looks ready to establish a translation license agreement in the near future. Such an agreement could significantly reduce adoption times and possibly eliminate Thailand’s current one year delay.
Pursuant to the aforementioned IFRS harmonization policy, the adoption of the following International Financial Reporting Standards (effective 2015) should be expected in TFRS from January 1st, 2016:
- IFRS 10 Consolidated Financial Statements
- IFRS 11 Joint Arrangements
- IFRS 12 Disclosure of Interests in Other Entities
- IAS 27 Separate Financial Statements
- IAS 28 Investments in Associates and Joint Ventures
- IFRS 13 Fair Value Measurement
SMEs in Thailand are required to prepare their financial information in accordance with one of the following sets of standards:
- Thai Accounting Standards (TAS)
- Thai Accounting Standard for Non-Publicly Accountable Entities (NPAEs).
Although existing regulations for SME’s are not harmonized with international standards, Thailand has committed to adopting IFRS for SMEs via upcoming legislation entitled: “Thai Financial Reporting Standard for SMEs”. As of 2015, the projected effective date for these regulations is slated for 2017.
While Thailand has committed to adopting IFRS for SMEs in full and without modifications, current discussions indicate the level of compliance with these standards would be contingent upon firm classification within a two tiered system. The exact criteria for this classification as well as exemptions from reporting that would be permitted are still under discussion and have yet to be announced.
IFRS Compliance in ASEAN
With a diverse range of financial reporting standards, all at varying stages of cohesion with IFRS, it is recommended that those interested in establishing operations in ASEAN or expanding throughout the region fully comprehend relevant compliance requirements.
With over two decades experience in specialist tax and accounting guidance to help foreign companies do business throughout Asia, the experts at Dezan Shira & Associates are in a unique position of strength to advise companies on accounting standards as they pertain to their business interests in ASEAN. For a free consultation, please get in touch with our ASEAN specialists at email@example.com.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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