With the deadline for the International Financial Reporting Standards (IFRS) drawing closer (January 1, 2012), the Bank of Ceylon has put in place a strategic plan that would enable it to implement the new standards. The bank is gearing to face the complex reality that the new standards pose: changes in financial reporting presentation, new valuation rules and additional disclosure requirements. The bank has been working on it from some time back, exploring the right resources. But there will be a cost involved for bringing in consultants and experts, changing of systems (IT) as well as changes to management and training. The BOC needs at least 10 chartered accountants to ensure a successful implementation of IFRS.
In an interview on the topic of IFRS, Chief Financial officer BOC Sarath Rupasinghe said that accounting standards are not so complicated; complications arise when applying principals to the substance of the standard. The business environment today is so much more complex. But one should be cautious on how to get the branch offices compliant with IFRS, because it will take some time to change the mindset of these officers who were used to practice a different financial system. But he said, the bank’s success depends on how good or bad a bank’s current system is.
As globalization directs more and more countries to attract foreign investment and as businesses themselves expand across borders, both the public and private sectors are increasingly recognising the benefits of having a commonly, understood financial reporting framework supported by strong globally accepted standards, he said.
A common language in accounting to disseminate complex financial results of business entities has become an essential, widely accepted and a long felt need in a heavily interconnected world. However, the complexity of implementing the common language in accounting, ‘IFRS’, has always been a challenging task for various countries with their diverse cultural, political, management, legal, economic, tax, regulatory and IT differences. This task has become even more challenging with the global financial meltdown spread across the world again due to close inter-connection of trading and economic activities of nations, Mr Rupasinghe said.
However arriving at a uniform set of financial reporting standards globally, is not so easy as it sounds. Experience from other countries has shown that not only can financial statements be impacted significantly by the transition to IFRS, but that this change process needs to be well planned to ensure costs and resources are not strained. He pointed out that the bank’s business process, organization and technology interlinks: the biggest mindset change people will have to tackle with, is that in the past they thought these standards were a technical thing, but now the standard had to be applied to the whole process.
There are so many risks for banks when implementing these standards, this new application can change the way banks are used to financial reporting and seeing standards. “We have to prepare to exercise a certain amount of judgement because none of the transactions have clear-cut answers,” he added. “If you ask me whether banks are 100% ready to meet the 2012 deadline my answer would be a definite no, but we have to start somewhere,” he said.