Major International Financing Reporting changes in 2018 |02 November 2017
BDO Associates organises comprehensive training for Seychelles’ banking officials
In view of major changes in the International Financial Reporting Standards (IFRS), scheduled for next year, a high level two-day training session was organised early last week at Eden Blue Hotel by BDO Associates, the leading International Audit and Assurance Accountancy Firm in Seychelles.
BDO Associates is extensively trained in the application of IFRS. It has carried out migration from Seychelles GAAP to IFRS of several entities in Seychelles within all sectors of the industry, for banks, Public Enterprises and listed companies.
Participants holding senior positions in the commercial banking sector as well as from Central Bank of Seychelles followed an in-depth overview of IFRS 9 on Financial Instruments as well as highlights of IFRS 15 on Revenue from Contracts and IFRS 16 on Leases.
“BDO Associates, being IFRS conversant and part of an International network, we knew that IFRS 9 especially would be a big challenge for implementation in Seychelles,”Nazrah Ramdin, BDO managing partner told Seychelles NATION.
“We wanted to share our know-how through a training session with the banking sector since they are the ones that would be more affected by IFRS 9. IFRS 9 will bring about a drastic change in mind-set in the way credit impairment was previously computed, i.e. based on historical data and default days. IFRS 9 mandates credit impairment based on forward looking information and multiple scenarios as well as time value of money, i.e., an Expected Credit Loss model. To assist us in this training, we were able to secure Mr Yousouf Hansye, ex-employee of BDO Mauritius and now project manager at the London-based International Accounting Standards Board (IASB). IASB is the standard setter for IFRS.”
Seychelles is one of the 126 countries presently using the International Financing Reporting Standards (IFRS) for publicly accountable and other corporate bodies. There are many reasons why companies are choosing to migrate towards adopting IFRS. One of the most important reasons is due to globalisation, as most countries have already made the switch over to IFRS. IFRS is already mandatory in the Seychelles for financial institutions, i.e., banks, listed companies on the Seychelles stock exchange ‒ Trop-X and public enterprises. IFRS puts everyone on the same level with respect to preparing financial statements, and it makes transactions and deals with companies which operate under IFRS much easier. It also gives companies and stakeholders in other countries a better economic indicator as to how companies here in the Seychelles are doing.
On January 1, 2018, IRFS 9 will become effective. IFRS deals with the classification and measurement, impairment as well as hedge accounting, the package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, a single, forward looking ‘’expected loss” impairment model and a substantially-reformed approach to hedge accounting.
IFRS 9 is expected to simplify a system that is currently in place for easier practical use. “The change means that the impact of future events must be taken on board by financial companies or institutions when they make their provisions,”Yousouf Hansye told Seychelles NATION. “To put it in simpler terms, they need to keep the money in reserve for future eventuality.”
IFRS 9 is a response to crisis of late 2000 that raised the necessity to make more realistic calculation of possible losses as most used risk models were based on the analysis of past events. “This led some institutions to greatly underestimate their capital provisions they required, and as a result liquidation, government intervention to inject tax payer's money into banks, to bail them out and take-overs followed as we saw,”Yousouf Hansye added.
The main objective of the new impairment requirements is to provide users of financial statements with more useful information about an entity’s expected credit losses on financial instruments.
International Financial Reporting Standards, or IFRS, eases the convergence and transparency of accounting practices. As Nazrah Ramdin puts it: “This boosts the flow of capital across the international markets. Investors and other stakeholders find it more convenient to compare their business performance with other international companies. This makes it easier and cheaper for them to raise business capital from investors across the globe.”
The importance to adapt to changes to IFRS is therefore of utmost importance for the country to keep at par with other countries but also once an entity chooses to migrate its reporting to IFRS, then all existing IFRS as applicable to it becomes mandatory and non-compliance can lead to an audit qualification.
The use of IFRS enhances the quality of financial reports because it leaves little room for undermining the objectives of the set standards. This is unlike country-specific accounting rules that are susceptible to circumventions. Quality financial reports boost investor confidence in a business.
The training and adaptation process guided by the new IFR 9 will definitely lead to put Seychelles at par with international norms of financial reporting. It will contribute to further open the local frontiers of the finance sector to world-level status. This is the challenge that is facing all financial operators and the regulator for the coming weeks, that is to set the pace for immediate entry in the world of the new financial reporting system.