gap analysis

GAP ANALYSIS

Prepared By K.M.T. Nishshanka Muhandiram

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FIRST TIME ADOPTATIONFinancial periods beginning on or after 1st January 2012;

TWO STANDARDS…………

SLFRSSLFRS for SMEs


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FIRST TIME ADOPTATION

Continued ………………..

• Who are eligible to use SLFRS and LKAS?

• Who are eligible to use SLFRS for SMEs?


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Continued………………

• Any entity that does not have public accountability.

Shares or debentures not publicly traded

not a financial institution


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Continued………………

• and is required or chooses to produceGeneral Purpose Financial Statements (GPFS)

• Size is no barrier• Listed companies may not use,

No matter how small


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SLFRS VS SLFRS FOR SMEs

• Borrowing : incurred incost connection with

qualifying assets cannot be capitalized


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Continued ……………

• Gratuity : Formula method can be used if not possible if ½ salary basis is allowed.

• Intangible assets : Internally generated intangible assets cannot be capitalized.


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Continued……………….:Does not allow to categorize infinite

useful life time maximum period is10 years.

Impairment of Assets :Should be assessed only there are any

indications


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SLFRS VS SLFRS FOR SMEsContinued…………

• Investment property

• If fair value can be measured reliably without undue cost or effort, use Fair Value Through P&L

• Otherwise, must treat investment property as property, plant and equipment using Section 17


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No sections covering these topics

• Segment reporting• Earnings per share• Interim reporting• Assets held for sales


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Who should decide ?

• Accounting policy decision

Client should decideWe can adviceAuditor’s can’t recommend


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Date of conversion

• 31st March Year end

1.04.2011 -Balance sheet 1 – Date of conversion

31.03.2012 -Balance sheet 2 - Immediate comparative period31.03.2013 -Balance sheet 3


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Date of conversionContinued ……………..

31st December Year end

01.01 .2011 -Balance sheet 1 – Date of conversion

31.12.2011 -Balance sheet 2 - Immediate comparative period31.12.2012 -Balance sheet 3


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Date of conversion

• SLFRSThree balance sheets are compulsory.

• SLFRS for SMEsNot compulsory.


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WHAT IS GAP ANALYSIS ?

SLFRS or SLFRS for SMES

SLAS

Difference


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How to do a Gap Analysis

• Compulsory audit working sheet even for small clients.

Obtain Audited F/S for 1st April 2011 or 1st January 2011 and 2012

Go through the F/S along with Accounting policies disclosed in the notes to the financial statements.


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How to do a GAP AnalysisContinued……………..

Current practice as per previous standardRecommended practice as per new Standards Recognition

Measurement Disclosures

Is there a difference - Gap is there


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IMPORTANT AREAS UNDER GAP ANALYSIS - SLFRS

PPE

Component deprecationRecognizing fully depreciated assets Impairment review.

GAP IS THERE


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Inventories impairment - write off any damage un-usable obsolete stocks

GAP CAN BE THERE


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Trade receivables - if bad debt provision is thereConsider not allowed general provision impairment

and write off

Intercompany balances- Non moving loan term loans PV

GAPS CAN BE THERE


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IMPORTANT AREAS UNDER GAP ANALYSIS -SLFRS

• Investment in quoted share – If cost or market value which ever is

lower Gap is there• Loans payables -

Only transaction cost is material• Revenue –

Gross inflow of cash flows, and PV

GAP CAN BE THERE


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IMPORTANT AREAS UNDER GAP ANALYSIS –SLFRS FOR SMEs

• PPE –Revaluation is there

–Allowed –Component Accounting –Capitalization of borrowing costs–Review of fully depreciated assets

–GAP Is there


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IMPORTANT AREAS UNDER GAP ANALYSIS –SLFRS FOR SMEs

Intangible assetsinternally generated assets cannot have infinite useful time

Inventory, Trade receivables,see whether there is any indication of

impairment

Intercompany loan – fair value

Deferred Tax –BOI Company

– GAP analysis is there.


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GAP ANALYSIS PATH

• Prepare a GAP Report• Submit to the Client• Let them go through• Discuss with the clients whether to restate

the accounts • If agree

•Quantify the Gaps• Use the materiality level• Restate the accounts


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GAP ANALYSIS PATH

• Continued ………………….• If not agree Quantify the Gaps Use the materiality level• If material Qualify the audit opinion


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GAP ANALYSIS PATH -• For Small clients• Prepare a gap schedule as an audit working • Inform the client • Restate the accounts for material once after

there consent.


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HOW TO ADJUST THE ACCOUNTS

• First pass entries as at 1st April 2011

»Debit or credit entry to relevant balances»Difference go to retained earningsReconciliation should be made in

the F/S

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THANK YOU


gap analysis

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