KPMG program on new financial reporting standards

KPMG in Sri Lanka recently conducted a client awareness program on the newly introduced Sri Lanka Financial Reporting Standards (SLFRS) 10, 11, 12 and 13, which will come into effect from January 2014. The program provided application guidance on the new standards and discussed their impact on financial reporting to help clients understand how these new standards would affect their businesses.

Head of the Department of Professional Practice for KPMG in the Middle East and South Asia Region, Yusuf Hassan conducted the program and provided an analysis of each standard, focusing on considerations in relation to the adoption of the standards in the modern business context.

The adoption of the suite of new consolidation standards (SLFRS 10, 11 and 12) and fair value measurement standard (SLFRS 13) could result in considerable financial statement and business operational implications.

"The new consolidation suite of IFRS may significantly change the way we approach consolidation and the formation of companies. Although Sri Lanka has delayed adoption of IFRS 10, to 2014, the standard requires retrospective adjustment, which could have consequences for Sri Lankan companies," he said.

SLFRS 10 - Consolidated Financial Statements, brings a new approach to consolidation with new intricacies where management judgment is considered vital. The main change deliberated in SLFRS 10 is the introduction of a single control model in determining whether an investee should be consolidated with the investor's financial statements.

The changes introduced could result in deconsolidation of previously consolidated investees or consolidation of investees who have not been previously consolidated, all of which could have a notable effect on reporting and business.

SLFRS 11 - Joint Arrangements, add more challenges in relation to accounting for joint ventures as it no longer relies on the legal form of the joint venture arrangements. Instead, there are a series of steps to the analysis, and many factors to potentially consider in determining appropriate accounting treatment. Further, the accounting choice under the previous standard (equity accounting or proportionate consolidation) has been removed, signaling significant financial statement and business implications.

SLFRS 12 - Disclosure of Interest in Other Entities, warrants more disclosures on consolidation and significant management judgments and assumptions made under SLFRS 10 and SLFRS 11. It also contains extensive disclosure requirements for subsidiaries and unconsolidated, structured entities.

SLFRS 13 - Fair Value Measurement, provides a new definition for fair value while changing the form of a number of concepts that were used previously.

The new standard needs fair value to be measured as an exit price from the perspective of market participants in the 'principal' market.

The new standard also includes a new disclosure requirements that may need additional data collection.