IFRS has many challenges but is critical for progress

By Azhar Razak

Although Sri Lanka’s national accountancy body, Institute of Chartered Accountants of Sri Lanka (ICASL), is planning to harmonise Sri Lanka Accounting Standards (SLAS) in line with International Financial Accounting Standards (IFRS) beginning 2012, a local tax expert opines otherwise.He has cited complexities in its adoption in the local context.

 

According to N R Gajendran, chairman, Faculty of Taxation of ICASL, adoption of IFRS by large corporates will raise the present level of tax complexities while a true picture of a financial statement being far from represented.

 

“There are some areas in IFRS which would not be suitable in the local context and therefore the statements prepared under the IFRS will not represent a realistic picture of a given financial statement,” Gajendran, who is also a senior partner at Gajma and Company, told The Bottom Line.

 

However, other corporate leaders whom this paper spoke to, voiced a contrasting viewpoint of the whole issue.

 

They claim that any challenges in this transition process should be ironed out to move forward towards becoming globally accepted.

“The entire world is moving towards harmonisation of standards and therefore we have no point in postponing the adoption and becoming left out,” Nations Trust Bank chief executive officer Saliya Rajakaruna said.

 

He said that however, we should not rush through in this transition process since we need to give fair time for preparatory work and to solve the present issues and the complexities involved such as those in relation to Fair Value accounting, calculation of impairment estimates and other tax issues.

 

“Since there are issues relating to one another, there should be a higher level of coordination among the stakeholders involved in the transition,” Chief Financial Officer at Sampath Bank, Ranjith Samaranayake pointed out.

 

He said that for example, the tax department will have to solve its issues in relation to tax computation while corporates will have to incur additional costs by training employees of both finance and operational sectors and replace their computer systems.

 

“Many firms may be reluctant to adapt to it because of the additional disclosures required which increases the company’s transparency level. However, this should be taken in a positive light,” Samaranayake said.

 

Meanwhile, Reyaz Mihular, partner at KPMG Sri Lanka and head of advisory and IFRS for the Middle East and South Asia, said the adoption of IFRS will bring more credibility to financial reporting in Sri Lanka which will help the country to attract foreign capital.

 

“Convergence of IFRS will help Sri Lanka to attract foreign capital for industries in hospitality, infrastructure, banking and financial services,” Mihular outlined.

He emphasised that countries around the world from the developing to the developed have successfully managed the transition and he was of the view that convergence to IFRS was a welcome and positive change.

 

“Most of the companies in Sri Lanka are classified as smaller enterprises and therefore will not need to adopt IFRS. Even in the 234 listed firms in the Colombo Bourse only about 85 percent of them may be required to adopt,” Mihular said.

 

He added that a recent survey had revealed that companies were able to reduce cost of capital by 48 basis points because of adopting IFRS. International Financial Reporting Standards (IFRS) are gaining acceptance across the globe with more than 100 countries adopting it.

 

USA, Canada, India and Japan are some countries which are currently working on transitioning to IFRS.

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Elephant House plans to introduce new Cola drink

By Indika Sakalasooriya

Sri Lankan fizzy drinks market is to get another local cola brand with one of Sri Lanka’s leading beverage producers, Ceylon Cold Stores, a subsidiary company of listed John Keells Holdings, planning to introduce one shortly, The Bottom Line learns.

Elephant House, as the company is popularly known among the public, is currently in the process of re-launching its beverage portfolio with a massive island wide promotional campaign.

The new cola product, which was hinted to be a ‘ground breaking’ product by company sources earlier, will be named ‘KIK Cola’.

Elephant House is presently running a promotional campaign under the slogan ‘KIK’.

The company also created a new website focusing on the youth market called getakik.lk.

Apart from the two multinationals, Coca Cola and Pepsi Sri Lanka has two local cola products as — My Cola and Sha Cola— which are however believed to have very small market shares.

Coca Cola, in the early part of this year, announced that they have regained the top position they lost to Ceylon Cold Stories in 1996 due to worker strike.

Along with the new cola brand, the company is also expecting to come out with a yoghurt product, the details of it which are yet to be disclosed.

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Special city council for proposed ‘Port City’

A special city council is to be set up to manage the proposed port city project in the Galle Face undertaken by the Sri Lanka Ports Authority.

Delivering the Sujatha Jaywardena memorial oration last week, Defence Secretary Gotabhaya Rajapaksa who has been given the responsibility to develop the Colombo city said that as this 400 acre reclaimed land would need a separate authority to look into the matters special to it.



He also said that it had been proposed to utilise the half of the land, about 200 acres for recreational facilities such as high end restaurants, a marina, an open air theatre and underwater recreational facilities while other half of the land is to be utilised for luxury housing and businesses.

Rajapaksa further remarked that the new port city will have ample greenery as several community parks will also be planned.



SLPA is planning to partly fund the Port City project through a debenture issue.

The total cost of the project is estimated at $400 million.

The project is to be commenced by mid-next year.

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Colombo City Centre set for major revamp

By Indika Sakalasooriya

 
The historic Colombo City Centre, which had long been a ‘no entry region’ since it was located in a high security zone in the Fort area, is to be developed into a bustling tourist attraction, dotted with restaurants, luxury hotels and other recreational centers, a top government official said.
Defence Secretary and Urban Development Authority Chairman Gotabhaya Rajapaksa said at a recent function that the Colombo Fort area is to be rationalised under the Colombo City Development Prgramme.
“The City Centre will be developed into a ‘pedestrian only area’ and number of restaurants and several luxury hotels are to be built up,” he said.

 
Rajapaksa also said that a proposal to build a luxury hotel between the momentous Cargills building — which is considered Sri Lanka’s Harrods building — and the colonial Grand Oriental Hotel which is currently undergoing a complete revamp, was also being mooted.
According to sources in the local corporate scene, three companies have already submitted proposals for this project and premier blue chip John Keells Holding and diversified blue chip Hayleys are believed to be among them.

 
A foreign party with a Sri Lankan collaboration is believed to be the third contender for the project apart from the two local players, of which the details are not yet available.
Earlier Cargills also had expressed plans to develop the landmark Cargills building, the first super market in Sri Lanka, then Ceylon, into a building like Harrods in Central London.
As a part of the Colombo City Centre development project, a number of offices, both private and government sector, are now in the process of shifting.
 

It is also learnt that Cargills is probably the only privately owned property in the City Centre area and as a result the development process is expected to go smoothly with less resistance.

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Singer Finance to add branches after IPO launch

Singer Finance Lanka Ltd intends to increase its current network of six branches and six service centres to a total of 24 in view of the expected economic growth of the country, the resulting demand for debt financing and to provide a better service to its existing and potential customers. 







This planned expansion has already been initiated with the opening of a branch in Anuradhapura in order to increase its regional presence and to fuel the g rowth in its leasing and hire purchase portfolios. SFLL has already obtained approval from the CBSL for the establishment of another service centre in Vavuniya in the current Financial Year and a branch in Jaffna in the next Financial Year in order to capture the growth potential of the Northern Province.



In order to offer a better service and more convenience to its customers, SSL intends to channel the consumer financing activities currently carried out via Singer Mega outlets to SFLL. 



This would be initially carried out by selecting a few Singer Mega outlets and further extended to cover all outlets in line with the long term vision of

SSL mentioned above.



The channelling of financing activities of Singer Mega business via SFLL would result in a surge in the lending portfolios of SFLL resulting in an increase in profitability.

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Sri Lankan Accountants Lure Global Outsourcers

The New York Times - Southern China has its assembly plants. India has customer support centers, research laboratories and low-cost lawyers. And Sri Lanka’s contribution to global outsourcing? Accountants — thousands of them, standing ready to crunch the world’s numbers.As this tiny island nation staggers back from a bloody, decades-long civil war, one of its brightest business prospects was born from a surprising side effect of that conflict. Many Sri Lankans, for various reasons, studied accounting in such numbers during the war that this nation of about 20 million people now has an estimated 10,000 certified accountants.



An additional 30,000 students are currently enrolled in accounting programs, according to the Sri Lankan Institute of Chartered Accountants. While that ratio is lower than in developed economies like the United States, it is much greater than in Sri Lanka’s neighboring outsourcing giant, India.



Offices in Sri Lanka are doing financial work for some of the world’s biggest companies, including the international bank HSBC and the insurer Aviva. And it is not simply payroll and bookkeeping. The outsourced work includes derivatives pricing and risk management for money managers and hedge funds, stock research for investment banks and underwriting for insurance companies.



Many developing countries have “one particular competency that they do better than anyone else,” said Duminda Ariyasinghe, an executive director at Sri Lanka’s Board of Investment. “Financial accounting is that door opener for us.”



With widespread use of English and a literacy rate of over 90 percent, along with rock-bottom wages, Sri Lanka hopes to transform its postwar economy from a sleepy tea and textiles island into a tiny, high-end outsourcing powerhouse.



Already there are thousands of other Sri Lankans working in more common outsourcing fields, like information technology and software development. About 50,000 people in Sri Lanka are now employed in one form of outsourcing or another, according to Slasscom, an outsourcing trade group, and that figure is growing by 20 percent a year.



But accounting is Sri Lanka’s specialty.



During the war, Sri Lankan certified accountants would often use their skills as a springboard out of the country. That is why there are now Sri Lankans sprinkled among executive suites around the world, including the vice president of global business services at American Express and a financial controller at Standard Chartered Bank in the United Arab Emirates.



Now, though, the government and business community hope the country’s young financial whizzes will have reason to stay home instead.



Sri Lanka’s government, headed by President Mahinda Rajapaksa, expects revenue from so-called knowledge-based outsourcing — which includes accounting — to triple to $1 billion in revenue by 2015.



The stark wage differences between Sri Lanka and America, or even Sri Lanka and India, are a big part of the country’s drawing card.



In the United States, the median annual wage for accountants and auditors in May 2008 was $59,430, according to the Bureau of Labor Statistics. Sri Lankan workers in the accounting profession receive an average annual pay package of $5,900, according to a 2010 survey by the Chartered Institute of Management Accountants.



Wages in Sri Lanka for financial outsourcing are about one-third less than in neighboring India, and hiring educated employees is easier in Sri Lanka, according to executives who do business in both countries.



“Skilled talent is accessible,” said Dushan Soza, managing director of the Sri Lanka office of WNS Global Services, an outsourcing company with about 350 people in the country. Because Sri Lanka’s accountants are still a relatively untapped asset on the global market, Mr. Soza said, hiring is easy and turnover is minimal.



In the Indian city Mumbai, companies like his would have to go far out of the city to hire because of the level of competition, he said, but here in Colombo “two miles from my office is my hiring range.”



Many international executives also quietly admit that Colombo’s colonial architecture, excellent seafood restaurants and proximity to miles of sandy beaches make it a more alluring business travel destination than India’s outsourcing centers.



Sri Lanka’s accounting specialty is rooted in the country’s history of colonialism and conflict.



State-financed universities here have traditionally not had enough places for qualified students, and they were often closed intermittently during the war. So students who could afford to attended private schools instead — in many cases accounting schools with British origins that date to Sri Lanka’s independence from Britain in 1948.



Over time, becoming a qualified accountant has become something well-educated, business-minded people in Sri Lanka do in addition to getting a degree in, say, physics or business management.

Brian Burson, Senior director software engineer of Pearson eCollege, gives a lecture to employees at eCollege Lanka Limited at Orion Management Consortim’s property in Colombo, Sri Lanka

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Global fixed broadband connections to hit 720 mln by 2015

The total number of fixed broadband connections worldwide will pass 500 million by the end of this year and will continue to grow to 720 million by the end of 2015, according to a study by Analysys Mason. Fixed broadband will account for 62 percent of the 1.16 billion broadband connections available worldwide by the end of 2015.







Developed regions (Central and Eastern Europe, developed Asia-Pacific, North America and Western Europe) offer limited growth opportunities in terms of new business. The report forecasts that fixed broadband net line additions will grow at a CAGR of 3.9 percent during 2009-2015 in these regions. By contrast, fixed broadband net line additions will grow at a CAGR of 13.7 percent in the emerging regions (Central and Latin America, emerging Asia-Pacific, the Middle East and North Africa and sub-Saharan Africa).



Central and Latin America will have the highest CAGR of all regions in terms of fixed broadband connections at 15.4 percent between 2009 and 2015. However, emerging Asia-Pacific will account for most of the net line additions, growing from 117 million lines at the end of 2009 to more than 250 million by the end of 2015. 



Emerging regions will generate 28.5 percent of worldwide fixed broadband retail revenue by 2015, up from 17.2 percent in 2009. Developed markets accounted for 67 percent of fixed broadband connections at the end of 2009. This will fall to 54 percent by the end of 2015, the researcher said. The Middle East and North Africa's fixed broadband market will achieve reasonable growth during the forecast period. As a result, it will account for an increasing, albeit small proportion of worldwide fixed broadband revenue to 2015. 



 Its share of worldwide access retail revenue will grow from 2.3 percent in 2009 to 3.4 percent in 2015. In sub-Saharan Africa, mobile services will continue to be crucial to the development of the region's broadband market. The number of mobile broadband connections in the region exceeded that of fixed broadband connections in 2009. By 2015, Analysys expects that fixed broadband will account for 9 percent of broadband connections in the region.

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