THAILAND

ZfCM | Controlling & Management Sonderheft 1 | 2011 25

Martin Klose/Patcharee Sabangban

Introduction

In April 2001, the International Account-ing Standards Board (IASB) was founded to undertake the responsibilities of the In-ternational Accounting Standards Com-mittee (IASC), established in 1973. In 2002, a year after its establishment, the IASB united with the Financial Account-ing Standards Board (FASB) to combine their knowledge and develop a set of ac-counting standards, the so-called Inter-national Financial Reporting Standards (IFRS). This replaces certain Internatio nal Accounting Standards (IAS) and would be compatible with all countries in order to successfully carry out international business affairs and their accounting.

Currently, over 100 countries across the world require or permit the use of IFRS as the globalization of businesses has stead-ily increased. This has caused a growing acceptance of a generalized set of stand-ards for accountants and financial state-ments/reports’ users, especially for inter-national investors and bankers (KPMG 2010). In addition, reporting in accord-ance with IFRS is also considered as a competitive tool in benchmarking the businesses by financial information users, in particular with regards to the potential cost savings for multinational companies in preparing the consolidated financial statements for their group.

Contrary to major economic leaders, Thailand is one of many countries which has voiced concerns about the conver-gence with or full adoption of IFRS for some time. Now, it has announced the plan to become fully compliant with Thai Accounting Standards (TAS) adopted from IFRS. This transition was initiated by its own Accounting Standard Board – the Federation of Accounting Profession un-der the Royal Patronage of His Majesty the King (FAP), founded in 2004. It replaces a long established Institution of Accountants and Auditors of Thailand (ICAAT) and is in coordination with Thai Securities Ex-change Commission (Thai SEC) and Security Exchange of Thailand (SET). Be-sides FAP, SEC and SET, the Department of Business Development (DBD) also partici pated in the transition process by issuing The Brief Particulars in the Financial statements B.E. 2551 which ensured that it corresponded with the revised TAS 1 and finally the IAS 1 from 1st of January 2009 onwards (Presentation of Financial Statements Bound 2009). The direct consequence of this was an enor-mous r eluctance to prepare of the compa-nies’ financial statements in conformity with IFRS.

Therefore, it is reasonable, that the im-pact of convergence with IFRS on compa-nies or reporting entities is expected to be significant and a huge challenge for the management teams.

Thai Accounting Standards versus International Financial Reporting Standards

The global convergence to IFRS continu-ously influences the development of Thai statutory accounting and reporting re-quirements (Thai GAAP). At the same time, Thai GAAP or TAS and IFRS en-compass the same purposes in providing guidance for accountants in preparation of their financial statements, although there are numerous dissimilarities that must be taken into account during the conversion process. The International Federation of Accountants (IFAC) also recognizes the dissimilarities in the local GAAP and IFRS on their website (IFRS 2010): “IFRS pro-

Thailand’s Convergence to IFRS

■■ International■ Financial■ Accounting■Standards■(IFRS)■are■applied■in■over■100■countries■across■the■world■and■consid-ered■as■a■competitive■tool■in■benchmark-ing■the■companies’■businesses.■■ Especially■multinational■companies■can■

benefit■from■the■mentioned■standards■through■cost-saving■aspects■with■regard■to■consolidated■financial■statements■of■their■group.■■ Thailand■ has■ shown■ major■ concerns■

with■ regard■ to■ a■ full■ adoption■ of■ IFRS.■Therefore,■the■Federation■of■Accounting■Professions■in■Thailand■(FAP)■has■started■the■process■to■converge■Thai■Accounting■Standards■(TAS)■to■IFRS.■■ Despite■the■same■purposes■in■providing■

guidance■for■accountants■ in■preparing■their■financial■statements,■there■are■nu-merous■differences■that■have■to■be■taken■into■account■during■the■conversion■proc-ess.■The■FAP■has■scheduled■and■announc-ed■a■timeline■for■convergence■to■IFRS■in■Thailand■with■the■first■target■SET■50■in■2011.■■ Both■challenges■and■benefits■will■result■

from■a■convergence■to■IFRS■–■depending■on■the■readiness■and■promptness■of■all■companies.

Authors

Martin Klose

is■Partner■at■Rödl■&■Partner■Ltd.,■18th■Floor,■Empire■Tower,■Suite■1808-1809,■195■South■Sathorn■Road,■Yannawa,■Sa-thorn,■10120■Bangkok,■Thailand;■■E-Mail:■martin.klose@roedlasia.com.

Patcharee Sabangban

is■Consultant■at■Rödl■&■Partner■Manage-ment■Services■Ltd.,■Empire■Tower,■Suite■1808/1,■195■South■Sathorn■Road,■Yanna-wa,■Sathorn,■10120■Bangkok,■Thailand;■■E-Mail:■patcharee.sabangban@roedlasia.com.

26 ZfCM | Controlling & Management Sonderheft 1 | 2011

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vides much less overall detail […] IFRS fits into one book, about two inches thick. By contrast, U.S. GAAP contains approxi-mately 17,000 pages of detailed rules and guidance.” (IFRS FAQs, 2008).

By virtue of Accounting Act B. E. 2543 (2000) and Accounting Professions Act B.E. 2547 (2004), FAP currently under-takes the roles and responsibilities for developing and publishing all Thai Ac-counting Standards (TAS) in coordination with SEC, SET, Bank of Thailand (BoT), DBD, the Revenue Department (RD) and the Office of Insurance Commission.

Since 1997, TAS have been developed in compliance with IAS while FAP (former-ly, the ICAAT) has committed itself to be fully compliant with IFRS. The FAP has issued Notification No. 21/2550 (2007) dated 20th July 2007 – the Exemption for Applications of Accounting Standards stating that non-public companies are exempt from applying certain TASs. This tailoring procedure was solely made for the non-public interest entities which are mostly family-owned and entrepreneurs. Nonetheless, this exemption has been an-nounced in order to fulfil the needs of the financial statement users. The exempled TAS are listed in figure 1.

In addition to the above mentioned ac-tions carried out before the transition pe-riod, financial reporting has drastically changed in the past two years as FAP has issued Notification No. 86/2551 (2008) and 16/2552 (2009). Thereby, the use of a new accounting framework, revised ac-counting standards, new accounting standards, Thai Financial Reporting Standard (TFRS) and accounting treat-ment guidance became mandatory. In June 2009, with effect from 26th Septem-ber 2009, FAP issued Notification No. 12/2552, regarding the renumbering of TAS to correspond with the numbers used in the IAS. Figures 2, 3 and 4 show the ma-jor developments and current Accounting Framework as well as TAS in pursuing convergence to IFRS.

Thailand Roadmap for Convergence to IFRS

Since 1988, the U.S. SEC has played a lea-ding role in international efforts to acquire a set of accounting standards. A recurring issue that the U.S. SEC has brought up is that “issuers wishing to raise capital in more than one country are faced with the

increased compliance costs and inefficien-cies of preparing multiple sets of financial statements to comply with different juris-dictional accounting requirements” (AIC-PA, 2008). Stakeholders in Thailand have also invested significant sums over the past few years in order to see the adoption of IFRS and a great deal of effort has been shown by businesses, shareholder bodies, regulators and the accounting profession alike. These four groups are equally fun-damental to further the alignment and convergence to IFRS in Thailand.

A timeline for convergence to IFRS in Thailand has been scheduled and an-nounced by FAP, with the first target in 2011. The Thai SEC urged the pioneers from the top 50 companies publicly trad-ed in SET (SET 50) to participate in the first stage of the convergence to IFRS scheme. Using a gradual strategy, SET 100 companies would be the next group planned to commence their implementa-tion of IFRS. Figure 5 presents the timeline for the convergence.

Although it is possible to hold the time-line, it is going to be difficult for compa-nies to switch over quickly. Moreover, there will be numerous challenges arising during the transition process. More peo-ple need to be informed about IFRS and the conversion. Hence, the adoption re-quires educated, open-minded business people who are willing to learn and under-take these challenges.

Challenges of Convergence

The convergence to and adoption of IFRS create numerous substantial changes in the recognition and measurement criterion, several new and changed disclosure requi-rements as well as disclosure of further information in the management report. Although such a convergence to and adop-

tion of IFRS diminishes the differences bet-ween accounting standards across the world, the process is expected to be very dif-ficult to communicate and convey.

The recent publication of revised Thai Accounting Standards under the Ac-counting Act B.E. 2543 (2000), i. e. the Thai Accounting Standards issued under the Accounting Profession Act B.E. 2547 (2004) marked the most comprehensive revision of statutory accounting principles since the first Thai Accounting Law Act B.E. 2482 (1939) has been amended in past decades by the Notification of Revolution-ary Council No. 285 B.E. 2515 (1972). The objectives of the amendment include providing guidance on the preparation of accounts and fair taxation as well as a protection of interest of those parties in-volved. This aims to establish modern but less complex accounting principles as an adequate, sustainable alternative to IFRS and to improve the informational content of Thai GAAP by implementing elements similar to IFRS.

However, the application of IFRS is re-quired for consolidated financial state-ments of public companies that are listed in the SET. Other companies also have the option to apply IFRS in their consolidat-ed financial statements. The use of IFRS in separate entity financial statements was previously voluntary; however, in the absence of an effective Thai Accounting Standard the DBD and FAP encourage an early application of IAS or the current IFRS.

Predominantly, there is a variety of challenges and opportunities developed during the convergence to IFRS; however, without a strong commitment by compa-nies, accountants and others involved in the accounting process, it will be very dif-ficult to meet the Thai SEC and FAP esti-mated adoption target by 2015. No matter how small the entity participating in the

Fig. 1 | Exemption for Applications of Accounting Standards

TAS 24: Segment Reporting

TAS 25: Cash Flow Statements (revised 2007)

TAS 36: Impairment of Assets

TAS 44: Consolidated and Separate Financial Statements

TAS 45: Investments in Associates

TAS 46: Interests in Joint Ventures (revised 2007)

TAS 47: Related Party Disclosures

TAS 48: Financial Instruments: Disclosure and Presentation

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ZfCM | Controlling & Management Sonderheft 1 | 2011 27

Fig. 2 | Thai Accounting Framework and Thai Accounting Standards

Description

Applicable to

Effective Private Public

Accounting Framework (revised 2007) 26 Sep 09 ✓ ✓

TAS 1 (Revised 2009) Presentation of Financial Statements 2009 ✓ ✓

TAS 2 (Revised 2009) Inventories 2009 ✓ ✓

TAS 7 (Revised 2009) Cash Flow Statements 2009 ✗ ✓

TAS 8 (Revised 2009) Accounting Policies, Changes in Accounting Estimates and Errors 2009 ✓ ✓

TAS 10 (Revised 2009) Events after the Balance Sheet Date 2009 ✓ ✓

TAS 11 (Revised 2009) Construction Contracts 2009 ✓ ✓

TAS 12 Income Taxes 2013* ✓ ✓

Draft TAS 14 Segment Reporting N/A*** ✗ ✓

Draft TAS 16 (Revised 2009) Property, Plant and Equipment 2011 ✓ ✓

TAS 17 (Revised 2009) Leases 2009 ✓ ✓

Draft TAS 18 Revenue 2011 ✓ ✓

Draft TAS 19 Employee Benefits 2011 ✓ ✓

TAS 20 (Revised 2009) Accounting for Government Grants and Disclosure of Government Assistance 2011 ✓ ✓

Draft TAS 21 (Revised 2009) The Effects of Changes in Foreign Exchange Rates 2013* ✓ ✓

TAS 23 (Revised 2009) Borrowing Costs ✓ ✓

TAS 24 (Revised 2009) Related Party Disclosures 2011 ✗ ✓

Draft TAS 26 Accounting and Reporting by Retirement Benefit Plans 2011 ✓ ✓

TAS 27 (Revised 2009) Consolidated and Separate Financial Statements 2011 ✗ ✓

TAS 28 (Revised 2009) Investments in Associates 2009 ✗ ✓

TAS 29 Financial Reporting in Hyperinflationary Economies 2011 ✓ ✓

TAS 31 (Revised 2009) Interests in Joint Ventures 2009 ✗ ✓

Draft TAS 32 Financial Instruments: Presentation N/A*** ✗ ✓

Draft TAS 39 Financial Instruments: Recognition and Measurement N/A*** ✗ ✓

TAS 33 (Revised 2009) Earnings per Share (formerly, TAS 38) 2011 ✓ ✓

TAS 34 (Revised 2009) Interim Financial Reporting 2009 ✓ ✓

TAS 36 (Revised 2009) Impairment of Assets 2009 ✓

TAS 37 (Revised 2009) Provisions, Contingent Liabilities and Contingent Assets 2009 ✓ ✓

TAS 38 (Revised 2009) Intangible Assets 2009 ✓ ✓

TAS 40 (Revised 2009) Investment Property 2011 ✓ ✓

Draft TAS 41 (Revised 2009) Agriculture N/A*** ✓ ✓

* Expected effective period.** Pending announcement in the Thai Government Gazette and for which the effective date has been postponed to 2013.*** The Draft has not yet been made available to the public.

Fig. 3 | Thai Financial Reporting Standards

Description

Applicable to

Effective Private Public

TFRS 1 First-Time Adoption of International Financial Reporting Standards 2011 ✓ ✓

TFRS 2 Share-Based Payment 2011 ✓ ✓

TFRS 3 (Revised 2009) Business Combinations 2011 ✓ ✓

TFRS 5 (Revised 2009) Non-Current Assets Held for Sale and Discontinued Operations 2011 ✓ ✓

TFRS 6 Exploration for and Evaluation of Mineral Assets 2011 ✓ ✓

Draft TFRS 8 Operating Segments Thai Accounting Standards N/A*** ✓ ✓

*** The Draft has not yet been made available to the public.

28 ZfCM | Controlling & Management Sonderheft 1 | 2011

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convergence to IFRS, many challenges are bound to arise. In an article entitled “Guide to International Financial Report-ing Standards”, the Center for Audit Qual-ity includes some of these challenges (CAQ 2009). Certainly, funding and find-ing staff with expertise in IFRS, that are confident and able to function as an “IFRS Qualified Accountant”, will be an issue. Even though a variety of seminars and books developed by the IFAC itself and the Big Four accounting firms are available, conflicts or differences in interpretation between the Thai and English languages will remain.

The FAP stated that all parties involved in financial reporting must undertake comprehensive training. Colleges and universities will need to add IFRS into their curriculum for students. Profession-al associations and industry groups will also need to include IFRS in all of their programs and materials. There might be difficulties for anyone dealing with finan-cial documentation and the accounting profession. Perhaps, these might also raise issues with the consistent adoption, appli-cation and regulatory review.

Resumé

The convergence to IFRS brings huge challenges to Thailand as there are no summary publications highlighting such dissimilarities in detail which exist bet-ween IFRS and Thai GAAP (as revised standard by standard). Even if the IFRS or Thai GAAP (revised) have covered the sa-me issues and provide guidance for ac-countants and their financial statements, there might be differences in the detailed application which could create a major im-pact on the financial statements.

In addition to the huge obstacles pre-sented by IFRS, there will also be a variety of opportunities that might arise on com-pletion of the convergence. The successful achievement truly depends on the readi-ness and promptness of companies, espe-cially in Thailand where most of the com-panies and reporting entities are consid-ered very small in size. Therefore it is essential to highlight, that these Small and Medium Enterprises (SME) have truly dif-ferent needs with regards to accounting standards than equity investors and other parties involved in the capital markets.

Literature1. Center for Audit Quality: Guide to International Financial Reporting Standards, September 2009, http://www.thecaq.org/publications/GuidetoIFRS.pdf (accessed 02.12.2010).2. KMPG: Managing the transition to IFRS: The Journey to 2011, Bangkok, 2008.3. KPMG: International Financial Reporting Stan-dards: http://www.kpmg.com/TH/en/WhatWeDo/Interest/Pages/IFRS.aspx (accessed 22.10.2010).4. Department of Business Development, the Mi-nistry of Commerce, www.dbd.go.th (accessed 02.12.2010).5. Federal of Accounting Professions under The Royal Patronage of His Majesty the King, http://www.fap.or.th (accessed 04.02.2011).6. Financial Accounting Standard Board (“FASB”), www.fasb.org (accessed 02.12.2010).7. http://www.articlesbase.com/accounting-articles/will-ifrs-take-over-the-accounting-worldby-2014- 1775165.html#ixzz16rH4d5k (accessed 02.12.2010).8. International Financial Accounting Standards, www.ifrs.com (accessed 02.12.2010).

Fig. 5 | Timeline for the convergence to IFRS in Thailand

2010 2011 2012 2013 2014 2015

SET 50 Convergence IFRScomparative

SET 100 to IFRS by applying IFRS comparative Full adoption of IFRS.

The rest of the listed companies and compa-nies under Market for Alternative Investment revised TAS from IFRS (standard by standard). IFRS

comparative

Non-listed companies that have public interest FAP or DBD or related regulator(s) will decide.

Fig. 4 | Draft Interpretation of Thai Financial Reporting Standards and Thai Accounting Standards

Description

Applicable to

Effective Private Public

Draft Interpretation of TFRS 1 Changes in Existing, Decommissioning, Restoration and Similar Liabilities N/A*** ✓ ✓

Draft Interpretation of TFRS 4 Determining Whether an Arrangement Contains a Lease N/A*** ✓ ✓

Draft Interpretation of TFRS 12 Service Concession Arrangement N/A*** ✓ ✓

Draft Interpretation of TFRS 13 Customer Royalty Programmes N/A*** ✓ ✓

Draft Interpretation of TFRS 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction N/A*** ✓ ✓

Draft Interpretation of TFRS 15 Agreements for the Construction of Real Estate N/A*** ✓ ✓

Draft Interpretation of TAS 32 Intangible Assets – Cost of Website N/A*** ✓ ✓

* Expected effective period.*** The draft has not yet been made available to the public.

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