PwC recommends Thai businesses adopt IFRS to drive business growth and attract investors worldwide
Adjusting to Thai Financial Reporting Standards to be in line with International Financial Reporting Standards (IFRS) is a challenge that Thai businesses have to overcome, PwC Thailand says. If Thailand proceeds with IFRS like other countries globally, it will bring about trust from foreign investors and make it easier for Thai businesses to raise funds from foreign markets.
PwC Thailand indicates that big data and new technologies will make accounting and auditing more effective. As a result, business entrepreneurs should understand the new financial reporting standards, consumer behaviour and the changes in the market. Adopting new technologies will also drive change for the sustainable business growth.
Chanchai Chaiprasit, Assurance Leader of PwC Thailand, speaking at the PwC Thailand's 2018 Symposium: Managing challenges to unleash corporate growth, said the challenge for Thai businesses to grow is to fully uplift the Thai Financial Reporting Standards to be consistent with International Financial Reporting Standards (IFRS).
To accomplish this transformation, they should be well-prepared in terms of leaders, people development, systems, and digital technology. Until now, the Federation of Accounting Professions has pushed forward the issue as we can see from the changes in several Financial Reporting Standards such as Financial Instruments (IFRS 9), Revenue from Contracts with Customers (TFRS 15), Leases (TFRS 16), etc.
"If Thai entities successfully adopt IFRS, they will gain trust from foreign investors which will benefit both Thai businesses and economics in terms of funding and domestic and international investment," Chanchai said.
Regarding the delay of IFRS 9, which will come into force on 1 January 2020, Thai entities have more time to prepare their accounting and operating systems. This standard consists of three main points: 1) classification and measurement of financial assets and financial liabilities e.g. loans and accounts receivable, 2) impairment of financial assets, and 3) hedge accounting.
The interesting point is that IFRS 9 establishes a new approach for loans and receivables, an 'expected loss' model. The entity has to consider and set up the impairment on initial recognition of transactions.
"Up until now, financial institutions in Thailand have been well-prepared for IFRS 9. However, other financial services and entities may not be ready to adopt IFRS 9 on 1 January 2020."
The reason why IFRS 9 is being delayed could be the fact that Thailand has never adopted IAS 39: Financial Instruments, which is fundamental to IFRS 9. Several countries such as the United Kingdom, EU countries, Hong Kong SAR, China, Japan, South Korea, Singapore and Malaysia have adopted IFRS 9 with no difficulties as they had formerly adopted IAS 39.
"For those who have never prepared for IFRS 9 or other International Financial Reporting Standards that will be effective soon, they should start with analysing the effects of the new standards on their companies' financial reports in terms of measurement and disclosure, for example. After that, they should study the new standards in detail and find solutions for their business. If it is beyond a company's capabilities, they should consult experts for rapid and right-to-the-point solutions," he suggested.
Chanchai also indicated that IFRS isn't only necessary for large enterprises but also vital to Small and Medium-Sized Enterprises (SMEs), especially those that plan to be listed on the Stock Exchange of Thailand (SET). Plus, IFRS will save more time and make it easier for those who look for partnerships through business expansion by mergers and acquisitions.
He added, "In the past three to five years, SMEs and start-up entrepreneurs have become more interested in IFRS, particularly family businesses that are managed by the third or fourth generation of families. These leaders with visions from the new generation would like to have more funding to expand their business as well as using new technologies to transform the way they do business. They place a high importance on transparency and good governance including better financial reports to keep up with the international standards."
According to the Securities and Exchange Commission's (SEC) requirements, entities that plan to be listed on the SET must submit the initial public offering application that includes the latest annual financial statements and quarterly financial statements, which are prepared in accordance with TFRS. However, the SEC announced the new requirements in September 2018, specifying that the entities' financial statements must accord with TFRS for three years and be signed by an auditor approved by the office of the SEC. This new regulation will be effective in 2024.
Chanchai pointed out that SMEs and other businesses that wish to be listed on the SET will need better preparation according to the SEC's new regulation. Those who want to be listed by 2024 have to start adopting TFRS from 2021 and have their financial statements signed by an auditor approved by the office of the SEC. So, we may see many more entities urge to be listed on the SET during this period in order to comply with the current regulation. This will save both costs and time for them. In the meanwhile, those entities that have already adopted TFRS can be listed according to their plan right before the new regulation is officially effective.
Technologies help uplift TFRS to be consistent with IFRS As technology continues to rapidly evolve, the integration of technologies into managing accounting data will contribute to an efficient financial report and appropriate auditing process. This will clarify investors' concerns regarding transparency and credibility. Furthermore, Thai entities can swiftly elevate their financial reports to international standards by predictive analytics. Several reporting standards such as Financial Instruments (IFRS 9), Revenue from Contracts with Customers (TFRS 15), and Leases (TFRS 16) all apply the same forward-looking concept.
"Changes in digital technology have disrupted finance sections, particularly accounting. AI, Robotic Process Automation (RPA), Data Analytics, and Cloud technology will help record and analyse an auditor's working procedures. In a world driven by data, the ones with more information that can be used for analytics will have a competitive advantage over others."
Chanchai concluded that management should be prepared in terms of technology for processing information effectively and human resources for managing the given information for the maximum benefit of the company. Additionally, management should study the effects of digital disruption and consumer behaviour. After that, they should take both factors into account and decide if they should develop any innovation or technology to help with their business plan. This includes investment planning and upskilling human resources which will help their businesses to grow according to their goals and drive them ahead of their competitors.