Introduction

Adopting IFRS Standards is a top priority for many stakeholders in economies in the Mekong region. Such countries in the Association of South East Asian Nations (ASEAN) are suffering from the impact of Covid-19 and are looking to attract foreign direct investment to speed recovery and grow. IFRS Standards adoption will assist greatly in this goal. It is therefore helpful to look across the Mekong region to assess the state of adoption by respective nations, and understand the successes and challenges therein.

Representatives from Myanmar, Laos, Cambodia and Vietnam gathered at an online conference hosted by the ASEAN Federation of Accountants and ACCA to discuss the challenges and benefits of implementation, and to hear from representatives from the International Accounting Standards Board (IASB), the Big Four, the World Bank and a recent successful adopter, Malaysia.

Bonnie Sirois, senior government specialist for finance management, World Bank

Since borders are closed and international trade reduced, it is now imperative for the accounting profession to do everything it can to promote and support recovery. Stable and reliable financial reporting frameworks such as IFRS Standards help mitigate the risks associated with market investment. As well as providing governments with an accurate picture of the financial viability of state-owned enterprises including banks, it helps both companies and governments predict future capital outlays, assess risk and manage scarce resources during a time of constraint.

In fact, key accounting and reporting considerations are emerging as a result of the Covid-19 pandemic. Key issues include recoverability and impairment of assets, as well as accounting for financial assets, modifications to contracts, recognising subsequent events and going concern evaluations. IFRS Standards, if properly applied, will capture these items, and present them.

It is more important than ever that technical partners, development partners and the accounting profession come together to support the implementation of IFRS Standards. Accountants in particular should collaborate in-country and assist their clients, since IFRS Standards will help support international trade.

Poll result: Just over half (53%) of participants are confident about IFRS Standards implementation in their country

Poll result: 50% of participants said that the significant use of judgment and estimates is the scariest hurdle for them in implementing IFRS Standards

Implementation overviews

Implementation in Cambodia – Ung Kimsopheaktra, director, Deloitte Cambodia, and governing council member, Kampuchea Institute of Certified Public Accountants and Auditors

The implementation of IFRS Standards in Cambodia has been quite limited and slow. Since the announcement to adopt in 2009, multiple delays have led to a 10-year wait for first-time adoption.

It is worth noting the reasons for each major delay. The first, from 2012 to 2016, was down to the general complexity of IFRS Standards and the lack of qualified resource to assist in implementation; there is a substantial gap between the local generally accepted accounting principles (GAAP) and Cambodian IFRS, especially for the newer standards.

The second delay, from 2016 to 2019, was down to similar combined factors but with additional pressure from practitioners, bank associations and microfinance companies since they were struggling to implement IFRS 39, Financial Instruments, in particular.

The Cambodian experience demonstrates that multiple levels of cooperation and assistance are ideal throughout the implementation period. Regulators need to seek support from regulators in regions that are more familiar with the framework, such as Malaysia. And support should be sought, too, from experienced companies such as the Big Four firms to help shore up a lack of local subject matter experts in the country.

Implementation in Lao PDR – Sonexay Silaphet, vice president, Lao Chamber of Professional Accountants and Auditors

Lao PDR is one of the emerging economies moving towards implementation of IFRS Standards in 2025. Public interest entities (PIEs) are expected to prepare IFRS financial statements from 2021 to 2025.

The key challenges for Lao PDR are, among others, a lack of capacity building for regulators and preparers; clashes between current regulations and provisions in IFRS; no code of corporate governance; and, crucially, no oversight on monitoring arrangements for reviewing the PIE financial statements. Lao PDR has received support from the World Bank Group in areas such as its transition road map and has also collaborated with Thailand and Australia to run workshops to assist preparers.

Implementation in Myanmar – Dr Tin Latt, vice chairman, Myanmar Institute of Certified Public Accountants

Myanmar is an excellent candidate for the implementation of IFRS Standards: its economy is growing and becoming more sophisticated. Many companies, including financial institutions and other listed entities, are growing, leading to an increased requirement for transparent and reliable financial information.

The awareness of IFRS Standards has been growing too, and Myanmar has, since 2016, been working in earnest with the IASB to make translations available, build awareness and prepare for enforcement. 2020 has been a particularly successful year; Myanmar became an associate member of the International Federation of Accountants and issued a full translation of IFRS Standards for small to medium-sized entities during the year. Translation of the full IFRS Standards is on track for completion by 2021.

Implementation in Vietnam – Trinh Duc Vinh, deputy general director, accounting and auditing supervisory department, Ministry of Finance, Vietnam

Vietnam’s IFRS Standards adoption roadmap comprised an important initial milestone to have its full translation launched by 2021. This will kickstart the country’s adoption of the standards.

Vietnam wishes to transition to using IFRS Standards for a number of reasons, chiefly increased accountability for entities, along with enhanced transparency of the financial statements. Such achievements will attract further foreign direct investment and lead to the recognition of Vietnam as a full market economy.

Until 2021, the Ministry of Finance will prepare the infrastructure to support entities in adopting IFRS Standards. The Ministry of Finance encourages adopting entities to set up an appropriate strategy and training for staff, as well as a modern information technology system and database to support smooth implementation.

Panel question: how can stakeholders such as the World Bank and ACCA help Mekong countries in their adoption of IFRS Standards? Key takeaways

Respondents to this question stressed the importance of targeted, intensive support from wider stakeholders in the process. Some pointed to the available templates and practical guides from the IASB, but suggested more could be done, particularly in ‘training the trainers’.

Sirois advised countries to investigate how they might best receive support on their adoption journey. She indicated that countries should write a letter to their World Bank country management office indicating a proposal for funds and stating their needs.

How to implement IFRS: advice from a user – Bee Leng Tan, executive director, Malaysian Accounting Standards Board (MASB)

Malaysia has been using IFRS Standards in full since 2012, but the journey of harmonisation with international accounting standards began in 1978 and the country had operated using a two-tier system since 2006. Post-2012, the key challenges have arisen in three areas: the application of judgment versus the requirement for a consistent approach; the real-time application of standards – the Malaysian FRS effective date was also the effective date of IFRS; and the technical demands of the standards themselves – with many companies having limited technical resources to understand the standards and contribute to their development.

Implementation demands a lot of resources – and a lot of attention. Every country is going to have specific questions on which they will need clarification. For example, in Malaysia, there were specific questions about how to measure fair value of agricultural produce growing on bearer plants: at which stage of the agricultural produce lifecycle should the discounted cashflow model start? At flowering, when the fruit is young, on the unripe bunch?

These were challenging questions, but implementers should not be put off by speed bumps like this since the MASB is, with discussion, able to answer them. Other support groups exist for implementation too, such as the Emerging Economies Group (EEG). The EEG focuses on issues around the application and implementation of IFRS Standards in emerging economies and helps provide educational guidance at the right level.

The Malaysian experience of implementing IFRS highlights the importance of joint efforts from all stakeholders, local and international. There will be challenges, but ultimately everyone will prosper as a result, since everyone in the corporate reporting chain benefits from the application of IFRS Standards.

Learning from implementation challenges in Cambodia, Laos, Myanmar and Vietnam – Yen San Chan, partner, KPMG Singapore

An ecosystem needs to be in place to ensure the smooth implementation of IFRS Standards. Such an ecosystem can be built by following four phases: assessment, design, implementation and sustained application.

At the assess phase, companies should identify the gap between the data they have and the data they need, and assess the impact on processes and controls that implementation will have. This is also an important education phase. At the design stage, companies should make sure that they have the right templates and documents to implement.

At the first point of implementation, companies should run the old and new systems in parallel so that they can test accuracy, and in the sustained application phase should make sure that knowledge transfer and post-implementation reviews are prioritised to ensure that the following year’s implementation is even more successful.

It is very important to make sure that all stakeholders understand that there are wider business implications to the application of IFRS Standards; it is not just an accounting framework! Training staff is key. The type and quality of data available will also be critical to the success of implementation. Companies should plan in advance and identify the data that is ‘must-have’ and ‘good to have’, and convert it into an electronic format as soon as they can.

Generally, it can take quite a bit of time to think through all the implications in the assess and design phases – but it is worth it. Implementation of IFRS will ultimately reduce the cost of capital, increase investment and employment.

IFRS: why, how and what’s coming up – Rika Suzuki, member, IASB

IFRS brings transparency, accountability and efficiency to financial markets around the world. Trust is key to economic growth and long-term stability, and IFRS Standards are important for fostering that trust.

IFRS is still young – but the standards are required in a large number of developed markets across the world (144 out of 166 jurisdictions). Even where IFRS Standards are not used, standards are often very similar – such as in countries like China and India. In some countries, IFRS Standards are not required but preparers choose them anyway.

It is fair to say the utility of the standards is well-recognised. This is especially true since IFRS for SMEs has been in use: full IFRS is appropriate for larger companies, and IFRS for SMEs focuses on information needs of lenders, creditors and users of SME financial statements, and enhances the quality of financial information at smaller companies.

There is plenty of support for countries looking to adopt IFRS, and the IASB engages with a wide range of stakeholders to facilitate this. Its Translation, Adoption and Copyright team is key to transition work in newly adopting countries. The IFRS Foundation understands that accurate translation is key to achieving its mission, and it allows only one official translation per language. Maximum benefit is derived from a consistent approach, but this must be balanced with the recognition that IFRS are principle-based standards.

The IASB is also responsive to emerging concerns – for example, when the impact of Covid-19 crystallised, the IASB quickly created educational material for both the accounting for financial instruments and leases standards. The discussion for changes happened in April, with the changes published in May.

Regardless of circumstances, the IASB shares a lot of resources with preparers, including articles, board papers, podcasts, snapshots, videos, and webcasts. The IASB has several forthcoming consultations, including accounting for business combinations under common control, but it especially encourages those in the process of adopting IFRS Standards to comment on its workplan for 2022-26. It is seeking feedback on its strategic direction and balance of work plan, the criteria for assessing projects to be added and priority of financial reporting issues.

Takeaways from summary closing questions to the panel

Panellists discussed the costs versus the benefits of adopting IFRS Standards and came down heavily in favour of the international standards. Suzuki described the better view of financial performance, the improvement in decision-making capabilities for management and corporate governance, and the locally available modifications as key benefits of transitioning to IFRS.

Suzuki shared that, in Japan, Japanese listed companies choose to apply IFRS Standards as issued by the IASB rather than the local modified standards. Based on the analysis of Tokyo Exchange markets as well as FSA reports, management considers that the use of a single set of uniform global-based standards better reflect financial performance of businesses, both locally and internationally. Management’s objective to transition to IFRS Standards is normally to enhance the transparency in corporate finance and governance, as well as the comparability with their competitors and to facilitate investors communication. To achieve such objectives, collecting the financial data and information consistently applied by a single set of standards is most efficient and effective way to do so.

Furthermore, local modification will require reconciliation and explanation when communicated to investors and stakeholders. Hence, management in Japan considers that the benefit of using local modified standards does not outweigh the cost, and the IFRS Standards issued by the IASB are preferred. Suzuki said that collaboration is most important for successful implementation, as it cannot be the effort of one party (be it the standard-setter, Ministry of Finance or auditors); local and international collaboration is vital to support transition and consistent application.

When discussing the key accounting challenges arising from Covid-19, Chan described cashflow projections as being probably the biggest challenge, due to high levels of uncertainty. She suggested that companies draw together best, worst and most-likely case scenarios to help planning. She also suggested that since many of the accounting issues arising from Covid-19 will require significant levels of judgment, management should be prepared to explain to auditors in detail why their business plan is feasible, so that they can satisfy going concern assessments.

Chan further expounded on the importance of building valuation and actuarial expertise in the markets to support implementation of IFRS Standards. In particular, professional valuation expertise is key as reporting often entails measurement of fair values – for example, for investment properties and financial instruments. Valuation becomes more challenging when requisite data are not readily available. This is where expertise from valuers becomes crucial.

Chan emphasised the importance of having the entire ecosystem aligned in terms of goals and objectives to achieve full convergence by a stipulated date. Multiple stakeholders are involved, including regulators and preparers, and tone from the top of management has an impact. The profession, too, needs to build capacity and support each other through the process.

Tan addressed concerns over loss of sovereignty through adoption and said that the IASB does not ignore smaller economies. She explained that Malaysia had enjoyed plenty of discussion on significant issues with the IASB and that countries planning on transitioning to IFRS Standards, or in the process of doing so, cannot be emotional about it, addressing concerns with multiple town-hall style meetings with stakeholders.

In response to the question of the timescale for Malaysia’s full convergence and how long other jurisdictions can expect to take to complete the process, Tan shared that it is jurisdiction-specific, and dependent on different factors such as whether translation of standards is required, the level of interaction between regulators, including with the Inland Revenue, and so on. She pointed out that IFRS Standards convergence is a continuous process. Even post-convergence, ongoing education is required.

There needs to be a change in mindset towards the standard-setting process. At jurisdiction level, the wider profession, working collaboratively with the national standard setter, needs to be more alert and responsive to development of the standards at international level. It is important to keep up to date and understand how the fundamentals drive the theory, and, whenever interpretation and implementation issues surface, flag them up as early as possible.