1 SURINAME – DETAILED IFRS COMPLIANCE ANALYSIS (UPDATE 2011)Cyril Soeri M.A. RA CISA IFRS Seminar 2011
Content2 Introduction; Findings of IFRS Compliance analysis: Companies and state-owned companies; Specific findings relating banks; Specific findings relating state-owned companies. Comparison prior year findings and conclusion.
Introduction (1)3 Overview The IFRS Compliance analysis is part of the research performed on behalf of the World Bank for the "Reports on the observance of standards and codes - Accounting and Auditing” (ROSC A&A). Approach Based on the World Bank’s Diagnostic tool - part 3 (June 2008) we listed the questions to review actual compliance with IFRS.
Introduction (2)4 Population In the research is included: publicly listed companies, government owned organizations, utility companies, extractive industries, telecom companies, large trade and manufacturing companies, service companies and companies in the hospitality. Sample size 75 companies are invited to participate with this investigation, from which 25 companies responded (response rate of 33%).
Introduction (3)5 Background information IFRS is currently not mandatory in Suriname. Only 3 of the 25 respondents have financial statements which are based on IFRS. Two of these financial statements contain and auditor’s report (from the same auditor’s firm) stating true an fair view in accordance with ‘Generally Accepted Accounting Principles’ (GAAP) and Notes to these financial statements stating preparation in accordance with GAAP while adopting several IFRS standards. Most of the respondents prepared their financial statements based on Dutch GAAP with the exception of the extracting companies which report on Canadian or US GAAP.
6FINDINGS OF IFRS COMPLIANCE ANALYSIS IFRS Seminar 2011
International Financial Reporting Standards International Accounting Standards (IAS) IFRS 1 First-time Adoption of IFRS IAS 24 Related Party Disclosures IFRS 2 Share-based Payment IAS 26 Accounting and Reporting by Retirement Benefit Plans IFRS 3 Business Combinations IAS 27 Consolidated and Separate Financial Statements IFRS 4 Insurance Contracts IAS 29 Financial Reporting in Hyperinflationary Economies IFRS 5 Discontinued Operations IAS 32 Financial Instruments: Presentation7 IFRS 6 Exploration of Mineral Assets IAS 33 Earnings Per Share IFRS 7 Financial Instruments: Disclosures IAS 34 Interim Financial Reporting IFRS 8 Operating Segments IAS 36 Impairment of Assets IFRS 9 Financial Instruments (2013) IAS 37 Provisions, Contingent Liabilities and Contingent Assets IFRS 10 Consolidated Financial Statements (2013) IAS 38 Intangible Assets IFRS 11 Joint Arrangements (2013) IAS 39 Financial Instruments: Recognition and Measurement IFRS 12 Disclosure of Interests in Other Entities (2013) IAS 40 Investment Property IFRS 13 Fair Value Measurement (2013) IAS 41 Agriculture International Accounting Standards (IAS) Superseded standards (not applicable anymore) IAS 1 Presentation of Financial Statements IAS 3 Consolidated Financial Statements IAS 2 Inventories IAS 4 Depreciation Accounting IAS 7 Statement of Cash Flows IAS 5 Information to Be Disclosed in Financial Statements IAS 8 Accounting Policies, Changes in Accounting IAS 6 Accounting Responses to Changing Prices IAS 10 Events After the Reporting Period IAS 9 Accounting for Research and Development Activities IAS 11 Construction Contracts IAS 13 Presentation of Current Assets and Current Liabilities IAS 12 Income Taxes IAS 15 Information Reflecting the Effects of Changing Prices IAS 14 Segment Reporting IAS 22 Business Combinations IAS 16 Property, Plant and Equipment IAS 25 Accounting for Investments IAS 17 Leases IAS 28 Investments in Associates IAS 18 Revenue IAS 30 Disclosures in the Financial Statements of Banks IAS 19 Employee Benefits IAS 35 Discontinuing Operations IAS 20 Accounting for Government Grants IAS 31 Interests In Joint Ventures IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 23 Borrowing Costs
Findings of IFRS Compliance (1)8 Presentation of financial statements (IAS 1): 24 of the 25 respondents (96%) did not present a comprehensive income statement; Four respondents (16%) did not disclose a Statement of Cash flows in the face of their financial statements. 20 of the 25 respondents (80%) did not report a Statement of Changes in Equity; 20 of the 25 respondents (80%) did not disclose the key assumptions concerning the future, and other key sources of estimation uncertainty; 9 of the 25 respondents (34%) disclosed no information that enables users of its financial statements to evaluate the entitys objectives, policies and processes for managing capital.
Findings of IFRS Compliance (2)9 Statement of cash flows (IAS 7): 84% the respondents did not disclose cash flows from interest and dividends received and paid separately [IAS 7.31] and also cash flows from taxes on income separately are not disclosed ; Income Tax (IAS 12): In the financial statements of 2 state owned companies with negative retained earnings and consecutive losses, deferred tax assets from compensable losses have not been recognized.
Findings of IFRS Compliance (3)10 Employee Benefits (IAS 19) None of the respondents recognize the expected cost of accumulating compensated absences (paid leave) as an expense in the period in which the employee earns the entitlement; 72% of the respondents have no clear disclosure whether there is a pension plan, while a pension plan is assumed either based on defined benefit plan or defined contribution plan. Six of the seven companies which have a defined benefit plan, does not disclose the nessary information.
Findings of IFRS Compliance (4)11 Accounting for government grants and disclosure of government assistance (IAS 20): In none of the two applicable financial statements disclosure on government grant and government assistance noted in accordance with IAS 20.39. Disclosure is required of the following: 1. Accounting policy adopted, including method of presentation; 2. Nature and extent of government grants recognized and other forms of assistance received; 3. Unfulfilled conditions and other contingencies attached to recognized government assistance.
Findings of IFRS Compliance (5)12 Related Parties disclosures (IAS 24): In none of the financial statements disclosure has been noted on compensation paid by, or on behalf of, the entity to key management personnel in total and for each of short term employee benefits, post-employment benefits, other long term benefits, termination benefits and share-based payment [IAS 24.16]. In 14 of the 17 (82%) applicable financial statements with related party transactions, no disclosure has been noted of: the amount of the transactions, the amount of outstanding balances (including commitments): provisions for doubtful debts, and bad or doubtful debt expense [IAS 24.17 and IAS 24.18].
Findings of IFRS Compliance (6)13 Consolidated and separate financial statements (IAS 27): In 2 of the 11 (18%) applicable financial statements where consolidation of subsidiaries is anticipated, the companies did not publish consolidated financial statements [IAS 27.9], while no exemption from publishing consolidated financial statements in accordance with IAS 27.10 is applicable. Earnings per share (IAS 33): One of the eleven public listed companies (9%) has not the necessary disclosure on earnings per share;
Findings of IFRS Compliance (7)14 Impairment of assets (IAS 36): None of the financial statements mention that: The entity measures fair value in use reflecting the elements in IAS 36.30 and future cash flows in IAS 36.33 and IAS 36.39; The entity measures value in use using a discount rate that is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash- generating unit [IAS 36.55];
Findings of IFRS Compliance (8)15 Provisions, contingent liabilities and contingent assets (IAS 37): In two of the 25 financial statements (8%) we noted provision which are not allowed according to IFRS : provisions for major building maintenance; provision for own risk insurance; provision for general bank risks (should be a fund for general bank risks and included under equity).
Findings of IFRS Compliance (9)16Financial instruments: recognition and measurement (IAS 39): None of the financial statements mention whether: The entity measure loans and receivables at amortized cost using the effective interest rate method [IAS 39.46]; The entity measure held-to-maturity investments at amortized cost using the effective interest rate method [IAS 39.46]; The entity measure available-for-sale financial assets (the residual class) at fair value and recognize all gains and losses (other than impairment losses) in other comprehensive income until disposal [IAS 39.46 and IAS 39.55]; All financial liabilities measured at amortized cost using the effective interest rate method [IAS 39.47].
Findings of IFRS Compliance (10)17 Investment property (IAS 40): In 12 of the 13 (92%) applicable financial statements with investment property, we noted that where the company adopts the fair value model: all investment properties measured at each balance sheet date at fair value, however gains and losses are included in the revaluation surplus (equity) instead of included in the profit and loss account [IAS 40.33].
Findings of IFRS Compliance (11)18Financial instruments: disclosure (IFRS 7) – to be continued: 23 of the 25 (92%) respondents did not disclose the following in their financial statements: Information that enables users of its financial statements to evaluate the significance of financial instruments for its financial position and performance; The carrying amount of the following categories of financial assets and financial liabilities defined in IAS 39: financial assets at fair value through profit or loss, loans and receivables, available-for-sale financial assets, financial liabilities at fair value through profit or loss and financial liabilities measured at amortized cost.
Findings of IFRS Compliance (12)19Financial instruments: disclosure (IFRS 7) – continued 1 23 of the 25 (92%) respondents did not disclose the following in their financial statements: Loans or receivables and financial liabilities designated as at fair value through profit or loss the maximum exposure to credit risk, and the other risk disclosures; Information on reclassification, derecognition, collateral, allowances; Net gains and losses on categories of financial assets and liabilities; Total interest income and total interest expense for financial assets or financial liabilities that are not at fair value through profit or loss;
Findings of IFRS Compliance (13)20Financial instruments: disclosure (IFRS 7) – continued 2 23 of the 25 (92%) respondents did not disclose the following in their financial statements: Fee income and expense (other than amounts included in determining the effective interest rate) arising from financial assets or liabilities that are not at fair value through profit or loss; and trust and other fiduciary activities that result in the holding or investing of assets on behalf of individuals; Interest income on impaired assets; The amount of impairment losses for each class of assets; The fair value (where required) for each class of financial assets and financial liabilities, giving the basis of measurement applied and assumptions made; The nature and extent of credit, liquidity and market and possibly other risks related to financial instruments.
21IFRS COMPLIANCE ANALYSIS: BANKS’ SPECIFIC FINDINGS IFRS Seminar 2011
Banks’ specific findings (1)22 Non-compliance noted in: IAS 1 Presentation of financial statements; IAS 7 Statement of Cash flows; IAS 19 Employee benefits; IAS 36 Impairment of assets; IAS 37 Provisions, contingent liabilities and contingent assets IAS 39 Financial instruments: recognition and measurement; IFRS 7 Financial instruments: disclosure.
Banks’ specific findings (2)23 If the Central Bank of Suriname will transfer its supervision from a focus on the management of credit risks by banks (Basel I) to an overall risk management approach, also covering the market risk and operational risk (Basel II), more information is needed in the financial statements regarding: the risk assessment by the banks and the implemented internal controls to manage the exposure to these risks. This will increase the need for more disclosure information as presented in IAS 32, IAS 39 and IFRS 7 regarding financial instruments.
24IFRS COMPLIANCE ANALYSIS: STATE OWNED COMPANIES’ SPECIFIC FINDINGS IFRS Seminar 2011
SOEs’ specific findings (1)25 Non-compliance noted in: IAS 1 Presentation of financial statements; IAS 7 Statement of Cash flows; IAS 12 Income tax; IAS 20 Accounting for government grants and disclosure of government assistance; IAS 24 Related parties disclosures; IAS 36 Impairment of assets; IAS 37 Provisions, contingent liabilities and contingent assets IAS 39 Financial instruments: recognition and measurement; IFRS 7 Financial instruments: disclosure.
SOEs’ specific findings (2)26 State owned companies will have more difficulties in adapting IFRS, since their applied accounting policies significantly differs from the disclosure requirements according to IFRS. Timely hiring of IFRS expertise or training of personnel is strongly recommended.
Comparison with prior year findings and conclusion27 Unfortunately no significant improvements has been identified in the disclosure of the financial statements; No voluntarily adoption of IFRS has been adopted in financial year 2009. However, two listed companies are in the process of implementing certain IFRS standards to eventually smoothly convert to IFRS. With mandatory appliance of IFRS (by law) a transition period of at least two years is recommended for companies to adapt to changes in their applied accounting policies.