Accountant’ s Annual Conference 2016 – NBAA Implementing IFRS in Tanzania: Challenges and Way Forward
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Why are we discussing this topic?
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Identifying IFRS implementation challenges, complexity and proposing the way forward
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IFRS promotes accountability, good governance and consistency locally and across the globe
© 2016 KPMG, a Tanzanian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Tanzania.
Agenda
What to expect from the session Financial Reporting Framework: Tanzania Approach to regulating IFRS Implementation challenges identified Other specific issues Proposed way forward
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Financial Reporting Framework: Tanzania
Financial Reporting Framework: Tanzania
Tanzania adopted IFRS as issued by the International Accounting Standards Board (IASB) on whole basis for financial years beginning on or after 1st July 2004, via a technical pronouncement issued by the NBAA Business entities have been required to apply IFRS except for public sector entities that are not government business entities, which ought to apply IPSAS When using full IFRS or IFRS for SMEs entities must apply pronouncements issued by the IASB in full and without modification
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Financial Reporting Framework – Tanzania (cont..)
The NBAA has clarified through Technical Pronouncement No. 3 of 2009, which entities are permitted to use IFRS as follows: Publicly accountable entities: required to use full IFRS Non-publicly accountable entities (with < 100 employees, total assets < TShs 800million): permitted to use IFRS for SMEs Public sector entities that are not government business entities: required to use IPSAS
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Approach to regulating IFRS
Approach to regulating IFRS
In Tanzania: IFRS use is legally backed as its incorporated in regulations of a number of regulatory bodies including the Bank of Tanzania (BOT), Tanzania Insurance Regulatory Authority (TIRA), Dar es Salaam Stock Exchange (DSE), Capital Markets and Securities Authority (CMSA) and the NBAA technical pronouncements on IFRS.
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Approach to regulating IFRS (cont..)
What are the advantages of converting to IFRS: Businesses present financial statements on same basis as its foreign competitors Makes comparisons easier Companies with subsidiaries in countries that permit IFRS use one accounting language company-wide Companies may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS Companies may also benefit by using IFRS if they wish to raise capital abroad. Facilitates Good Governance & accountability
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Approach to regulating IFRS (cont..)
In the East Africa region all countries have adopted IFRS NBAA is mandated to oversee implementation and monitoring application of IFRS in Tanzania NBAA provides local guidance and issue clarification on various IFRS application issues through its technical pronouncements NBAA collaborates with the regulators, practitioners and preparers of the financial statements to harmonize the application of IFRSs In performing Audit Quality Reviews effective application of IFRSs is monitored by the NBAA.
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General IFRS implementation challenges
General IFRS implementation challenges
Regulatory and monitoring Lack of one common regulation/legislation enforcing use of IFRS as a mandatory financial reporting framework for relevant entities in the country Current thresholds permitting adoption of IFRS for SMEs for non-public interest entities are arguably low
Accounting and reporting Harmonisation of internal and external reporting can be a challenge e.g. subs in groups reporting on different GAAPs, budgets and management accounts not in IFRS
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General IFRS implementation challenges (cont..)
Accounting and reporting (cont..) Technical difficulties in understanding and interpreting IFRS requirements Being principle based IFRS leaves a sizable room for accounting judgment which could add to complexity and subjectivity Lack of detailed guidance to supplement application of certain standards
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General IFRS implementation challenges (cont..)
Systems and processes Inability of MIS to accurately record, maintain and produce accurate financial reports Financial constraints for training and purchase of compatible systems and processes facilitating IFRS implementation People Low number of qualified accountants who can produce IFRS compliant financial statements relative to the requirement
© 2016 KPMG, a Tanzanian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Tanzania.
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General IFRS implementation challenges (cont..)
People (cont..) Lack of awareness of the standards among stakeholders and limited training resources Undue resistance to change Business related Fair value option causes volatility and subjectivity in the financial statements – this has been criticized by users especially banks and practitioners as it tends to obscure core business performance and makes comparability between entities difficult
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General IFRS implementation challenges (cont..)
Business related (cont..) High frequency, volumes and complexity of changes to the IFRS challenges adoptability Disclosure requirements are at times too detailed relative to the sector or needs of the users. Its felt by some businesses that certain information may expose them to competition
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Other specific issues identified
Other issues identified
Central Bank Central Bank requires impairment losses to be determined based on a set % of loans balances having certain characteristics e.g. age rather than actual incurred losses In addition banks are required to suspend interest on nonperforming accounts The aggressive approach to impairment in some instances results in impairment losses in excess of incurred losses as determined under IFRS
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Other issues identified (cont..)
Central Bank (cont..) To comply with Central Bank requirements, any excess impairment above the amount determined under IFRS is recognized by transferring amounts from retained earnings to a separate category of equity – Credit risk reserve Some other requirements adopted by the Central Bank do not align with IFRS e.g. quarterly published financial statements of banks not complying with IAS 34
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Other issues identified (cont..)
Income Tax For purposes of corporation tax the revenue authority recognizes impairment losses as allowable when the following conditions are met: 1.
2.
3.
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5.
Loss of contractual right through a court order No form of security is realizable or security has been realized and proceeds could not cover entire amount Debtor is insolvent or bankrupt Cost of recovering debt exceeds the debt Efforts to recover the debt are abandoned for another reasonable cause
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Other issues identified (cont..)
Income Tax (cont..) IFRS requires impairment losses to be determined by comparing the carrying amount to the estimated future cash flows discounted to the present value. The revenue authority is yet to harmonise its requirement with the IFRS requirement Others Deemed interest and transfer pricing requirements
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Other issues identified (cont..)
Capital Markets Authority CMA regulations are largely aligned to IFRS Specific disclosures under CMA relates to directors remuneration
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Proposed way forward
Proposed way forward
Continue with efforts geared at building capacity within the NBAA and the profession at large in dealing with matters relating to IFRS implementation Engage in dialogue which will eventually enforce a requirement for all regulators to involve NBAA in formulating policies and regulations that impact on financial reporting Establishing one legal legislative framework to govern financial reporting in the country
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Proposed way forward (cont..)
Instigate and promote a requirement for stakeholders to refer to the NBAA for clarity on all matters relating to IFRS in Tanzania Enhance the IFRS monitoring initiatives through the Audit Quality Reviews being conducted by the NBAA Deliberately encouraging and motivating members of the NBAA and the profession to seek for appointment in IFAC committees. To help influence policies of the board and being proactively involved in process of issue of the new standards, amendments and interpretations before they come out.
© 2016 KPMG, a Tanzanian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Tanzania.
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Proposed way forward (cont..)
Continue to improve training and capacity building initiatives through the NBAA and other stakeholders Cautiously investing in increasing the number of qualified accountants in the country Tracking and enforcing requirement for registered accountants and auditors to be involved in accounting activities requiring the use of IFRS as one of CPD facets Effective and timely communication with stakeholders Involve experts in areas requiring technical assistance in the transitioning journey.
© 2016 KPMG, a Tanzanian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Tanzania.
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Questions
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Contacts
Alexander Njombe Partner KPMG in Tanzania Tel +255 655 058772
[email protected]
© 2016 KPMG, a Tanzanian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Tanzania.
Thank You
© 2016 KPMG, a Tanzanian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Tanzania.
