Reasons for Harmonisation

Discuss and critically evaluate the success of harmonisation. Choose a country as an example for illistralian on how it has adopted IFRS in its attempt to seek harmonisatioin and whether it has been successful with a relevant organisation as illustration. 

IFRS is like a common communication tool for business affairs so that the accounts of the companies on a global platform seem comparable and streamlined. These are the accounting standards that are issues by International Accounting Standards Board (IASB) (Larson & Herz, 2013). Harmonisation with IFRS stands as an effort to gradually bring a reduction in the diversities involved in several accounting practices at the global level. Further harmonisation with IFRS deals with removing the hindrances that obstruct purposeful integration of IFRS with current financial system. But the process of harmonisation is not as easy as the theory speaks about. The upcoming sections describe in detail the exact situation.

In Singapore, all companies that have their incorporation done in Singapore and the Singapore branches of foreign companies are required to present their financial statements as per Singapore Financial Reporting Standards (SFRS) as per the requirement of companies act (Joshi, Yapa & Kraal, 2016). The substance of Singapore financial reporting standards is same as International Financial Reporting Standards.  It will not only strengthen the disclosure and financial reporting standards process which will strengthen the disclosure requirement of organization. However, after adopting the IFRS rules and regulations in Singapore, the major changes in the accounting standards and applicable laws have been found is related to contract laws, lease agreement and impairment test undertaken by the companies.

Before any particular reason can be established as a motivating factor behind harmonisation, the most certain deal is the reduction of cross country diversities in accounting practices. With the onset of globalisation, the whole world is working at the same parlance with their own set of opportunities. However, at the international level the financial reporting disparities probed a big issue. In order to mitigate the reporting and accounting issues arise due to the domestic and international accounting standards, Singapore accepted the parlances of the harmonization in its listed companies reporting.  Researches have suggested that the main reason behind the adoption of IFRS is getting larger access to overseas and international capital markets (Garanina & Kormiltseva, 2014). It is so because, with financial instruments prepared with the help of globally accepted accounting policies, they become widely accepted (Biddle, Callahan, Hong & Knowles, 2016). This is in line with increasing the capital investment made in country.

Issues in Harmonisation

Along with the access which the Singapore will get much widely after adoption, the adoption of IFRS ensures the investors that they are getting the best quality reports. The other benefit which is a great driver when it comes to harmonisation is the reduction of reconciliation costs because, now entities need not to converge with different countries’ accounting policies and prepare separate statements.

It is analyzed that if Singapore adopts the IFRS rules and regulations then it will result to less reporting issues for the international companies which are working on international level.  It will also lead to cost benefits due to elimination of preparation of financial accounts in accordance with different countries’ accounting policies, harmonisation brings into light effective audit being conducted (Kusnadi, Leong, Suwardy & Wang, 2016) .

Singapore will strengthen its reporting requirement and transparent accounting busienss practice if it adopts the IFRS rules and regulation in its economic. It will frame of policies in preparation of accounts which makes it easier to audit them and at the same time gives results that are internationally accepted. If company follow the IFRS rules and regulations then it will avoid the unnecessary costing and charges of company in preparation of the financial statement which will eventually make the business more cost effective. It is further analysed that in case of conflict arise in the international financial reporting standards and domestic reporting standards, company will comply with the IFRS rules and regulation. Singapore has made mandatory for all the listed companies to comply with the IFRS rules and regulations as it lower down the conflicts in domestic and international reporting frameworks and make easy for the international companies to comply with the reporting compliance laws.

The process of harmonisation had been a well-planned and well-articulated process for the country. The opinions of users across overseas as well as the organisations have been considered before any finalisation. This had made IFRS much wide in scope and better than any country’s individual accounting practice. Adoption of IFRS is being considered as the ‘best practice’ among almost countries of the world as it accrues certain benefits as reduction in costs, wider access to overseas markets, standard benchmark for preparation of financial instruments, better and highly efficient allocation of resources, decreased chances of resorting to earnings management to manipulate accounts and etc. 

As already discussed, implementation of IFRS doesn’t seem as easy as the text says. IFRS involves a drastic change in the accounting policies that are being followed by an entity. The key decision of adopting the IFRS is related to that demanded attention included, retention of optional accounting treatments; retention of Singapore specific disclosures; the extent of application of IFRS (Edogbanya, Adejoh & Kamardin, 2014). The various challenges involved in the process of harmonisation are discussed as follows: These issues and challenges have emerged due to the different regulatory compliance program and less effective harmonization process which each and every company needs to adopt in their reporting frameworks. The Harmonization process is promoted so that every company could adopt the standard reporting frameworks on the international level so that it would be less confusing for the stakeholder in the interpretation of the financial transactions reported in the financial statement.  However, there are some of the issues have been found in the harmonization process of accounting standard (Christensen, Lee, & Walker, 2007).

Singapore faced the issues while adopting the IFRS by the rulling party in its economic but at the same time it was opposed by the opposition party as they lead the case towards the overriding domestic compliance program and may result to domination on the domestic regulatory accounting reporting compliance. The main issues which Singapore faced in adoption of the IFRS were related to changes in the several acts such as Corporation act, listing requirements and accounting rules. It leaded to big level of complexity and issues for the Singapore while adopting the harmonization in its financial reporting.  The staffs of any organisation are well trained to follow the existing policies. Any change or updating in the structure needs the requirement of change management. The staffs are required to get acquainted with the benefits that the new system shall bring to them and the organisation. This may call for union movements across the country and shall cause a situation of tension. Accountant and financial mangers needs to learn all the IFRS and domestic accounting standards to mitigate the international financial reporting issues with the international business growth.

The employees are required to be trained about the changed policies and the procedures that they need to learn and follow. The training needs to be done with the help of training consultants which also adds to the cost. Government may need to extend financial aid to the organisations. Different countries have different scope of accounting work and hence the work varies differently. As the work is very different, so the process of work also differs significantly. The IFRS being a standard benchmark are not consistent with every country’s accounting procedures. Even the processes vary within a country. The cultural diversities also hamper the harmonisation process. The developed countries stand at a dominant position in formation of IFRS (Sharma, Joshi & Kansal, 2017). Even when it’s mandated to adopt IFRS, certain entities do not comply with them completely. Different levels of compliance are seen to be followed. Even the auditors are not completely able to express an opinion regarding the compliance of IFRS.

It is analyzed that the cultural differences and issues will also prone to the harmonization in IFRS rules in Singapore. For instance, Cultural differences are not easy to be avoided because even at the notch of every changing city there is a different perspective regarding cultural values. Harmonisation needs to deal with the cultural differences which are not easy to implement (Christensen, Lee, & Walker, 2007).

In terms of Taxation, we have observed that Singapore is following different taxation policies. The rates, computation of income, deductions allowed, incomes considered are all different for different countries. Harmonisation has to completely do with these different taxation policies for its successful implementation. As a result, they may stand contradictory to that of Singapore.  In addition to this, in context with the multinational companies, it is observed that implementation of IFRS ETR (effective tax rates) or more volatile ETR.. Singapore will also have to face lower down its government fund due to the changes in taxation rules. Furthermore, adoption of IFRS will lower down the foreign tax collected by company from different multinational organization (Jackling, 2013).  

Another significant issue is the monopoly standing of certain countries over Singapore in the policy making hearing for harmonisation. Countries that are on a stronger footing to call for their rights and put up their own recommendations in priority over that of Singapore probe issues for adoption of harmonisation in Singapore (Sharma, Joshi & Kansal, 2017). Singapore will have to change all of its financial reporting laws and regulations as per the IFRS rules and regulation which might make companies more prone to increased cases of insider trading in Singapore market (Bloomfield, et al. 2017).

 HHApart from the employees, the investors; accountants; auditors; users and preparers of financial reports, needs to be taught well about the IFRS process and techniques. The main challenge for Singapore comes up as being a follower of international standards than the developer of standards for domestic entities (Nobes, 2013). Every company needs to hire the legal compliance officer and public account who could record the financial transactions in the books of accounts as per the domestic and international financial accounting standards (Bloomfield, et al. 2017).

In this case, Singapore Company Amara Holding Company has been taken into consideration to evaluate the consideration of harmonization of international and domestic financial accounting rules in preparation and reporting of financial statements. Amara Holdings Limited had been required to adopt the Singapore Financial Reporting Standards for the presentation of financial statements. They have been found substantially similar to the International Financial Reporting Standards. As evident, the historical cost method is used except a few exceptions (Strouhal,, Horák, & Boksova, 2017).

As from January 1, 2017 the company has successfully adopted every new and revised Financial Reporting Standard. Further the Accounting Standards Council (ASC) has come up with the direction in December 2017 for adoption of a complete new framework being Singapore Financial Reporting Standard (International) to be adopted by all Singapore-incorporated companies listed on Singapore Exchange (SGX) for periods beginning on or after 1 January 2018. These are to be applied retrospectively. Though management feel that, the change shall not bring any material effect on the financials. The financial year 2017 is the transitional period for which the new standards are being adopted just to see the change they bring in the whole accounting presentation and financial figures.  

Similarly, SFRS (I) 16, Leases, changes the method of accounting in case where the group is a lessee when it comes to operating leases. And where the group is a lessor, the additional disclosure requirements shall include group’s exposure to asset and credit risk. The table shown below presents the financial figures available from the annual reports for financial year 2017 that is depicted from the website of the company. However, management anticipates that the adoption of this standard might result in the revenue figures of certain revenue items to be changed. The disclosures mentioned above need to be made too. Although the management doesn’t plan to adopt the standard in rush. All the figures are in Singapore dollars and have been shown on a company basis and depicts the effect of international standards on the financial figures by showing the balance sheet figures of financial year 2016 i.e. one year before the adoption or transitional period and of financial year 2017 that is the actual transitional period. The data for financial year 2018 cannot be fetched as it is not yet prepared (Amara Holding Company, 2017).

	SGD’000 Financial year 2017 (after IFRS adoption)	SGD’000 Financial year 2016 (before IFRS adoption)
Total equity (as on 31 December)	379,236	373,653
Development Properties	102,016	77,393
Depreciation charge	5,579	5,557
Outstanding lease commitments (when group is lessor)	34,485	34,382
Financial instruments	15,327	21,936
Deferred tax liabilities	12,504	5,543
Provisions	6,570	(633)

(Please check the Appendix for the details)

These accounts reflects that after adoption of the IFRS rules and regulation, company has to differently record the accounting and financial transactions in the books of accounts of company. After assessing all the details, it could be inferred that company has kept its business more transparent and strengthen its disclosure requirement to make its stakeholders aware with its all the financial and non-financial transaction.

There are several recommendations which need to be followed by organizations to mitigate the IFRS harmonization issues and cases.

Though the IFRS have been implemented, though they still require certain modifications. Modifications need to be implemented with proper planning and serious consideration. The harmonisation process needs to be strategically planned and has to be in line with legal requirements.

Just planning about the implementation and implementing the IFRS is not enough for the success of harmonisation. It’s required that every user is communicated about the changes in the financial reporting process that shall follow after implementation. Work should be done in order to ensure transparency and accountability. The communication content should also include the transition process and plans. This is necessary to make the users knowledgeable to ensure successful implementation.

Successful harmonisation requires placing adequate resources for implementation of IFRS. Various consultation lines must be opened that provide clarity to the users for proper implementation of IFRS.

The IFRS shouldn’t focus only on the needs of large enterprises. The standards must incorporate within areas that address the needs of small and medium enterprises. The complexities involved in the large entities are different from the cases of small and medium enterprises (Perera & Chand, 2015).

As discussed, proper training of the parties involved in use and implementation of IFRS being the auditors, accountants, investors, analysts and others should be undertaken to educate them about the same.

Greater autonomy should be provided to the oversight board because this board is responsible for setting standards, reviewing implementation, etc. The board itself should improve its processes by implementing people who are technically qualified and their continuous training must be preferred.

Before any amendment is made, a draft should be made at prior end and the same should be disseminated among the professionals and general public to demand their feedback and areas of improvement and other constructive opinions.

Implementation of IFRS and to bring harmonisation should not be thought over as a one- time process but it should be taken as an on-going activity which shall require continual planning and modifications.

Continuous support must be extended by the related professional bodies for successful harmonisation effort.

Further, the education of IFRS should be mandated from university accounting education. Certification course for IFRS education must be initiated that will hold importance in grasping better employment to the professionals (Jackling, 2013). 

Further the Accounting Standards Council (ASC) has shown that company has adopted new framework being Singapore Financial Reporting Standard (International) to be adopted by all Singapore-incorporated companies listed on Singapore Exchange (SGX) for periods beginning on or after 1 January 2018. These are to be applied retrospectively. Though management feel that, the change shall not bring any material effect on the financial statements which will strengthen the financial reporting frameworks on international level.

Conclusion 

After analysing all the details and case study of harmonization of the IFRS in Singapore, it could be inferred that harmonization in the domestic and international accounting standards is very much necessary for the effective financial reporting of the in country. The main complexity which Singapore has faced in adoption of IFRS rules in reporting of the financial statement is related to disclosure or transparency, economic issues and legal compliance program. It has been analysed that government of Singapore has  effectively manage the harmonization issues in its reporting framework which have strengthen the reporting and accounting frameworks to international level.  Now in the end, it could be inferred that IFRS reporting frameworks have shown that Singapore has changed the value of the amounts of financial transactions recorded by companies in its economic in 2016 and 2017 throughout the time.

The research topic tends to be a burning issue as certain dilemmas regarding the preparation of financial statements as per the internationally adopted IFRS. The focus is shifted in the harmonisation process that follows the new implementation. The research is conducted with the use of information available about the text of International Financial Reporting Standards and the financials of company extracted from company’s (Amara Holdings Limited Singapore) website as known to be annual reports. This research has been conducted after collecting the required international financial reporting information and other details shown in the annual reporting of company. In addition to this, secondary sources such as use of journal articles, web information and official gazettes have been used to collect the required amount of data. This information has assisted me to analysis the reasons and issues related to harmonization of the international and domestic accounting standards in preparation of the financial statement with the reporting authority.

The analysis done shows the transparency and accountability with which the company has followed the standards issued as IFRS. At an initial stage the company has successfully fragmented the whole process in three phases being the assessment and planning phase, design phase and the implementation phase. Before the IFRS are completely complied with, the group has adopted the Singapore Financial Reporting Standards. It is observed that a lot of judgement is involved while adopting the IFRS. As available from the annual reports on the website of company, the latest available is for the financial year 2008. The reports for older financial years are not available on public portal. As a result the whole analysis is done as per the availability of the reports.

The research required a lot of analysis and personal judgement to opine regarding the success or failure. Though the adoption of IFRS and related harmonisation seems a success in case of Amara Holdings Limited, but for the users of financial statements it becomes challenging to understand the reconciliation figures presented in the annual reports that prevail between the financial figures attributing to the accounts prepared in line with Singapore GAAP and Singapore Financial Reporting Standards from the information evident from the financials presented in the annual report for the financial year 2005. The main issue in communication of finding is related to this challenge as it becomes difficult to interpret the information from that report to get an idea and form an opinion regarding the effects that adoption of IFRS brought in the financial information presentation and disclosure on a practical and not theoretical platform. These collected data have shown that all the companies operating their business on international level have mitigated the harmonization issues on international level. The annual report of company has also been used to determine the impact of before and after adoption of IFRS rules and regulations on the financial reporting of company on international level. 

References

Amara Holding Company, (2017) Annual report, retrieved from https://ir.amaraholdings.com/static-files/4887358d-d5b6-4554-a610-26c8f640d2c9,

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