The Future of Accounting Standards

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10:15 AM – 10:30 AM The Future of Accounting Standards

Mr. Binod Shankar, CFA Managing Director Genesis Institute

THE FUTURE OF ACCOUNTING STANDARDS

Binod Shankar, CFA

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About Me

• 17+ years in project appraisal, audit, financial due diligence, financial feasibility, valuation and real estate finance

• 11 years in the Middle east- Oman, Bahrain and now Dubai

• Worked with KPMG, Arthur Andersen, Ernst & Young. Last position as Executive Director at Gulf Finance House, Bahrain

• Teaching advanced finance and accounting courses since 1996

• Chartered Accountant and a CFA charterholder

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About Genesis

•Market leader in CFA preparatory courses in the UAE and Lower Gulf•Diverse product portfolio of Customized Corporate Training, CFAB Review Courses •The only learning provider for all 3 levels of CFA in the Lower Gulf•Authorized Distributor of Kaplan Schweser in the UAE•Trained 1,500+ finance professionals and CFA candidates•Approved Learning Partner of Institute of Chartered Accountants of England and Wales

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Convergence

• Between IFRS and UJS GAAP• Started in 2004• A few projects have been selected for

convergence

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Convergence

• Financial instruments• Revenue recognition• Leases• Statement of comprehensive

income• Fair value measurement• Derecognition• Consolidations• Post-employment benefits

• Balance sheet - Netting• Financial statement

presentation• Discontinued operations• Financial instruments with

characteristics of equity• Insurance contracts• Emissions trading schemes

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The spread of IFRS

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From Rules to Principles

• US GAAP: Too many rules, exceptions • Confusing and even contradictory standards• Easier to find loopholes and “game” the

standards• One reason why the US has the maximum

number and size of accounting scandals: Enron, Worldcom, Global Crossing

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From Off to On

• Traditional off balance sheet items may end up on the balance sheet

• The ED issued in 2010 on Leases requires same treatment for operating leases and finance leases. Maybe finalised in 2012

• Excludes short term leases• Huge impact:

Companies may end up more leveraged; Airlines, retailMay even breach bank covenantsLimits ability to raise finance Interest costs may rise; profitability may fall

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Public Sector Accounting

• Traditionally most Governments have followed cash based or modified accrual accounting

• Inertia due to lack of specialists, lack of funding and lack of experience with accrual accounting

• There is a growing trend towards full Accrual Accounting

• Growing adoption of International Public Sector Accounting Standards (IPSAS)

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Public Sector Accounting

Source: Ernst & Young

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SME Standards

• SMEs make up 95% of all companies. Yet they have to comply with some IFRSs that are irrelevant. Effect is higher cost and workload

• IASB issued accounting standards for SMEs in 2009

• Abridged, simplified set of standards• Makes IFRS easier to adopt. Yet another

catalyst for growth of IFRS

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Limiting the Choices-IFRSSubject Option 1 Option 2

Immaterial items Part of financials Show in notes

Cash flow from operations Indirect method Direct method

Interest paid Cash flow from operations Cash flow from financing

Dividend paid Cash flow from operations Cash flow from financing

Subsequent measurement of P P & E

Cost model Revaluation model

Interest in joint ventures Proportionate consolidation

Equity accounting

Subsequent measurement of Investment Properties

Cost model Fair value model

Govt grants Deferred income Reduce from assets

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Clarity and SimplicityStandard Purpose(s)

IFRS 9: Financial Instruments

• Replaces the hideously complex IAS 39• Reduces asset classification to just two• Simplified fair value options• Comprehensive- measurement, impairment, hedging,

disclosure• Impairment model for assets means losses may be

recognized earlier

IFRS 11: Joint arrangements

Replaces IAS 31

IFRS 13: Fair Value • Single framework for defining & measuring FV • Eliminates different different in different IFRSs

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Summary

1. Convergence2. Spread of IFRS3. Rules to Principles4. Off balance sheet to on balance sheet5. Evolution of Public Sector Accounting6. SME standards7. Limiting the choices8. Clarity and Simplicity

Binod Shankar, CFA, FCAMobile: +971 50 558 2498Email : bshankar@genesisreview.com

www.genesisreview.comGenesis Institute

Dubai. Abu Dhabi

Thank you!