Wednesday 24 / April / 2024
Muscat: A new global accounting standard – International Financial Reporting Standard (IFRS 9) – will be made compulsory for all financial institutions licenced by the Central Bank of Oman (CBO) by January 2018.
The central bank has already formed a team with members from the apex bank and various banks to work on the requirements for streamlining the implementation of IFRS 9, said Hamoud Sangour Al Zadjali, executive president of the Central Bank of Oman.
He was talking to journalists on the sidelines of on IFRS financial instruments organised by Horwath Mak Ghazali, auditors and management consultants practicing in Muscat and a member firm of Crowe Horwath International. The workshop was inaugurated by Al Zadjali.
The new accounting standards will bring in more discipline in preparing their financial statements after taking into account three risks – market risk, credit risk and liquidity risk, added the CBO chief.
He further said that the Sultanate has introduced the expected loss accounting norm almost 10 years ago. “We have already foreseen the risk of losses banks and financial institutions face. We have asked banks to set extra provisions for expected losses much before.”
“IFRS began as an attempt to harmonise accounting across European Union, but the value of harmonisation made the concept attractive around the world. But in this process, over the years, the standards have become complicated and challenging. People are very creative and inventive. So they created and invented numerous kinds of financial instruments,” said Davis Kallukaran, managing Partner at Crowe Horwath Oman.
IFRS reporting is required in more than 130 countries. Also, over 100 countries are already in full compliance to IFRS where all financial institutions, including banks and insurance companies, will be impacted by the new standard IFRS 9.
In 1973, International Accounting Standard committee was formed to regulate financial reporting across the world.
In 2001, the new international accounting standards board took over from the committee the responsibility for setting International Accounting Standards. The standards issued by the new IASB are called IFRS and since then until now 15 International reporting standards (IFRS) were issued and 13 old accounting standards were deleted
“IAS 39 was extremely complicated and contained too many exceptions, inconsistencies and derogations. Companies really struggled and paid high fees for consultants just to apply IAS 39 correctly. Therefore, International Accounting Standards Board (IASB) decided to rewrite and replace IAS 39. The new standard got the name IFRS 9 Financial Instruments,” added Kallukaran.
There are two different standards about financial instruments - IAS 39 and IFRS 9 – now. If the company has only small amounts of financial instruments, the impact of switch from IAS 39 to IFRS 9 would be probably minimal. IFRS 9 introduces an option to value equity investments (for example, shares in other companies) and certain debt instruments at fair value through other comprehensive income.
But if the company works for some financial institutions like banks or investment houses, then performing thorough analysis of the different impacts that IAS 39 and IFRS 9 can have.
You should assess the types of financial assets that you have in your books,” he said.
IFRS 9 introduces an option to value equity investments (for example, shares in other companies) and certain debt instruments at fair value through other comprehensive income. Thus, there is no necessity to put all revaluation gains and losses to profit or loss and it can mean significantly lower volatility in profits.
