This, even as Socioeconomic Planning Secretary Ralph Recto said the proposed P1.4-trillion budget for 2009 would be enough to attain growth targets for that year, or a range of 6.1 percent to 7.1 percent. The proposed outlay is 15 percent higher than this year’s.

Speaking on the gap created in this year’s spending budget by inflation, Sen. Loren Legarda said the national government, being the country’s single-biggest consumer, is also adversely affected in a big way by soaring commodity prices, just like most Filipino consumers.

“On account of higher prices of goods and services, we reckon the government would need an additional P15.6 billion to adequately fund this year’s spending program, as outlined in the national budget,” the senator said.

Her estimate was based on a Department of Finance projection that government expenditures increase by P2.6 billion every time the inflation rate goes up by a percentage point.

She noted that Congress passed this year’s P1.24-trillion national budget on the assumption that the inflation rate would average only 5 percent, at most.

Legarda added, however, that due to rising oil and food prices, the Bangko Sentral ng Pilipinas (BSP) now expects the inflation rate to average up to 11 percent this year.

“The P15.6 billion is the result of the [six-percentage-point] difference between the BSP’s 11-percent projection and the 5 percent presumed in the budget, multiplied by P2.6 billion,” she explained. The National Statistics Office reported earlier this month that the nationwide inflation rate surged to 12.2 percent in July, the highest in 17 years.

Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every peso earned by a household buys a smaller percentage of a product or service.

Legarda noted that the July inflation rate meant that consumers had to shell out 12.2 percent more in July for the same basket of goods that they bought in the same month in 2007. July was the second month in a row that the inflation rate stood at double-digit levels. The inflation rate was 11.4 percent in June; 9.5 percent in May; 8.3 percent in April; 6.4 percent in March; 5.4 percent in February; and 4.9 percent in January.

Thus far, she added, the inflation rate already averaged 8.3 percent in the seven months to July.

“This really underscores the need for the government to aggressively fight consumer price increases, which have been hurting ordinary Filipinos and the government,” the senator said as she renewed her call for the government to increase infrastructure spending, particularly for agriculture.

She explained that building up farm systems would not only provide more income for growers and new jobs for rural workers, but also ensure abundant food supply, which is crucially important to fighting inflation. “Robust farm production is the best way for us to guarantee affordable food. As long as we have ample supply of food that is within reach of ordinary families, we can fight inflation.”

At the same time, Legarda pointed out that the single-biggest driver of unusually high inflation since March was not elevated oil prices, but the surge in the cost of rice, due to previous reports of massive shortages of the staple. “Food-price inflation has definitely been driving up the overall inflation rate. And the only way we can fight this is by producing more food more efficiently.”

She said the extra P15.6 billion needed to adjust the public-spending program to higher prices could erode any extra value-added tax (VAT) revenues that the government hopes to collect this year. The government collected a total of P53.31 billion in VAT revenues in the first six months to June—P9.6 billion or 18 percent higher than the amount generated over the same period in 2007.

Meanwhile, in the face of the global economic slowdown, especially in the Philippines’ main trading partners, the National Economic and Development Authority (Neda) remains confident the P1.4-trillion budget for 2009 will be enough to attain growth at a range of 6.1 percent to 7.1 percent.

Neda Director General Recto said next year’s budget is 15 percent higher than this year’s and will be able to fuel the desired economic advance amid difficulties.

Apart from a higher budget, Recto said what would help work for the country is higher absorption by departments of their budgets, so that all planned projects are sufficiently financed.

“The key is to get departments to spend their budgets. The biggest chunk of the budget will go to the Department of Public Works and Highways, then to the Department of Agriculture and Department of Agrarian Reform combined, followed by the Department of Transportation and Communications, Department of Education and the Autonomous Region in Muslim Mindanao,” Recto said.

Recto expects the 2009 budget to significantly contribute to economic growth since most of the spending plans are for infrastructure—about 22.2 percent of the entire budget.

On factors that affect growth, Recto said the Development Budget Coordination Committee (DBCC) sees inflation to hit 6 percent to 8 percent next year, still due to higher oil prices.

Recto said the government sees oil prices playing within the range of $115 to $125 per barrel while the peso is projected to average P45 to a dollar.

Interest rates, on the other hand, will be within the range of 5 percent to 6 percent in 2009 while exports and imports are seen to hit 7 percent and 10 percent, respectively.

Earlier, Recto said high inflation has forced the Neda to decrease its forecast for the second quarter this year to lower than the 5.2 percent posted in the first quarter of the year.

Recto said high oil prices in the second quarter, when rice prices increased to almost P50 per kilo, will result in lower growth.

The DBCC recently slashed the growth targets for 2008 to 5.5 percent to 6.4 percent. Initially, the target was pegged at 5.7 percent to 6.6 percent.

Recto sees the second half of the year as better than the first half because the effects of high oil prices in the second quarter will be blunted by spending in preparation for the holidays, and the expected higher remittances of those working abroad.

The National Statistical Coordination Board (NSCB) will release the second quarter figures on Thursday, August 28, in Makati City.

Source: Butch Fernandez and Cai U. Ordinario

In a statement, the BSP said the synchronization would include data on revenues, exports, foreign investment, employment and compensation.

“The agreement will promote consistency in data reporting as well as significantly ease the reportorial requirement for BPO companies,” the central bank said.

The information will be useful for the government agencies and policy makers as basis for their assessment and decisions.

BPO is a cost-saving measure for tasks that a company requires. Services offered by BPO companies include contact center, medical and legal encoding, animation, software development, management consultancy, data processing, and financial accounting and engineering services.

Based on the latest BSP data, the industry generated P109.994 billion in revenue in 2005, 48.2 percent higher than the P74.171 billion in 2004.

Contact centers contributed 49.4 percent of the total revenues at P54.295 billion in 2005. Medical transcription was the fastest-growing segment, jumping 97 percent to P466.2 million. Software development, which accounted for 20 percent of industry revenues, grew 40.8 percent to P21.991 billion.

With the agreement, reportorial forms, definition of terms, and content are now consolidated and harmonized.

Prior to the agreement, BPO companies report their operations to various agencies such as the Trade department through attached agencies such as the Board of Investments and the Philippine Economic Zone Authority.

President Arroyo earlier said the government is targeting employment in the local BPO industry to increase by 40 percent this year to meet growing demand worldwide.

The Philippines employs 300,000 people in the BPO industry, making it the second top providers next to India of outsourced services.

Source: Maricel E. Burgonio

Property analysts say this forthcoming change may impact on the ability of a real-estate firm to maintain its dividend policy to shareholders, saying the new policy will likely result in a reduction in retained earnings, and reduced retained earnings may trigger a decline in dividends.

“Having said that, it is prudent for the companies to review their business plans in light of this change,” says a senior analyst from a foreign securities firm in an interview.

Ayala Land Inc. (ALI), the country’s largest property developer, says the shift in revenue recognition will not affect its operations or cash flows, but will have an impact on the reported profit and loss (P&L) statements or the reports that summarize the revenues, costs and expenses incurred during a specific period.

Company spokesman Alfonso Reyes, in an interview, says compared with the existing practice, the new policy, otherwise known as Ifric 15, mandates that revenues from the sale of residential units may only be recognized in the books upon total project completion, instead of recognizing revenues throughout the project’s progress.

“As a result, revenues for any given period based on percentage of completion will no longer be reported. This would result in earnings being ‘lumpy,’ wherein period-to-period revenue recognition would depend on projects being completed during that period,” explains Reyes.

He adds that if the implementation of the new guideline will be retroactive, then a restatement of the previous years’ financial statements will be required and may reflect lower revenues, net income and retained earnings numbers. The restatement would raise issues on the propriety of previous dividend declarations based on retained earnings that will subsequently be adjusted downward.

Reyes emphasizes, though, that ALI’s operations should not be affected since disbursements and receipt of payments will still follow the actual construction schedule.

“Since the operations and the cash flows, which represent the true economics of the business, will not change, then we do not anticipate any change in how external stakeholders or the capital markets will view or value our businesses,” he says.

ALI operates with a balanced portfolio of projects, including residential vertical developments, subdivisions, business-process outsourcing (BPO) office spaces and shopping malls. It is a unit of Ayala Corp.

While the homebuyers are insulated from the new accounting policy, Reyes says the impact on the reported numbers for high-rise developments, which typically undergo longer construction periods than horizontal projects, will be more pronounced compared with horizontal developments.

“A high-rise condominium can take anywhere from three to five years to construct, depending on the height and complexity of the structure, whereas horizontal developments such as subdivision lots can usually be completed in a year. Multiply this by having multiple projects and it is clear that the potential for having lean and lumpy years is magnified for developers who focus mainly on high-rise projects. Again, this is purely from an accounting perspective, and developers who have sufficient cash to complete their projects on time should not be affected,” he explains.

Asked if ALI will have a change in strategy to cope with the change, he answers, “Our strategic direction will continue to be guided by the macroeconomic environment, market conditions and our own internal capabilities and sources of competitive advantage. We will launch projects when we believe that the time is right, the market is ready and if we are convinced that the project will create value for our shareholders; and we will deliver these only when the product is already completed to our high standards of quality.”

NREA and SHDA react

Both the National Real Estate Association Inc. (NREA) and the Subdivision and Housing Developers Association (SHDA) say the shift to Ifric 15 will be tedious for real-estate companies.

According to SHDA governor Ben Uy, the adverse impact of the new policy will be the gross deferral of revenues from the sales transaction.

“Financial statements will be showing continuing losses during the construction of the project despite the successful marketing and closing of sales contract during the period of construction. There will be no proper matching of cost against revenue because while the overhead expenses are incurred during the project development and closing of sales, recognition of revenues will only come in at the final stage of project completion and turnover of units to the buyers,” he notes.

To thwart such impact, NREA president Alejandro Mañalac sees the influx of projects which can be turned over within a one-year period.

“This would mean more mortgage revenue bonds, townhouses, house-and-lot packages or lots-only developments,” he says.

And the buyers, in a way, are winners under the new setup, Mañalac adds.

“With this new system, they will be sure that the developers will really want to deliver their projects on time, if not faster, otherwise, the developers will not realize their income.”

But there is also a downside, says Uy.

“The new accounting policy will affect homebuyers because the cost of project construction, whether high-rise or horizontal development, will shoot up. Developers who are determined to book the sale or income in a particular accounting period will be forced to complete the development using borrowed funds and spending more money in project maintenance. Cost of funds and maintenance expenses are normally imputed into the selling prices of lots or house and lots. Thus, homebuyers will have to pay more in terms of down payment and monthly amortization,” he explains.

Within the next five years, Uy expects the property sector to suffer some drawbacks because of the poor financial picture that the players can experience.

“With many investors withdrawing from their equity investments, market prices of property issues in the stock exchange will drop. As to whether it will eventually be advantageous to the property sector, our accounting experts believe that when the real-estate companies have complied with the new accounting standards, their financial statements, especially those published abroad, will become comparable with those issued by more developed countries. The resulting financial statements will gain more credibility and acceptance from foreign investors and creditors,” he notes.

Eton and Federal Land

Eton Properties Philippines Inc., the real-estate unit of tycoon Lucio Tan, says Ifric 15 will favor the strong and reliable real-estate companies that have the capacity, resources and discipline to deliver its projects as scheduled and as committed to its buyers.

“With the eventual consolidation of real-estate developers into stronger, more reliable companies, Philippine real-estate offerings can be seen and perceived as a more stable and safe investment possibly comparable to the ‘safe’ and ‘risk-averse’ classification for banking and investment products,” explains its president Danilo Ignacio in an interview.

However, he admits the new environment may lead to a bias of developers to offer fewer high-rise condominiums and more horizontal developments and low-rise buildings.  As such, Manila’s central business district (CBD) areas, where high land value dictates high-rise developments, may see fewer new projects, while fringe areas with lower land values will experience heightened development activity. This may lead to further expansion of the urban sprawl outside of the Makati and Ortigas CBDs.

“The new system should motivate companies to deliver and complete their projects on time. The challenge to companies is how to operate efficiently to deliver projects on schedule. We at Eton have always maintained efficient operations from the start; [this] is the main reason why our commitment to our buyers on delivery dates has always been maintained with all projects on schedule,” Ignacio imparts.

For his part, Federal Land senior vice president Jose Mari Banzon says the imminent shift to the new policy may lengthen the period from launch of a project to completion of construction.

“The new accounting standards that require developers to recognize revenue only after full completion instead of a percentage of completion will merely defer the reporting of revenue and income of developers. They may report lower bottom lines in the short term because of the transition to the new accounting standards, but they will be able to catch up in the succeeding years,” he says.

While Federal Land, a member of the Metrobank Group, has a pipeline that regularly churns out projects every year, its volume of projects has increased in the last couple of years in line with the property boom.

“With the new accounting standards, we may have to defer reporting the revenues and income from our more recent projects. To smooth out our income, we are developing other revenue sources such as lease income,” adds Banzon.

Meanwhile, the Gotianun-led Filinvest Land Inc., whose huge land bank is located in Alabang, Muntinlupa, says it will not be affected by the change in accounting policy.

“The company books the sale when it has collected the down payment of 20 percent. It usually takes us six to nine months to construct the unit/house,” says investor-relations head Annabelle Arceo.

Source: Honey Madrilejos-Reyes

WASHINGTON - It took seven years, but Charles Ulrich did something many people dream about, but few succeed at: He beat the IRS in a tax dispute.

Not only that, but tax experts say potentially millions of other taxpayers could benefit from his victory.

The accountant from Baxter, Minn., challenged the method the IRS has used for more than 20 years to tax shares and cash distributed by mutual life insurance firms to their policyholders when they reorganize as public companies.

A federal court recently agreed with his interpretation.

“There’s a tremendous amount of money at stake,” said Robert Willens, a New York City-based tax analyst at Robert Willens LLC. “Tens of thousands of people could be in line for a refund.”

Don Alexander, an IRS commissioner in the 1970s and now a tax attorney in Washington, said while it’s not unusual for individuals to take on the agency, “most of them lose.”

Alexander called it “quite a significant case.”

The dispute arose when more than 30 mutual life insurance companies became publicly traded corporations in the late 1990s and earlier this decade, in a process known as “demutualization.”

Mutual companies are owned by their policyholders, so the companies provided stock and cash to compensate them for the loss of their ownership interests when they went public.

All told, roughly 30 million policyholders received distributions, Ulrich estimates. MetLife Inc. provided over $7 billion of stock to about 11 million policyholders when it went public in 2000, while Prudential distributed $12.5 billion in stock to another 11 million.

Veteran accountant seen as a ‘lunatic’
The IRS held that the recipients hadn’t paid anything for the shares and owed taxes on the full amount when the shares were sold. Cash distributions also were fully taxable, the IRS said.

That didn’t sound right to Ulrich, 72, an accountant for 49 years. He began researching the issue in 2001, when he received shares from two companies, Prudential and Indianapolis Life.

Ulrich concluded that policyholders had paid for their ownership rights through their premiums so the distributions should have been tax-free.

That could make a significant difference in what a taxpayer owes. If a company distributed shares worth $30 and a recipient subsequently sold them at $32, under the IRS’ view they would pay taxes on all $32. Under Ulrich’s interpretation, they would owe taxes only on the $2 per share gain.

In 2003, Ulrich publicized his views by contacting tax and insurance experts and setting up a Web site.

“Largely I was regarded as a lunatic,” he said, who “would never prevail against the IRS.”

Still, some people who’d paid taxes contacted Ulrich and asked him to file refund requests, which he did, for a fee. Some of those refunds were granted, he said. Tax experts say the IRS doesn’t always closely scrutinize small refunds.

One of his clients, Jean Prevost and her husband, Jim, who live near Minneapolis, received a refund of almost $1,500 in federal and state taxes in 2003.

“It wasn’t a huge amount of money, but it was ours,” she said.

IRS fights back
But the IRS wasn’t pleased with Ulrich, accusing him of promoting abusive tax shelters and demanding the names of his clients, which he said he refused to provide.

The agency backed off in 2004 with help from the IRS’s Taxpayer Advocate office, Ulrich said.

IRS spokesman Bruce Friedland said the agency is prohibited from commenting on its interactions with taxpayers.
One of Ulrich’s clients, Eugene Fisher, a trustee for a Baltimore, Md.-based trust, sued the IRS in February 2004 after being denied a refund.

Judge Francis Allegra of the Court of Federal Claims in Washington sided with Fisher and called the IRS’ view “illogical” in an Aug. 6 decision. He ordered the agency to refund $5,725 in taxes plus interest to the trust overseen by Fisher.

It’s not clear how many people could benefit from the ruling. Many of the 30 million policyholders are probably too late to seek refunds, since claims must be filed within three years of the April 15 tax deadline. That means the statute of limitations for taxes paid for 2004 ran out April 15, 2008.

Millions could benefit from accountant’s win
Many individual taxpayers may not have enough at stake to go to the trouble, said Burgess Raby, a Tempe, Ariz.-based attorney who represented Fisher. Still, millions of policyholders could benefit from the court’s ruling, he said.

Raby credits Ulrich with being the driving force behind the issue.

“The genesis for this was Chuck’s real feeling that this was an unfair position” by the IRS, Raby said.

The government could appeal the ruling and likely will fight future refund claims, perhaps hoping for a different outcome in a separate court, tax experts said.

Source: Associated Press

The service, called Work From Home Solution, will help IT-enabled Services (ITeS) companies to give their employees an option to work from home, while maintaining the security and confidentiality necessary for the business, a press release issued here said today.

It allows companies to empower their employees to tele-work in a secure and cost-effective manner. Tata Communications offers this facility as an overlay on its IP-VPN/MPLS network, the release said.

“This is a win-win solution for both employers and employees. Employees are expected to benefit in terms of reduced travel time and being able to maintain a better work-life balance,” Tata Communication’s President of the Enterprise Business Unit (India) Sunil Joshi said in the release.

“Employers would gain by way of lower real estate and administrative costs and availability of alternate talent pools, for instance home-makers, to meet their staff growth plans,” Joshi added.

Source: Economic Times

MANILA, Philippines—Finance Secretary Margarito Teves said he had given the Bureau of Internal Revenue (BIR) and Bureau of Customs (BoC) until the end of September to submit a final list of underperforming revenue collectors who should be dismissed from service.

Teves, who also heads the Revenue Evaluation Performance Board (RPEB), an interagency body tasked with enforcing penalties and giving rewards under the lateral attrition law, said he recently met with top officials of the BIR and the BoC and directed them to fast-track the ongoing review of their 2007 collection performance to identify the people responsible for their shortfalls last year.

“I told them I needed the results of their respective evaluation on or before Sept. 30,” he said.

Teves’ statement followed the release of an assessment report by the House of Representatives oversight committee headed by Rep. Danilo Suarez that criticized revenue agencies for so far failing to enforce the penalties under the lateral attrition law.

The committee said this could be interpreted as lack of seriousness of the administration of President Gloria Macapagal-Arroyo in fighting corruption and improving the government’s revenue collection.

The lateral attrition law, enacted in 2005, provides for rewards to overperforming employees of the BIR and the BoC and penalties on underperformers. Those who fall short of their goals by at least 7.5 percent are to be dismissed from service, and the others face reassignment.

In 2007, both the BIR and the BoC fell short of their goals. The BIR collected about P711 billion worth of taxes, compared with its target of P765.9 billion. The BoC turned in P213 billion as against its goal of P220.8 billion.

Until now, however, the BIR and the BoC have yet to formally submit lists of people for attrition. The BIR has drafted its list but has not officially given the RPEB names of persons recommended for dismissal.

Inefficiencies in collecting taxes and duties and alleged corruption were blamed for the shortfall of the BIR and the BoC.

The BoC argued earlier that it missed its target last year as a result of unrealized macroeconomic assumptions. For instance, it said, the peso was much stronger than assumed when its goal for 2007 was set.

As a stronger peso makes imported goods cheaper in peso terms, it reduces the base for computing import duties and taxes. The peso was assumed to average 42-45 to the dollar last year but it strengthened to record-highs and breached the 40-per-dollar level.

The BIR blamed its shortfall on low inflation, which adversely affects the collection of value-added tax, and on low interest rates, which led to lower collection of tax on income from bank deposits and debt securities.

Teves said the RPEB would take into account unrealized macroeconomic assumptions and efficiency of collection performance in deciding whether a revenue collector should be penalized or not.

Source: Michelle Remo

To those who worry whether as a country we are focused in effectively dealing with the change, it should be comforting to hear that “we have made a good beginning,” as opines Mr Kaushik Dutta, the leader of IFRS practice of PricewaterhouseCoopers. He draws our attention to the concept paper issued by the ICAI (Institute of Chartered Accountants of India) which clarifies a lot of doubts and gives a clear roadmap towards IFRS convergence.

“Indian companies, based on the categorisation done, can start identifying areas which will get impacted the most, for instance, consolidation on basis of control, revenue recognition, leasing arrangements, financial instruments, taxation, future mergers and acquisitions etc,” urges Mr Dutta.

Citing some of the recent statements made by the officials of the Ministry of Corporate Affairs, he expects that the Government may go in for quick amendments to the existing company law rather than wait for the new company law to get legislative accord so that the country meets the April 2011 deadline for convergence with IFRS. As you may be aware, the Ministry has stated its intention to converge the country’s accounting standards with IFRS, in a move to reassure regulatory bodies abroad that the Indian Government is committed to harmonisation of accounting standards.

Mr Dutta is however of the view that we still have a long road to home, given that 10 standards of IFRS will need regulatory changes for them to be applied, and 12 standards have conceptual differences with the Indian GAAP – combined with legal and regulatory requirements of taxation, SEBI, Companies Act etc. “But we can reach on time, if we can get our act together,” he hopes, during a recent email interaction with Business Line.

Excerpts.

What is the magnitude of change that we have to be prepared for?

Indian GAAP convergence into IFRS will create a new accounting paradigm from 2011 onwards and we will have a new set of reporting and accounting principles and rules which is currently followed in over 120 countries. The key changes are holistic and they transform businesses and their processes, systems and controls and not just accounting. There will be changes in future earnings forecast, effect on debt or loan covenants need to be evaluated as profits or ratios will change under IFRS, key performance ratios will be different and there will be effect on distributable reserves, earnings per share, taxation, especially those taxes which are calculated based on book profits etc.

That’s a lot!

And there’s more. Together with the above elements, combine the new world term of ‘fair value’ accounting – a hint of which we have seen lately in India in the ‘mark to market’ losses of hedges and other financial instruments in the last two quarterly results in India. The business combinations of mergers and acquisition, leases, consolidation, transition disclosures will have a significant change in the way we report. In short – the effect is a quantum leap of faith and not an incremental change of elements.

Where are the gaps in what the Government, the regulators, and the ICAI need to do?

I think, while all the stakeholders like the ICAI, the regulatory bodies and Ministry of Company affairs are making some progress in their individual roles, what we need now is a more coordinated effort from all the stakeholders, may be, through a joint working group. There are so many aspects relating to IFRS convergence which still need to be clarified like IFRS first time adoption standard, compliance of comparative previous period figures with IFRS, changes required to the Companies Act to comply with IFRS, changes to the Income-Tax Act, the Reserve Bank of India’s requirements for banks etc. The earlier we clear all the ambiguities, the smoother will be the transition and we will have time to bridge the gap. But speed is of essence.

Is the change to IFRS good for India? Do we stand to benefit due to such a change?

The change to IFRS is good for everybody – the economy, the investors, the industry and users of financial statements. The Indian economy will benefit from the growing internationalisation of business and increased foreign investment. Internationally, insofar as cross-border investments are concerned, a non-IFRSs compliant country is perceived as an additional risk factor. Convergence to IFRS means that the investors will not have to go through expensive and time-consuming conversion processes and will contribute to understanding and confidence in financial statements of Indian entities. It will further help our industry to raise capital from foreign markets at a lower cost, save on costs of preparing separate set of financial statements and benchmark with competitors globally. It also allows multinational groups to apply common accounting across their subsidiaries, which can improve internal communications, and the quality of management reporting and group decision-making. Our accounting professionals will also be able to compete with quality services with experts in different parts of the world and thus will become part of the global IFRS resource pool. It is beneficial for all.

Can you explain how the change goes beyond accounting and impacts the business holistically?

It is tempting for companies contemplating the adoption of IFRS to view the change simply as an accounting exercise, something their staff can do in their spare time. After all, as a company executive remarked, ‘All we have to do is change the numbers.’ But this assumption is dangerous. It is not just the CFO who has to understand IFRS. The board and the audit committee also need to understand IFRS to be able to discharge their duties of giving direction to business and governance respectively.

IFRS conversion is a change in primary GAAP, which means that everyone in the organisation must learn a new language, a new way of working. This is a new performance measurement system that needs to be taken on board throughout the entire organisation. The whole basis of reporting to the market will be different. For many companies, this will mean fundamental changes – changes that can ripple right across their business operations from investor relations to everyday procedures, changes that can affect the viability of some products and even the reported profitability of the business itself.

So, in summary, it will change the way people need to work and could require decisive shifts in strategic management.

Are there specific standards in IFRS which are so different from Indian GAAP, which will affect earnings and results?

IFRS numbers can look very different. Indian standards as of now do not have concepts like fair valuation, multiple element contracts, customer loyalty programs, consolidation based on control and not just ownership, lease accounting based on substance and not form etc., and the present systems and processes used by Indian companies are also not designed to make the related calculations. The biggest differences are expected to be in accounting for financial instruments (be it accounting for investments, derivatives, loan loss provisioning, or borrowings), deferred taxation, business combinations, revenue recognition, leases, employee benefits, disclosures etc.

Any takeaways from other countries that have managed the transition to IFRS?

Most of the companies in more than 100 countries that have already converged to IFRS faced similar problems like significant differences between local GAAP and IFRS, availability of comparable data for fair valuations, lack of knowledge base on IFRS, interpretation differences, differences between local regulations and IFRS, and lack of planning in advance by companies for managing the change. We, in India, would also face similar challenges. And, since the challenges are the same, the solutions would be similar, i.e. plan in advance, start with desktop reviews to find out areas of differences, assess business impact, plan changes to systems that generate data, train all stakeholders, and robust project management.

Do you foresee that the IFRS transition will affect corporate governance including the Clause 49 compliance?

The Clause 49 of the Listing Agreement requires all listed companies, and companies seeking listing for the first time, to have an audit committee. All members of such audit committees are required to be “financially literate”, which is defined as the ability to read and understand basic financial statements. Once India moves on to IFRS, audit committee members and the Board need to be ‘IFRS literate’ and at least one has to be an ‘accounting expert’. This would now mean that the audit committee should have an understanding of the transition from Indian GAAP to IFRS and at least one director who is an expert in IFRS – the new GAAP.

Audit committees will also have the onerous responsibility of oversight of IFRS transition of the companies. Thus, those charged with governance cannot leave it to CFO only.

A country-wide change in GAAP in 3 years will need a huge investment in training and knowledge sharing. How is India readying itself for this?

The transfer of knowledge has to happen both at the executive level and the operational level. All of us have to make huge investments in trainings on IFRS to meet the training needs of CEOs, CFOs, Board members, members of the audit committees, tax authorities, students, and regulators. The ICAI needs to make changes to the curriculum to include IFRS training, business schools will have to initiate certificate courses on IFRS and the companies will have to include staff training as one of the key steps in the overall convergence strategy. I would also recommend inclusion of IFRS concepts even at the University-level education so that the basic knowledge can then be topped up with specialised training.

Many practitioners say that Indian GAAP is very similar to IFRS and the incremental change is not significant.

Only two Accounting Standards of India can be adopted to IFRS in the current form. There are 22 standards which are either conceptually different or need regulatory changes to comply with the IASB’s version of IFRS. Also, changes to the Companies Act, and to the SEBI and RBI requirements need to be made to help converge with IFRS. These changes are too many and fundamental to be not taken seriously.

As I have already pointed out that some of the biggest differences are expected to be in accounting for financial instruments (be it, accounting for investments, derivatives, loan loss provisioning, or borrowings), deferred taxation, business combinations, revenue recognition, leases, employee benefits, consolidation etc.

Your advice to corporates on managing the transition and the change…

The transition, in my view, will take considerable time to plan, to make the necessary changes and to integrate them fully across the organisation, while continuing business operations as effectively as usual.

There is lot to learn from countries like the UK and in Europe, which experienced the challenges of transition from local GAAP to IFRS. Most of the companies in these countries have tackled change to IFRS in three parallel areas of activity, i.e. changing the numbers, changing the business, and project management.

Changing the numbers revolves around understanding the differences and collecting all the data required for IFRS reporting. Changing the business involves anticipating changes required in management information systems, accounting policies and upgrading skills of people across all levels.

An effective project management all through the transition process will ensure removal of road blocks, compliance with deadlines and will not allow transition process to impact normal functioning of business. Therefore, a well planned transition is the key to success.

Source: D. Murali

The reorganization, which came into effect on August 1, will help the company enhance its portfolio of offerings and will emphasize Infosys’s transformational capabilities, said a press release. The restructuring will also help broaden its service offerings and customer base.

Traditional BPO services for procurement have been based on cost arbitrage which focuses on a ‘procure to pay’ cycle model, according to the release.

As client organizations move up the maturity model of their procurement functions, they have seen a need to go beyond the outsourcing of ‘tactical sourcing’ to outsourcing of a more critical ’strategic sourcing’.

This includes greater visibility to spend management and providing of category specific sourcing expertise, increasing both efficiency as well as effectiveness of the outsourced procurement process.

The services under the new practice comprise e-procurement, Supplier Management, Contract Management, Strategic Sourcing and Spend Management.

Commenting on the advantages of restructuring, Ravi Panchanadan, head, S&P, Infosys BPO said, “With the dynamic changes occurring in the procurement market, there is a need to realign to create a model that can meet the new challenges of our strategic direction, increased customer expectations and higher levels of competition.”

Infosys BPO has also launched a Sourcing and Procurement Academy that would train the employees on the latest global practices and requirements to service clients under the new offerings.

Source: CyberMedia News

In its latest corporate disclosure, the conglomerate sought to clarify a Businessworld news article, saying it is investing $80 million this year.

Ayala said it has already invested $120 million, including acquisitions conducted through LiveIT Solutions.

The company also revised its investment projections, citing a total budget of $200 million. Fred Ayala, chief executive of LiveIT Solutions, last year said Ayala Corp. has earmarked $100 million in the next five years for BPO.

Established middle of 2006, LiveIT is the holdings arm of Ayala Corp. for the latter’s BPO acquisitions.

In October that year, LiveIT invested P900 million in Integreon Managed Solutions, a company based in Los Angeles and runs delivery centers in New Delhi and Mumbai in India that provide legal process outsourcing.

In January 2007, LiveIT announced it has invested around $28 million in Affinity Express, a Chicago-based company that offers outsourced graphics and design services.

Ayala Corp. projects the local BPO industry to reach $13 billion in the next five years, from the current $7 billion.

Source: Lawrence Casiraya

The move came a week after the government opened negotiations with domestic insurers in a bid to end a three-month impasse over RMC 30-2008.

The contested tax circular, among others, narrowed the items insurance firms could deduct from the taxable revenues to only claims, losses, maturities, benefits, reserve fund additions and reinsurance ceded.

Under the old tax rules, salaries, wages, employee benefits, cost of facilities and supplies and other expenses incurred in running the business are considered as “direct cost” that could be deducted when computing the gross income.

RMC 30-2008 also imposed a P15 documentary stamp tax (DST) on individual certificates issued for group policy contracts, which the industry claimed would discourage sales. This, however, was retained by the bureau in the amended version.

“Based on recent dialogues and consultations which the Agency had with the representatives of the insurance industry, this Circular is being issued to amend RMC 30-2008 with respect to the portions thereof which the industry feels need further refinement and clarification,” read the draft circular, a copy of which was obtained by BusinessWorld.

The amended tax circular is due for signing by Lilian B. Hefti, tax commissioner, but the tax bureau wants the Philippine Life Insurance Association (PLIA) and the Philippine Insurers and Reinsurers Association (PIRA), which collectively groups over 120 insurance firms in the country, to submit their revised position papers.

The two groups were given until Thursday to make the filing.

“We have to remind our friends in the insurance industry that they were supposed to file the final position paper. Otherwise, we will go on with the amended circular,” said Nelson M. Aspe Revenue, deputy commissioner for operations.

PLIA, which convened Thursday, was pleased with the government decision, although it filed an appeal Thursday seeking reconsideration on the provisions pertaining to cost of services and DST.

“We thanked her [Ms. Hefti]. The best part was she agreed to include commissions in direct costs,” said Gregorio D. Mercado, PLIA president.

“We’re asking her to include marketing services, policy owner services, actuarial, underwriting, claims settlement and investments as part of other direct costs that are indispensable to produce and deliver insurance products,” he added, referring to the final position paper the group filed with the tax agency Thursday.

“We also asked her not to include the P15-DST anymore because it’s double taxation as well as impose taxes on the investment portion of variable life insurance”.

PIRA similarly pushed for the scrapping of the DST. In a letter to Ms. Hefti, Honorio J. Ramajo, PIRA chairman, said the tax would constitute double taxation, which is barred by the tax code.

Source: MARIA ELOISA I. CALDERON