THAILAND
Martin Klose/Patcharee Sabangban
Thailand’s Convergence to IFRS Introduction In April 2001, the International Accounting Standards Board (IASB) was founded to undertake the responsibilities of the International Accounting Standards Committee (IASC), established in 1973. In 2002, a year after its establishment, the IASB united with the Financial Accounting Standards Board (FASB) to combine their knowledge and develop a set of accounting standards, the so-called International Financial Reporting Standards (IFRS). This replaces certain International Accounting Standards (IAS) and would be compatible with all countries in order to successfully carry out international business affairs and their accounting.
Authors
Martin Klose is Partner at Rödl & Partner Ltd., 18th Floor, Empire Tower, Suite 1808-1809, 195 South Sathorn Road, Yannawa, Sathorn, 10120 Bangkok, Thailand; E-Mail:
[email protected].
Patcharee Sabangban is Consultant at Rödl & Partner Management Services Ltd., Empire Tower, Suite 1808/1, 195 South Sathorn Road, Yannawa, Sathorn, 10120 Bangkok, Thailand; E-Mail: patcharee.sabangban@roedlasia. com.
ZfCM | Controlling & Management
Currently, over 100 countries across the world require or permit the use of IFRS as the globalization of businesses has steadily increased. This has caused a growing acceptance of a generalized set of standards for accountants and financial statements/reports’ users, especially for international investors and bankers (KPMG 2010). In addition, reporting in accordance with IFRS is also considered as a competitive tool in benchmarking the businesses by financial information users, in particular with regards to the potential cost savings for multinational companies in preparing the consolidated financial statements for their group. Contrary to major economic leaders, Thailand is one of many countries which has voiced concerns about the convergence with or full adoption of IFRS for some time. Now, it has announced the plan to become fully compliant with Thai Accounting Standards (TAS) adopted from IFRS. This transition was initiated by its own Accounting Standard Board – the Federation of Accounting Profession under the Royal Patronage of His Majesty the King (FAP), founded in 2004. It replaces a long established Institution of Accountants and Auditors of Thailand (ICAAT) and is in coordination with Thai Securities Exchange Commission (Thai SEC) and Security Exchange of Thailand (SET). Besides FAP, SEC and SET, the Department of Business Development (DBD) also participated in the transition process by issuing The Brief Particulars in the Financial statements B.E. 2551 which ensured that it corresponded with the revised TAS 1 and finally the IAS 1 from 1st of January 2009 onwards (Presentation of Financial Statements Bound 2009). The direct consequence of this was an enormous reluctance to prepare of the companies’ financial statements in conformity with IFRS. Therefore, it is reasonable, that the impact of convergence with IFRS on companies or reporting entities is expected to be significant and a huge challenge for the management teams.
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Thai Accounting Standards versus International Financial Reporting Standards The global convergence to IFRS continuously influences the development of Thai statutory accounting and reporting requirements (Thai GAAP). At the same time, Thai GAAP or TAS and IFRS encompass the same purposes in providing guidance for accountants in preparation of their financial statements, although there are numerous dissimilarities that must be taken into account during the conversion process. The International Federation of Accountants (IFAC) also recognizes the dissimilarities in the local GAAP and IFRS on their website (IFRS 2010): “IFRS pro-
■■ International Financial Accounting Standards (IFRS) are applied in over 100 countries across the world and considered as a competitive tool in benchmarking the companies’ businesses. ■■ Especially multinational companies can benefit from the mentioned standards through cost-saving aspects with regard to consolidated financial statements of their group. ■■ Thailand has shown major concerns with regard to a full adoption of IFRS. Therefore, the Federation of Accounting Professions in Thailand (FAP) has started the process to converge Thai Accounting Standards (TAS) to IFRS. ■■ Despite the same purposes in providing guidance for accountants in preparing their financial statements, there are numerous differences that have to be taken into account during the conversion process. The FAP has scheduled and announc ed a timeline for convergence to IFRS in Thailand with the first target SET 50 in 2011. ■■ Both challenges and benefits will result from a convergence to IFRS – depending on the readiness and promptness of all companies.
25
THAILAND
vides much less overall detail […] IFRS fits into one book, about two inches thick. By contrast, U.S. GAAP contains approximately 17,000 pages of detailed rules and guidance.” (IFRS FAQs, 2008). By virtue of Accounting Act B. E. 2543 (2000) and Accounting Professions Act B.E. 2547 (2004), FAP currently undertakes the roles and responsibilities for developing and publishing all Thai Accounting Standards (TAS) in coordination with SEC, SET, Bank of Thailand (BoT), DBD, the Revenue Department (RD) and the Office of Insurance Commission. Since 1997, TAS have been developed in compliance with IAS while FAP (formerly, the ICAAT) has committed itself to be fully compliant with IFRS. The FAP has issued Notification No. 21/2550 (2007) dated 20th July 2007 – the Exemption for Applications of Accounting Standards stating that non-public companies are exempt from applying certain TASs. This tailoring procedure was solely made for the non-public interest entities which are mostly family-owned and entrepreneurs. Nonetheless, this exemption has been announced in order to fulfil the needs of the financial statement users. The exempled TAS are listed in figure 1. In addition to the above mentioned actions carried out before the transition period, financial reporting has drastically changed in the past two years as FAP has issued Notification No. 86/2551 (2008) and 16/2552 (2009). Thereby, the use of a new accounting framework, revised accounting standards, new accounting standards, Thai Financial Reporting Standard (TFRS) and accounting treatment guidance became mandatory. In June 2009, with effect from 26th September 2009, FAP issued Notification No. 12/2552, regarding the renumbering of TAS to correspond with the numbers used in the IAS. Figures 2, 3 and 4 show the major developments and current Accounting Framework as well as TAS in pursuing convergence to IFRS.
Thailand Roadmap for Convergence to IFRS Since 1988, the U.S. SEC has played a leading role in international efforts to acquire a set of accounting standards. A recurring issue that the U.S. SEC has brought up is that “issuers wishing to raise capital in more than one country are faced with the 26
Fig. 1 | Exemption for Applications of Accounting Standards TAS 24:
Segment Reporting
TAS 25:
Cash Flow Statements (revised 2007)
TAS 36:
Impairment of Assets
TAS 44:
Consolidated and Separate Financial Statements
TAS 45:
Investments in Associates
TAS 46:
Interests in Joint Ventures (revised 2007)
TAS 47:
Related Party Disclosures
TAS 48:
Financial Instruments: Disclosure and Presentation
increased compliance costs and inefficiencies of preparing multiple sets of financial statements to comply with different jurisdictional accounting requirements” (AICPA, 2008). Stakeholders in Thailand have also invested significant sums over the past few years in order to see the adoption of IFRS and a great deal of effort has been shown by businesses, shareholder bodies, regulators and the accounting profession alike. These four groups are equally fundamental to further the alignment and convergence to IFRS in Thailand. A timeline for convergence to IFRS in Thailand has been scheduled and announced by FAP, with the first target in 2011. The Thai SEC urged the pioneers from the top 50 companies publicly traded in SET (SET 50) to participate in the first stage of the convergence to IFRS scheme. Using a gradual strategy, SET 100 companies would be the next group planned to commence their implementation of IFRS. Figure 5 presents the timeline for the convergence. Although it is possible to hold the timeline, it is going to be difficult for companies to switch over quickly. Moreover, there will be numerous challenges arising during the transition process. More people need to be informed about IFRS and the conversion. Hence, the adoption requires educated, open-minded business people who are willing to learn and undertake these challenges.
Challenges of Convergence The convergence to and adoption of IFRS create numerous substantial changes in the recognition and measurement criterion, several new and changed disclosure requirements as well as disclosure of further information in the management report. Although such a convergence to and adop-
tion of IFRS diminishes the differences between accounting standards across the world, the process is expected to be very difficult to communicate and convey. The recent publication of revised Thai Accounting Standards under the Accounting Act B.E. 2543 (2000), i. e. the Thai Accounting Standards issued under the Accounting Profession Act B.E. 2547 (2004) marked the most comprehensive revision of statutory accounting principles since the first Thai Accounting Law Act B.E. 2482 (1939) has been amended in past decades by the Notification of Revolutionary Council No. 285 B.E. 2515 (1972). The objectives of the amendment include providing guidance on the preparation of accounts and fair taxation as well as a protection of interest of those parties involved. This aims to establish modern but less complex accounting principles as an adequate, sustainable alternative to IFRS and to improve the informational content of Thai GAAP by implementing elements similar to IFRS. However, the application of IFRS is required for consolidated financial statements of public companies that are listed in the SET. Other companies also have the option to apply IFRS in their consolidated f inancial statements. The use of IFRS in separate entity financial statements was previously voluntary; however, in the absence of an effective Thai Accounting Standard the DBD and FAP encourage an early application of IAS or the current IFRS. Predominantly, there is a variety of challenges and opportunities developed during the convergence to IFRS; however, without a strong commitment by companies, accountants and others involved in the accounting process, it will be very difficult to meet the Thai SEC and FAP estimated adoption target by 2015. No matter how small the entity participating in the
ZfCM | Controlling & Management
Sonderheft 1 | 2011
THAILAND
Fig. 2 | Thai Accounting Framework and Thai Accounting Standards Applicable to Description Accounting Framework (revised 2007)
Effective
Private
Public
26 Sep 09
✓
✓
TAS 1 (Revised 2009)
Presentation of Financial Statements
2009
✓
✓
TAS 2 (Revised 2009)
Inventories
2009
✓
✓
TAS 7 (Revised 2009)
Cash Flow Statements
2009
✗
✓
TAS 8 (Revised 2009)
Accounting Policies, Changes in Accounting Estimates and Errors
2009
✓
✓
TAS 10 (Revised 2009)
Events after the Balance Sheet Date
2009
✓
✓
TAS 11 (Revised 2009)
Construction Contracts
2009
✓
✓
TAS 12
Income Taxes
2013*
✓
✓
Draft TAS 14
Segment Reporting
N/A***
✗
✓
Draft TAS 16 (Revised 2009)
Property, Plant and Equipment
2011
✓
✓
TAS 17 (Revised 2009)
Leases
2009
✓
✓
Draft TAS 18
Revenue
2011
✓
✓
Draft TAS 19
Employee Benefits
2011
✓
✓
TAS 20 (Revised 2009)
Accounting for Government Grants and Disclosure of Government Assistance
2011
✓
✓
Draft TAS 21 (Revised 2009)
The Effects of Changes in Foreign Exchange Rates
2013*
✓
✓
TAS 23 (Revised 2009)
Borrowing Costs
✓
✓
TAS 24 (Revised 2009)
Related Party Disclosures
2011
✗
✓
Draft TAS 26
Accounting and Reporting by Retirement Benefit Plans
2011
✓
✓
TAS 27 (Revised 2009)
Consolidated and Separate Financial Statements
2011
✗
✓
TAS 28 (Revised 2009)
Investments in Associates
2009
✗
✓
TAS 29
Financial Reporting in Hyperinflationary Economies
2011
✓
✓
TAS 31 (Revised 2009)
Interests in Joint Ventures
2009
✗
✓
Draft TAS 32
Financial Instruments: Presentation
N/A***
✗
✓
Draft TAS 39
Financial Instruments: Recognition and Measurement
N/A***
✗
✓
TAS 33 (Revised 2009)
Earnings per Share (formerly, TAS 38)
2011
✓
✓
TAS 34 (Revised 2009)
Interim Financial Reporting
2009
✓
✓
TAS 36 (Revised 2009)
Impairment of Assets
2009
TAS 37 (Revised 2009)
Provisions, Contingent Liabilities and Contingent Assets
2009
✓
✓
TAS 38 (Revised 2009)
Intangible Assets
2009
✓
✓
TAS 40 (Revised 2009)
Investment Property
2011
✓
✓
Draft TAS 41 (Revised 2009)
Agriculture
N/A***
✓
✓
Effective
Private
Public
✓
* Expected effective period. ** Pending announcement in the Thai Government Gazette and for which the effective date has been postponed to 2013. *** The Draft has not yet been made available to the public.
Fig. 3 | Thai Financial Reporting Standards Applicable to Description TFRS 1
First-Time Adoption of International Financial Reporting Standards
2011
✓
✓
TFRS 2
Share-Based Payment
2011
✓
✓
TFRS 3 (Revised 2009)
Business Combinations
2011
✓
✓
TFRS 5 (Revised 2009)
Non-Current Assets Held for Sale and Discontinued Operations
2011
✓
✓
TFRS 6
Exploration for and Evaluation of Mineral Assets
2011
✓
✓
Draft TFRS 8
Operating Segments Thai Accounting Standards
N/A***
✓
✓
*** The Draft has not yet been made available to the public.
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27
THAILAND
Fig. 4 | Draft Interpretation of Thai Financial Reporting Standards and Thai Accounting Standards Applicable to Effective
Description Draft Interpretation of TFRS 1
Changes in Existing, Decommissioning, Restoration and Similar Liabilities
Private
Public
✓
✓
N/A***
Draft Interpretation of TFRS 4
Determining Whether an Arrangement Contains a Lease
N/A***
✓
✓
Draft Interpretation of TFRS 12
Service Concession Arrangement
N/A***
✓
✓
Draft Interpretation of TFRS 13
Customer Royalty Programmes
N/A***
✓
✓
Draft Interpretation of TFRS 14
IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
N/A***
✓
✓
Draft Interpretation of TFRS 15
Agreements for the Construction of Real Estate
N/A***
✓
✓
Draft Interpretation of TAS 32
Intangible Assets – Cost of Website
N/A***
✓
✓
* Expected effective period. *** The draft has not yet been made available to the public.
Fig. 5 | Timeline for the convergence to IFRS in Thailand
SET 50
SET 100 The rest of the listed companies and companies under Market for Alternative Investment Non-listed companies that have public interest
convergence to IFRS, many challenges are bound to arise. In an article entitled “Guide to International Financial Reporting Standards”, the Center for Audit Quality includes some of these challenges (CAQ 2009). Certainly, funding and finding staff with expertise in IFRS, that are confident and able to function as an “IFRS Qualified Accountant”, will be an issue. Even though a variety of seminars and books developed by the IFAC itself and the Big Four accounting firms are available, conflicts or differences in interpretation between the Thai and English languages will remain. The FAP stated that all parties involved in financial reporting must undertake comprehensive training. Colleges and universities will need to add IFRS into their curriculum for students. Professional associations and industry groups will also need to include IFRS in all of their programs and materials. There might be difficulties for anyone dealing with financial documentation and the accounting profession. Perhaps, these might also raise issues with the consistent adoption, application and regulatory review. 28
2010
2011
Convergence
IFRS comparative
to IFRS by applying
2012
2013
IFRS comparative
2014
2015
Full adoption of IFRS. IFRS comparative
revised TAS from IFRS (standard by standard). FAP or DBD or related regulator(s) will decide.
Resumé
Literature
The convergence to IFRS brings huge challenges to Thailand as there are no summary publications highlighting such dissimilarities in detail which exist between IFRS and Thai GAAP (as revised standard by standard). Even if the IFRS or Thai GAAP (revised) have covered the same issues and provide guidance for accountants and their financial statements, there might be differences in the detailed application which could create a major impact on the financial statements. In addition to the huge obstacles presented by IFRS, there will also be a variety of opportunities that might arise on completion of the convergence. The successful achievement truly depends on the readiness and promptness of companies, especially in Thailand where most of the companies and reporting entities are considered very small in size. Therefore it is essential to highlight, that these Small and Medium Enterprises (SME) have truly different needs with regards to accounting standards than equity investors and other parties involved in the capital markets.
1. Center for Audit Quality: Guide to International Financial Reporting Standards, September 2009, http://www.thecaq.org/publications/GuidetoIFRS. pdf (accessed 02.12.2010). 2. KMPG: Managing the transition to IFRS: The Journey to 2011, Bangkok, 2008. 3. KPMG: International Financial Reporting Standards: http://www.kpmg.com/TH/en/WhatWeDo/ Interest/Pages/IFRS.aspx (accessed 22.10.2010). 4. Department of Business Development, the Ministry of Commerce, www.dbd.go.th (accessed 02.12.2010). 5. Federal of Accounting Professions under The Royal Patronage of His Majesty the King, http:// www.fap.or.th (accessed 04.02.2011). 6. Financial Accounting Standard Board (“FASB”), www.fasb.org (accessed 02.12.2010). 7. http://www.articlesbase.com/accounting-articles/ will-ifrs-take-over-the-accounting-worldby-20141775165.html#ixzz16rH4d5k (accessed 02.12.2010). 8. International Financial Accounting Standards, www.ifrs.com (accessed 02.12.2010).
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Die Autorin Regine Rompa studierte Germanistik, Philosophie und Politikwissenschaft und war in Medienunternehmen tätig. Heute ist sie selbstständige Autorin mit den Schwerpunktthemen Beruf und Karriere.
