Transcript Document
International Accounting standards Implementation in FULM Macedonia
October 8, 2009 by Eleonora Zgonjanin Petrovic, MBA
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Description
Statistical Information-Macedonia
Population Economic activity of population Rate of unemployment GDP per head in US$ Average net salaries per employee in US$ Consumer price inflation (end-year)
Year 1997
2,017,000
Year 2007
2,045,000 800,513 36.0% 1,801 170 907,138 34.9% 2,646 cca 305 2.3% 1.2% Sources: State statistical office of the R.Macedonia, National Bank of the Republic of Macedonia and Ministry of Finance
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Financial (deposit taking) system in Macedonia Central bank 14 banks owned by international shareholders 4 banks owned by domestic shareholders 9 saving houses 1 credit union institution (FULM)
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Miscellaneous Financial Information – Macedonia
It is NOT allowed to accept savings in foreign currency .
Central bank statistics show 70% of all household savings are held in foreign currencies and 30% of savings are in Denars.
Macedonia was involved in Pyramid Schemes Restrictions are in place for savings houses to match every 2 Denars accumulated in savings with 1 Denar reserved in capital.
New Banking Law in Macedonia effective July 2007 No exemption of income tax Effect of Global Crises in Balkan region
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FULM info
over 8.000 members from all over the country 1 Central office 6 Branches 2 Teller point 4 Access (sales) point 25 number of employees Total assets over 6 million dollars
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IAS regulation was set up by the Central bank in December 2007 Period of implementation is 2 years . Official implementation period is January,01, 2009
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As of 1 January 2008 : IAS 1
Presentation of Financial Statements
IAS 7
Cash Flow Statements
IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors
IAS 10
Events After the Balance Sheet Date
IAS 12
Income Taxes
IAS 16
Property, Plant and Equipment
IAS 17
Leases
IAS 18
Revenue
IAS 19
Employee Benefits
IAS 21
The Effects of Changes in Foreign Exchange Rates
IAS 23
Borrowing Costs
IAS 24
Related Party Disclosures
IAS 26
Accounting and Reporting by Retirement Benefit Plans
IAS 27
Consolidated and Separate Financial Statements
IAS 28
Investments in Associates
IAS 32
Financial Instruments: Presentation
IAS 33
Earnings per Share
IAS 36
Impairment of Assets
IAS 37
Provisions, Contingent Liabilities and Contingent Assets
IAS 38
Intangible Assets
IAS 39
Financial Instruments: Recognition and Measurement
IAS 40
Investment Property
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As of 1 January 2008 : IFRS 2
Share-based Payment
IFRS 3
Business Combinations
IFRS 5
Non-current Assets Held for Sale and Discontinued Operations
IFRS 7
Financial Instruments: Disclosures
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NOT APPLICABLE : IAS 2
Inventories
IAS 11
Construction Contracts
IAS 20
Accounting for Government Grants and Disclosure of Government Assistance
IAS 29
Financial Reporting in Hyperinflationary Economies
IAS 31
Interests in Joint Ventures
IAS 34
Interim Financial Reporting
IAS 41
Agriculture
IFRS 1
First-time Adoption of International Financial Reporting Standards
IFRS 4
Insurance Contracts
IFRS 6
Exploration for and evaluation of Mineral Resources
IFRS 8
Operating Segments
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The MOST Challenged for implementation : 1) Composition of Effective interest rate IAS 39 2) Income/expenses of fees and commissions IAS 18 and IAS 39 3) Impairments of loans IAS 36
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1) Composition of Effective interest rate IAS 18 and IAS 39
Effective interest rate is the rate calculate from the exact discounted future cash flow for the expected period of financial instrument (loan
)
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1) Composition of Effective interest rate IAS 18 and IAS 39
WHY Effective interest rate (EIR) is needed?
Because, with the use of EIR, the TRUE Revenue from interests would be presented and measured in financial statements
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1) Composition of Effective interest rate IAS 18 and IAS 39 Calculation of EIR is consisted of : • ALL paid or accepted fees, • Transation cost and • premium or disconts between the agreement parties.
• Expected future cash flow (not agreed cash flow) Income from interest is in the frame of one period, with comparatation of amortization cost of loan starting period and the date of balance sheet.
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1) Composition of Effective interest rate IAS 18 and IAS 39 How to make decision what is and what is not consisted in EIR? Examples YES Loan Application fee Loan Processing fee Fee for opening saving account NO Collateral apresial fee Collaction fee Fee for loan managment
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2) Income/expenses of fees and commissions IAS 18 and IAS 39 Revenue from interest shall be recognized using the effective interest method when : • there is probability for economic use from transactions and it would gain inflow/outflow for the institution • There is proof for realistic measure for income
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2) Income/expenses of fees and commissions IAS 18 and IAS 39
WHEN is INCOME/ EXPENCES? Examples In the future (according to the loan period) income statement Loan Application fee Loan Processing fee Fee for opening saving account Today income statement Collateral apresial fee Collaction fee Fee for loan managment
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2) Income / expenses of fees and commissions IAS 18 and IAS 39 Other fees from financial services that are not measured by objective value (use of EIR) will be direclly recorded in income statment
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3) Impairments of loans IAS 36
Impairment of financial assets
3.1) Assets carried at amortized cost - Loans 3.2) Assets carried at fair value - Securities
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3.1) Assets carried at amortized cost
FULM assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired.
A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
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3.1) Assets carried at amortized cost
The criteria that the FULM uses to determine that there is objective evidence of an impairment loss include: Delinquency in contractual payments of principal or interest, Cash flow difficulties experienced by the borrower, Breach of loan covenants or conditions, Start of bankruptcy procedures, Deterioration of the borrower’s competitive position, and Deterioration in the value of collateral .
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3.1) Assets carried at amortized cost
FULM assesses the existence of objective evidence for impairment on individual basis for individually significant financial assets and individually or collectively for financial assets that are not individually significant.
FULM determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.
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3.1) Assets carried at amortized cost
The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement.
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3.1) Assets carried at amortized cost
When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the income statement .
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3.1) Assets carried at amortized cost
If, in a subsequent period, the amount of the impairment loss decreases and the decrease objectively to an event can be related occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account .
The amount of the reversal is recognized in the income statement.
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3.2. Assets carried at fair value
FULM assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. Significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired.
the difference between the acquisition cost and the current fair valueis direct in the income statement.
the fair value of a security classified as available for sale increases and the increase can be objectively related to an event occurring impairment loss is reversed through the income statement the
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FULM Time table for implementation of IAS
New Policies and procedures 6 months IT changes 3 months Training 3 months Testing of IT system 3 months Daily monitoring of implemented IAS 12 months
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OTHER ISSUES with in the process of implementation of IAS 1) Depreciation of fix assets (IAS 16 and IAS 12) Differences between the Calculation for financial reports and tax issues 2) Composition of EIR = Membership deposit as a withdrawal saving versa membership as a non withdrawal saving fee 3) How to measure in Deterioration in the value of collateral .
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What is not Possible in implementation IAS?
• To be done manually • To be done with less then 3 employees • To be done with in less of 6 months • To be done without external support