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The Future of Accounting Standards

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  • 1. Platinum Sponsor Gold Sponsor Partners The Early Bird Company
  • 2. 10:15 AM – 10:30 AMThe Future of Accounting StandardsMr. Binod Shankar, CFAManaging DirectorGenesis Institute
  • 3. THE FUTURE OFACCOUNTING STANDARDS Binod Shankar, CFA
  • 4. About Me• 17+ years in project appraisal, audit, financial due diligence, financial feasibility, valuation and real estate finance• 11 years in the Middle east- Oman, Bahrain and now Dubai• Worked with KPMG, Arthur Andersen, Ernst & Young. Last position as Executive Director at Gulf Finance House, Bahrain• Teaching advanced finance and accounting courses since 1996• Chartered Accountant and a CFA charterholder4
  • 5. About Genesis•Market leader in CFA preparatory courses in the UAE and Lower Gulf•Diverse product portfolio of Customized Corporate Training, CFAB ReviewCourses•The only learning provider for all 3 levels of CFA in the Lower Gulf•Authorized Distributor of Kaplan Schweser in the UAE•Trained 1,500+ finance professionals and CFA candidates•Approved Learning Partner of Institute of Chartered Accountants of Englandand Wales5
  • 6. Convergence• Between IFRS and UJS GAAP• Started in 2004• A few projects have been selected for convergence6
  • 7. Convergence• Financial instruments • Balance sheet - Netting• Revenue recognition • Financial statement• Leases presentation• Statement of comprehensive • Discontinued operations income • Financial instruments with• Fair value measurement characteristics of equity• Derecognition • Insurance contracts• Consolidations • Emissions trading schemes• Post-employment benefits7
  • 8. The spread of IFRS8
  • 9. From Rules to Principles• US GAAP: Too many rules, exceptions• Confusing and even contradictory standards• Easier to find loopholes and “game” the standards• One reason why the US has the maximum number and size of accounting scandals: Enron, Worldcom, Global Crossing9
  • 10. From Off to On• Traditional off balance sheet items may end up on the balance sheet• The ED issued in 2010 on Leases requires same treatment for operating leases and finance leases. Maybe finalised in 2012• Excludes short term leases• Huge impact:  Companies may end up more leveraged; Airlines, retail  May even breach bank covenants  Limits ability to raise finance  Interest costs may rise; profitability may fall10
  • 11. Public Sector Accounting• Traditionally most Governments have followed cash based or modified accrual accounting• Inertia due to lack of specialists, lack of funding and lack of experience with accrual accounting• There is a growing trend towards full Accrual Accounting• Growing adoption of International Public Sector Accounting Standards (IPSAS)11
  • 12. Public Sector Accounting Source: Ernst & Young12
  • 13. SME Standards• SMEs make up 95% of all companies. Yet they have to comply with some IFRSs that are irrelevant. Effect is higher cost and workload• IASB issued accounting standards for SMEs in 2009• Abridged, simplified set of standards• Makes IFRS easier to adopt. Yet another catalyst for growth of IFRS13
  • 14. Limiting the Choices-IFRSSubject Option 1 Option 2Immaterial items Part of financials Show in notesCash flow from operations Indirect method Direct methodInterest paid Cash flow from operations Cash flow from financingDividend paid Cash flow from operations Cash flow from financingSubsequent measurement Cost model Revaluation modelof P P & EInterest in joint ventures Proportionate Equity accounting consolidationSubsequent measurement Cost model Fair value modelof Investment PropertiesGovt grants Deferred income Reduce from assets14
  • 15. Clarity and SimplicityStandard Purpose(s)IFRS 9: Financial • Replaces the hideously complex IAS 39Instruments • Reduces asset classification to just two • Simplified fair value options • Comprehensive- measurement, impairment, hedging, disclosure • Impairment model for assets means losses may be recognized earlierIFRS 11: Joint Replaces IAS 31arrangementsIFRS 13: Fair Value • Single framework for defining & measuring FV • Eliminates different different in different IFRSs15
  • 16. Summary1. Convergence2. Spread of IFRS3. Rules to Principles4. Off balance sheet to on balance sheet5. Evolution of Public Sector Accounting6. SME standards7. Limiting the choices8. Clarity and Simplicity16
  • 17. Thank you!Binod Shankar, CFA, FCA www.genesisreview.comMobile: +971 50 558 2498 Genesis InstituteEmail : bshankar@genesisreview.com Dubai. Abu Dhabi

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