
Bangkok Post (5 November 2007)
All businesses need to adapt to IAS39 ruleLocal banks and financial institutions have had several years now to prepare for the introduction of International Accounting Standard 39 (IAS39) thanks to reminders from the Bank of Thailand.
The accounting standard, which deals with the recognition and measurement of financial instruments in a company's accounts, has had a significant impact on bank provisioning for distressed assets.
But the reality is that IAS39 affects not only financial institutions, but large companies and multinational firms with large amounts of account receivables or treasury transactions, according to PricewaterhouseCoopers.
''IAS 39 is related to all types of financial instruments including debt and equity investments, loans, receivables, payables, and derivative transaction such as interest rate swaps, currency swaps, or hedging tools,'' said Unakorn Phruithithada, a partner at PWC.
She said that under the current Thai Accounting Standard (TAS), financial assets were classified into five types: trading, loans and receivables, investments held to maturity, investments available for sale and general investments. Current standards also do not stipulate a consistent way of recording derivative instruments.
The new IAS standard would certainly have a wider impact on companies, Mrs Unakorn said. But to date, few firms outside of the financial sector have considered the potential impact on their balance sheets.
For instance, under current Thai accounting practices, companies can set aside a general reserve based on age for account receivables.
But international accounting practices differ. IAS 39 specifies that impairment is deemed to have occurred only with objective evidence, with reserves required based on the status of the individual account. Discounted cash flow also must be used as the means to measure the potential loss. And while general provisions are disallowed, portfolio provisioning is permitted.
Mrs Unakorn said many companies would need to revise their accounting IT systems to support the new method of calculating impairment.
IT systems are also needed to track historical default rates, default patterns and other factors to help classify different groups within the portfolio. Risk management policies should also be reviewed with the involvement of senior management.
''It might be the accounting department that is responsible for implementing the changes, but companies must also prepare themselves in terms of operations,'' Mrs Unakorn said.
She said in some cases, at least 60 periods or five years of data might be required to build a statistical model.
For multinationals or large local firms with operations or investments in other currencies, financial officers also need to consider whether accounting practices need to be changed to cover derivatives and other treasury instruments.
The IAS 39 standard would also impose greater responsibility on companies to disclose information regarding their account receivables and financial assets.
The central bank has already required local financial institutions to comply with IAS 39. The Federation of Accounting Professions, which oversees accounting standards in Thailand, is reviewing the standards and is expected to adopt IAS 39 for the entire local market.
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