Disclosure requirements of IFRS: SECP rejects power firm's request for relaxation

The Securities and Exchange Commission of Pakistan (SECP) has rejected the application of a power company for relaxation in disclosure requirements of International Financial Reporting Standards (IFRS), ensuring a uniform treatment to all power sector companies. Sources told Business Recorder here on Wednesday that the SECP has taken the decision in a recent meeting at the SECP Headquarters.
The Commission in its decision stated that the company's request is against the SECP resolve to ensure maximum disclosure of information to the users of financial statements. It also stated that exemptions to individuals companies from the provisions of the IFRS will mar the objective of comparability and transparency of financial statements.
Sources said that a public listed company had requested the SECP to waive off requirement of additional disclosures in the company's financial statement for few years. The Commission had issued a notification SRO 24(I)/2012 in January, 2012 whereby power sector companies were granted waiver to meet the requirement of the IAS-21 to extent requirements in respect of accounting principles of capitalisation of exchange difference, subject to the condition that 'those power sector companies which have chosen to capitalise exchange differences shall not be permitted to recognise Embedded Derivatives under the IAS-39 and for the periods beginning on or after January 01, 2013. Such companies shall be required to provide 'additional disclosure' as if accounting for embedded derivative under IAS-39 had been adopted in preparing the financial statements.
The said company has availed exemption granted by the Commission under SRO 24(I)/2012 and chose to capitalise the exchange differences. The company also complied with the conditions prescribed in the aforesaid SRO. Financial Statements of the company for the year ending December 31, 2013 contained 'additional disclosure' as required by the Commission's notification.
However, on the basis of issues faced by the company for the provision of additional disclosure in its financial statement had requested to waive the requirement of additional disclosures in the company's financial statement for few years. The company, in its request, pleaded that audit firms in Pakistan do not have local expertise to verify the additional disclosures and are engaging their foreign offices to obtain assistance of foreign experts. The services provided by these foreign experts are extremely expensive as they charge on hourly basis in US dollars, putting extra burden on companies.
Sources said that no company in power sector other than the said public listed company has requested for waiver from the requirement. Exemptions to individual companies from the provisions of the IFRS will defeat the objective of comparability and transparency of financial statements. It also stated that the waiver from the requirement of the IAS-21 and condition of providing additional disclosures under the IAS-39 was allowed on the request of a number of power companies and after consulting ICAP. Power sector companies as well as major audit firms were also taken on board by the ICAP and after extensive consultation waiver from the IAS-21 for power sector companies was recommended by ICAP. No such implication has been highlighted by either a power sector company or audit firm.
The power sector companies follow a modified accounting regime, allowing them to capitalise exchange differences on foreign currency loans as the cost of their plant and machinery, in departure from the requirements of the IFRS. In accordance with the IFRS, such departures are required to be disclosed, with complete financial impact thereof, in the financial statements. While considering the significance of these additional disclosures for the investors, the SECP took a right decision by declining the application, sources added.