LOCAL ACCOUNTING LOCAL ACCOUNTING

STANDARDS / INTERNATIONAL STANDARDS / INTERNATIONAL

STANDARDS: WHICH STANDARDS: WHICH

TRANSITIONAL PROCESSTRANSITIONAL PROCESS

Mr. Salah ESSAYELMr. Salah ESSAYEL

CONSEIL DU MARCHE FINANCIER OF CONSEIL DU MARCHE FINANCIER OF

TUNISIATUNISIA

2013 TAFCM- September 20th, 2013- Istanbul2013 TAFCM- September 20th, 2013- Istanbul

KEY TOPICSKEY TOPICS-GENERAL INTRODUCTIONGENERAL INTRODUCTION

- SUMMARY OF THE CORPORATE ACCOUNTING SYSTEMSUMMARY OF THE CORPORATE ACCOUNTING SYSTEM

- SUMMARY OF THE INTERNATIONAL BENCHMARK (IFRS)SUMMARY OF THE INTERNATIONAL BENCHMARK (IFRS)

-POSITIONING THE TUNISIAN ACCOUNTING SYSTEM: POSITIONING THE TUNISIAN ACCOUNTING SYSTEM: SIMILARITIES & DIFFERENCES BETWEEN IFRS AND THE SIMILARITIES & DIFFERENCES BETWEEN IFRS AND THE TUNISIAN ACCOUNTING SYSTEMTUNISIAN ACCOUNTING SYSTEM

- SMEs ACCOUNTING STANDARDSSMEs ACCOUNTING STANDARDS

- ADOPTION PROCESS OF IFRS IN TUNISIAADOPTION PROCESS OF IFRS IN TUNISIA

-IMPACT OF THE IMPACT OF THE ADOPTION OF IFRS IN TUNISIA ADOPTION OF IFRS IN TUNISIA - REPORTING REQUIREMENTS ON THE TUNISIAN CAPITAL REPORTING REQUIREMENTS ON THE TUNISIAN CAPITAL MARKETMARKET

WHY IMPLEMENTING IAS- IFRS ?WHY IMPLEMENTING IAS- IFRS ?

• THE LOGIC & RELEVANCE OF THE BENCHMARK FOR THE LOGIC & RELEVANCE OF THE BENCHMARK FOR INVESTORS AND THE MARKET.INVESTORS AND THE MARKET.

• AN INCREASINGLY DEMANDING INTERNATIONAL AN INCREASINGLY DEMANDING INTERNATIONAL ENVIRONMENT: the implementation of the IAS –ENVIRONMENT: the implementation of the IAS –IFRS benchmark is an entry ticket to the IFRS benchmark is an entry ticket to the international markets and the global economy.international markets and the global economy.

• THE WORLWIDE IMPLEMENTATION OF IAS- IFRS THE WORLWIDE IMPLEMENTATION OF IAS- IFRS WHICH WILL DEVELOP THE INTERNATIONAL WHICH WILL DEVELOP THE INTERNATIONAL EXCHANGES REALATING TO ACCOUNTING EXCHANGES REALATING TO ACCOUNTING SERVICES.SERVICES.

OVERVIEW OF THE OVERVIEW OF THE TUNISIAN TUNISIAN

ACCOUNTING ACCOUNTING BENCHMARKBENCHMARK

THE CORPORTAE ACCOUNTING THE CORPORTAE ACCOUNTING SYSTEM SYSTEM

CONSISTS OF:CONSISTS OF:

-THE ACCOUNTING LAW: enacted on December 30th, 1996 THE ACCOUNTING LAW: enacted on December 30th, 1996 and consisting of 5 chapters relating to accounting legal and consisting of 5 chapters relating to accounting legal and organizational issues. and organizational issues.

- THE CONCEPTUAL FRAMEWORKTHE CONCEPTUAL FRAMEWORK

-THE ACCOUNTING STANDARDS SUB-DIVIDED AS FOLLOWS:THE ACCOUNTING STANDARDS SUB-DIVIDED AS FOLLOWS:

* THE GENERAL PRESENTATION STANDRAD* THE GENERAL PRESENTATION STANDRAD

* THE TECHNICAL STANDARDS* THE TECHNICAL STANDARDS

* THE SECTORAL STANDARDS* THE SECTORAL STANDARDS

ACCOUNTING STANDARD N°1 : ACCOUNTING STANDARD N°1 : GENERAL STANDARDGENERAL STANDARD

-DEFINES THE FINANCIAL STATEMENTS PRESENTATION DEFINES THE FINANCIAL STATEMENTS PRESENTATION TEMPLATETEMPLATE

- DEFINES THE RULES & PRINCIPLES GOVERNING THE DEFINES THE RULES & PRINCIPLES GOVERNING THE ACCOUNTING ORGANIZATIONACCOUNTING ORGANIZATION

- DEFINES THE ACCOUNTING TERMINOLOGYDEFINES THE ACCOUNTING TERMINOLOGY

-APPLIES TO COMPANIES’ FINANCIAL STATEMENTS AND APPLIES TO COMPANIES’ FINANCIAL STATEMENTS AND ACCOUNTING ORGANIZATIONACCOUNTING ORGANIZATION

- APPLIES TO COMPANIES SUBJECT TO THE SECTORAL APPLIES TO COMPANIES SUBJECT TO THE SECTORAL STANDARADS WHERE THERE IS NO EXCEPTIONS STANDARADS WHERE THERE IS NO EXCEPTIONS

SECTORAL STANDARDSSECTORAL STANDARDS

- - DEDICATE A PART SEPCIFIC TO INTERNAL CONTROL DEDICATE A PART SEPCIFIC TO INTERNAL CONTROL SYSTEMS AND ACCOUNTING ORGANIZATION IN SYSTEMS AND ACCOUNTING ORGANIZATION IN ADDITION TO ACCOUNTS’ TERMINOLOGY.ADDITION TO ACCOUNTS’ TERMINOLOGY.

- THE TUNISIAN SYSTEM ALSO PROVIDES FOR - THE TUNISIAN SYSTEM ALSO PROVIDES FOR PRACTICAL RECOMMENDATIONS (for instance: PRACTICAL RECOMMENDATIONS (for instance: concerning factoring companies / for REPO treatmentconcerning factoring companies / for REPO treatment

OVERVIEW OF THE OVERVIEW OF THE INTERNATIONAL INTERNATIONAL

ACCOUNTING ACCOUNTING BENCHMARKBENCHMARK

INTERNATIONAL ACCOUNTING INTERNATIONAL ACCOUNTING BENCHMARKBENCHMARK

A- DEFINITION OF IAS / IFRS BENCHMARKA- DEFINITION OF IAS / IFRS BENCHMARK

IFRS BENCHMARK COVERS THE STANDARDS AND IFRS BENCHMARK COVERS THE STANDARDS AND INTERPRETATIONS ISSUED BY THE IASB:INTERPRETATIONS ISSUED BY THE IASB:

•INTERNATIONAL ACCOUNTING STANDARDS: IASINTERNATIONAL ACCOUNTING STANDARDS: IAS•INTERNATIONAL STANDARDS OF FINANCIAL REPORTING: INTERNATIONAL STANDARDS OF FINANCIAL REPORTING: IFRSIFRS• RELATED INTERPRETATIONS BY THE RELEVANT BODIESRELATED INTERPRETATIONS BY THE RELEVANT BODIES• SUBSEQUENT AMENDMENTS TO THESE STANDARDS AND SUBSEQUENT AMENDMENTS TO THESE STANDARDS AND THEIR RELATED INTERPRETATIONSTHEIR RELATED INTERPRETATIONS•STANDARDS AND INTERPRETATIONS TO BE ISSUED / STANDARDS AND INTERPRETATIONS TO BE ISSUED / PUBLISHED BY THE IASB PUBLISHED BY THE IASB

INTERNATIONAL ACCOUNTING INTERNATIONAL ACCOUNTING BENCHMARKBENCHMARK

B- STANDARD-SETTING APPROACH OF IASB & OF IAS / B- STANDARD-SETTING APPROACH OF IASB & OF IAS / IFRS STANDARDS:IFRS STANDARDS:

-IASB APPROACH BASED ON 6 POINTS:IASB APPROACH BASED ON 6 POINTS:

•Inspired by the anglo-saxon system and dedicated to investorsInspired by the anglo-saxon system and dedicated to investors• based on an approach reflecting the economic activity reality based on an approach reflecting the economic activity reality taking into account the markettaking into account the market• a benchmark disconnected from any leagl or tax contexta benchmark disconnected from any leagl or tax context• the treatment of the accounting operations is based on identical the treatment of the accounting operations is based on identical accounting principlesaccounting principles• a global benchmark dealing with the accounting rules as well as a global benchmark dealing with the accounting rules as well as the financial reportingthe financial reporting• a compulsory implementation of all the standards and the a compulsory implementation of all the standards and the interpretationsinterpretations

INTERNATIONAL ACCOUNTING INTERNATIONAL ACCOUNTING BENCHMARKBENCHMARK

-STANDARD-SETTING APPROACH OF IAS / IFRS STANDARD-SETTING APPROACH OF IAS / IFRS STANDARDS:STANDARDS:

Main objective: Main objective: providing investors for their investment providing investors for their investment decisions with better information regarding the decisions with better information regarding the instantaneous value of the economic entity and the risks instantaneous value of the economic entity and the risks involved taking into account its market value.involved taking into account its market value.

ApproachApproach: based mainly on the following:: based mainly on the following:-Prevalence of the income over the profit/loss statementPrevalence of the income over the profit/loss statement- Introduction of « fair value » conceptIntroduction of « fair value » concept- Prevalence of the substance over the formPrevalence of the substance over the form- measurement of losses and assets’impairment…measurement of losses and assets’impairment…

INTERNATIONAL ACCOUNTING INTERNATIONAL ACCOUNTING BENCHMARKBENCHMARK

C- CONCEPTUAL FRAMEWORK & BASIC ACCOUNTING C- CONCEPTUAL FRAMEWORK & BASIC ACCOUNTING PRINCIPLESPRINCIPLES

•IT REPRESENTS THE GENERAL FRAMEWORK APPLICABLE TO IT REPRESENTS THE GENERAL FRAMEWORK APPLICABLE TO ALL COMPANIES MAKING ACCOUNTS IN ACCORDANCE WITH ALL COMPANIES MAKING ACCOUNTS IN ACCORDANCE WITH IFRS BENCHMARK AND ALLOWS THEM TO REFER TO BASIC IFRS BENCHMARK AND ALLOWS THEM TO REFER TO BASIC CONCEPTS REGARDING THE PARTS INCLUDED IN THE CONCEPTS REGARDING THE PARTS INCLUDED IN THE FINANCIAL STATEMENTS.FINANCIAL STATEMENTS.

D- FINANCIAL REPORTING STANDARDSD- FINANCIAL REPORTING STANDARDS

1. STANDARDS OF FINANCIAL REPORTING 1. STANDARDS OF FINANCIAL REPORTING (financial (financial statements / additional information)statements / additional information) PRESENTATION PRESENTATION ( IAS 1/ ( IAS 1/ IAS7 / IAS 8 / IAS 10/ IFRS 8/ IAS 24 / IAS 33 / IAS 34).IAS7 / IAS 8 / IAS 10/ IFRS 8/ IAS 24 / IAS 33 / IAS 34).

2. 2. Reporting perimeter (IAS 27 / IAS 28 / IAS 31/ IFRS 3/ IFRS 5)Reporting perimeter (IAS 27 / IAS 28 / IAS 31/ IFRS 3/ IFRS 5)

INTERNATIONAL ACCOUNTING INTERNATIONAL ACCOUNTING BENCHMARKBENCHMARK

3. SECTORAL STANDARDS3. SECTORAL STANDARDS

- FINANCIAL SECTOR (IAS 26/ IFRS4)FINANCIAL SECTOR (IAS 26/ IFRS4)- NON FINANCIAL SECTOR (IAS 41 / IFRS 6)NON FINANCIAL SECTOR (IAS 41 / IFRS 6)

4. ASSESSMENT & REGISTRATION STANDARDS4. ASSESSMENT & REGISTRATION STANDARDS- NON- FINANCIAL ASSETS AND LIABILITIES ASSESSMENT (IAS NON- FINANCIAL ASSETS AND LIABILITIES ASSESSMENT (IAS 2 / IAS 16/ IAS 36 / IAS 38/ IAS 40/ IAS 17/ IAS 19/IAS 23…)2 / IAS 16/ IAS 36 / IAS 38/ IAS 40/ IAS 17/ IAS 19/IAS 23…)

- FINANCIAL INSTRUMENTS ASSESSMENT (IAS 32/ IAS 39/ IFRS FINANCIAL INSTRUMENTS ASSESSMENT (IAS 32/ IAS 39/ IFRS 2/ IFRS 7…)2/ IFRS 7…)

- Assessment of income and prices’fluctuation (IAS 11/ IAS 12/ - Assessment of income and prices’fluctuation (IAS 11/ IAS 12/ IAS 18/ IAS 15/ IAS 21…) IAS 18/ IAS 15/ IAS 21…) -

POSITIONING OF THE POSITIONING OF THE TUNISIAN ACCOUNTING TUNISIAN ACCOUNTING

SYSTEM SYSTEM ::

SIMILARITIES & DIFFERENCES SIMILARITIES & DIFFERENCES BETWEEN IFRS AND THE BETWEEN IFRS AND THE TUNISIAN ACCOUNTING TUNISIAN ACCOUNTING

SYSTEM SYSTEM

IFRS AND IFRS AND SMEsSMEs

MAIN ISSUE

-IFRS FOR SMEs: are they an option or a need with respect to the Tunisia context and taking into account the costs/ advantages analysis as well as the available accounting expertise?

- What is the organizational and informational impact involved?

-

2 STANDARD-SETTING APPROACHES2 STANDARD-SETTING APPROACHES

IFRS US-GAAP

Concept

More

More

RulesUnderlying principles

Choice

Details level

2 STANDARD-SETTING APPROACHES2 STANDARD-SETTING APPROACHES

AMERICAN APPROACH BASED ON DETAILED RULES:AMERICAN APPROACH BASED ON DETAILED RULES:

-Giving rise to an increasing complexity resulting from the Giving rise to an increasing complexity resulting from the quantity & level of detailsquantity & level of details

- risk of structuring of accounting operations and data.risk of structuring of accounting operations and data.

INTERNATIONAL APPROACH BASED ON PRINCIPLES:INTERNATIONAL APPROACH BASED ON PRINCIPLES:-Giving an important place to interpretation and professional Giving an important place to interpretation and professional judgementjudgement-Less numeric thresholdsLess numeric thresholds- less available options. less available options.

NEED FOR CONVERGENCE: Only one benchmark in order to NEED FOR CONVERGENCE: Only one benchmark in order to make easier the comparaison of companies’ financial make easier the comparaison of companies’ financial performances and the listing process on a foreign capital performances and the listing process on a foreign capital market. market.

IN THE TUNISIAN CASEIN THE TUNISIAN CASE

A.A. THE PREREQUISITES TO TRANSITIONTHE PREREQUISITES TO TRANSITION

- The system general consistency with the basics of the The system general consistency with the basics of the international benchmarkinternational benchmark

- The availability of a conceptual frameworkThe availability of a conceptual framework

- Adoption of the memorandum on the prevalence of Adoption of the memorandum on the prevalence of substance over formsubstance over form

- Similarities with respect to communication tools and Similarities with respect to communication tools and particularly regarding the financial statements’components particularly regarding the financial statements’components (balance sheet / profits-loss statement / cash-flow (balance sheet / profits-loss statement / cash-flow statement and the notes)statement and the notes)

- Adoption of the classification of expenses by destination and Adoption of the classification of expenses by destination and setting indicators to be used as measurement and setting indicators to be used as measurement and assessment tools of companies’ performancesassessment tools of companies’ performances

- Staff training …Staff training …

IN THE TUNISIAN CASEIN THE TUNISIAN CASE

B. IMPEDIMENTS TO THE ADOPTION OF IAS/ IFRSB. IMPEDIMENTS TO THE ADOPTION OF IAS/ IFRS

-The difficult process of upgrading the tax system The difficult process of upgrading the tax system in accordance with the requirements of IAS / IFRS in accordance with the requirements of IAS / IFRS adoptionadoption- IFRS are designed in the developped IFRS are designed in the developped countries’environment and based on the anglo-countries’environment and based on the anglo-saxon culturesaxon culture- IFRS adoption entails a number of reforms: IFRS adoption entails a number of reforms: accounting law, tax system, corporate law, accounting law, tax system, corporate law, commercial law…commercial law…- costs of introduction of the benchmarkcosts of introduction of the benchmark

IN THE TUNISIAN CASEIN THE TUNISIAN CASE

C- OBSTACLESC- OBSTACLES

-THE TAX REGULATION INTO FORCETHE TAX REGULATION INTO FORCE

- INCONSISTENCY OF THE PRACTICES WITH THE INCONSISTENCY OF THE PRACTICES WITH THE KEY CONCEPTS OF IFRS:KEY CONCEPTS OF IFRS:

* « fair value » concept* « fair value » concept

* complexity of some accounting treatments * complexity of some accounting treatments

- LOGISTIC SUPPORT & COSTS OF TRANSITIONLOGISTIC SUPPORT & COSTS OF TRANSITION

IMPACT ON FINANCIAL STATEMENTSIMPACT ON FINANCIAL STATEMENTS

•Concerning equities: (the re-estimation of the useful lifetime of assets)• Concerning the results (review of depreciation allowances)• The net debt level (capitalization of leasing agreements).

A LARGER IMPACTA LARGER IMPACT-Building the accounting & financial capacity and Building the accounting & financial capacity and improvement of the monitoring bodiesimprovement of the monitoring bodies

- Decompartamentalising and structuring the Decompartamentalising and structuring the accounting and financial functionsaccounting and financial functions

- Enhancing the internal control as well as the Enhancing the internal control as well as the internal and external audit functionsinternal and external audit functions

- Involvment of quality control in financial Involvment of quality control in financial informationinformation

- involvment of the legal department in the project.involvment of the legal department in the project.

REPORTING REQUIREMENTS ON THE REPORTING REQUIREMENTS ON THE TUNISIAN CAPITAL MARKETTUNISIAN CAPITAL MARKET

A- PERIODIC INFORMATIONA- PERIODIC INFORMATION

REPORTING IS REQUIRED ON A REGULAR BASIS:REPORTING IS REQUIRED ON A REGULAR BASIS:

- Quarterly : Quarterly : (activity indicators)(activity indicators)- Half-yearly: Half-yearly: interim financial statements, auditor interim financial statements, auditor

reportreport- Yearly: Yearly: yearly financial statements, auditor report, yearly financial statements, auditor report, companies’management report… companies’management report…

B- ON-GOING INFORMATIONB- ON-GOING INFORMATION

ANY SIGNIFICANT INFORMATION LIKELY TO HAVE AN IMAPCT ANY SIGNIFICANT INFORMATION LIKELY TO HAVE AN IMAPCT ON THE MARKET HAS TO BE DISCLOSED TO THE PUBLIC ON THE MARKET HAS TO BE DISCLOSED TO THE PUBLIC

REPORTING REQUIREMENTS ON THE REPORTING REQUIREMENTS ON THE TUNISIAN CAPITAL MARKETTUNISIAN CAPITAL MARKET

C- OCCASIONAL INFORMATION: C- OCCASIONAL INFORMATION:

disclosed on the occasion of financial operations on the disclosed on the occasion of financial operations on the market (capital increase / listing on the stock exchange / market (capital increase / listing on the stock exchange / bonds’issuance / a takeover bid…)bonds’issuance / a takeover bid…)

D- CMF MONITORING OF COMPLIANCE WITH D- CMF MONITORING OF COMPLIANCE WITH DISCLOSURE REQUIREMENTSDISCLOSURE REQUIREMENTS

-Monitoring aspects: Monitoring aspects: thethe deadline for submitting deadline for submitting information / The information details as specified in the Law / information / The information details as specified in the Law / The consistency of the information…The consistency of the information…

- Enforcement actions likely to be taken by the Enforcement actions likely to be taken by the regulator:regulator:

- soft actions (reminders: public and nominative ones)- soft actions (reminders: public and nominative ones)

- sanctions (financial penalties, issuing orders…)- sanctions (financial penalties, issuing orders…)

THANK YOUTHANK YOU