the future
Bank’s Readiness to IFRS changeover plan
Transition to Sri Lanka Accounting Standards (SLFRS/LKAS)
Sri Lankan Specified Business Enterprises must effect transition to Sri Lanka Accounting Standards - SLFRSs and LKASs for financial years beginning on or after January 1, 2012. For the Bank, SLFRSs/LKASs will be effective for interim and annual periods commencing January 1, 2012 (adoption date), and will include the preparation and reporting of one year of comparative figures, including an opening balance sheet as at January 1, 2011 (transition date).
In order to prepare for the transition to SLFRSs/LKASs, the Bank set up a significant project, implemented a project governance structure and developed an implementation plan which consists of five phases: (i) Diagnostic; (ii) Design and planning (iii) Solution Development; (iv) Implementation; (v) Post-Implementation.
The diagnostic phase is now complete. The finalisation of accounting decisions by management and their review and approval by the Board Audit Committee is outstanding. The Bank has started the implementation phase for all critical areas and is focused on finalising implementation decisions regarding first-time adoption and ongoing accounting policy choices.
The diagnostic phase is now complete. The finalisation of accounting decisions by management and their review and approval by the Board Audit Committee is outstanding. The Bank has started the implementation phase for all critical areas and is focused on finalising implementation decisions regarding first-time adoption and ongoing accounting policy choices.
Key elements of the Bank’s IFRS changeover planThe following summarises the Bank’s progress towards completion of selected key activities contained in its conversion plan, including significant milestones and anticipated timelines. |
Key Elements and Milestones | Status | ||
| Identify differences between SLAS and SLFRS/LKAS accounting policies. | Detailed assessments of accounting differences applicable to LKAS 32 & 39 (Financial Instruments presentation, recognition and measurement) which is considered having a significant impact on the financials of the Bank have been identified. Detailed assessment of other SLFRSs/LKASs, expected to be completed by Q1 2012 | |||
| Select and approve the Bank’s SLFRS 1 first-time adoption and ongoing accounting policy choices | First-time adoption decisions will likely to be finalised by Q1 2012 | |||
| Assess requirements and develop model Financial Statements, including note disclosures under SLFRSs/LKASs | Recommended format of Statement of Financial Position and Income Statement is expected to be completed by Q1 2012. Model Financial Statements is expected to be completed by Q2 2012 | |||
| Prepare a SLFRS opening balance sheet, with significant Impacts | Preliminary quantification of differences and preparation of opening balance sheet was completed. However, this will likely to be an ongoing and iterative process throughout 2012, including tax impacts | |||
| Prepare fiscal 2011 comparative year information under SLFRS for disclosure in 2012. | Expected to be completed by Q1 2012 | |||
| Training and Capacity Building | During the change over process several sessions of training and capacity building were conducted to:
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Areas with significant financial statement impactBased on the preliminary estimation impact on work completed by the Bank on LKAS 32 and 39 , the following areas have been identified as having significant Financial Statement impact. Such analysis with its estimated impact is made on a best effort basis and is subject to audit. The impact on other SLFRSs/LKASs which is considered to be not significant is yet to be finalised. |
Area | Description | *Impact to Retained earnings as at Dec 31, 2011 | *Impact to Retained earnings as at Jan 1, 2011 | Impact to profits before tax for the year ended Dec 31, 2011 | |
| Impairment | Time-based CBSL provision will be replaced with collective and specific impairment. All individually significant loans with objective evidences will be individually tested while other loans will be tested collectively for impairment. | Increase by Rs. 118 Mn. | Decrease by Rs. 611 Mn. | Increase by Rs. 730 Mn. | ||
| Effective interest rate (EIR) application on longer maturity fixed deposits | Interest expenses will be recognised on effective interest basis rather than on straight line method. | Increase by Rs. 124 Mn. | Increase by Rs. 187 Mn. | Decrease by Rs. 62 Mn. | ||
| Staff loans at below market rate | All staff loans are to be recognised initially at fair value. Subsequent interest recognition should be on EIR. Day I difference is treated as pre-paid staff cost and to be amortised | No significant impact | No significant impact | No significant impact | ||
| Derivatives | All derivatives should be fair valued and brought in to the balance sheet | No significant impact | No significant impact | No significant impact | ||
| Investments | Investments to be classified either as Fair value through profit and loss (FVTPL), Held to maturity (HTM), Available for sale (AFS). Measurement should be either at fair value or amortised cost using effective interest rate, based on the classification. | No significant impact | No significant impact | No significant impact | ||
| * Excluding deferred tax adjustment | ||||||