Adoption of IFRS in Financial Reporting – An

Empirical Evaluation of Select Companies of

Sultanate of Oman

By
Dr. Mahesh Agnihotri,
Asst. Prof. – Accounting & Finance,
Majan College(University College)
Accredited to University of Bedfordshire, U.K.
 Abstract

• In a sample of 9 companies selected 3 from each sector, namely; manufacturing ,

service and banking, an attempt was made to study the accounting practices and the
convergence of international financial reporting standards in Oman.
• Secondary data was used for the purpose of the study. The study revealed that all the
companies operating in Oman in general and the selected companies in particular
practice and adopt International Financial Reporting Standards (International
Accounting standards) in the preparation and presentation of financial statements.
• The notes to the accounts of these companies show that the financial statements
were prepared in accordance with the international financial reporting
standards(IFRS).
• It was also observed that the companies selected for the study adopt at least 8-10
standards. This could be attributed to the nature of operations of the companies. One
of the notable and important observations was that, the international accounting
standards discussed in the notes to the accounts do not show any sequence as
stated in IFRS.
 Prologue

• The purpose of accounting is not merely to prepare the Financial Statements of

companies but also to ensure the understandability, reliability, comparability,
relevance and true and fair view presentation, of these statements so as to enable
the investors, across the globe, to invest. A single set of financial accounting
standards will provide the comparability to the investors and stakeholders. This has
gained lot of attention since the companies’ securities of most of the countries in
the world are traded globally.
• IFRS believes that the areas of interpretations or discussions of the accounting
treatment of items of financial statements can be clarified by a standard setting
board. It believes in fewer exceptions to the interpretations, when compared to
rule based system of FASB, although it cannot compel any country or any company
to adopt IAS of IFRS and so is the case with FASB in the United States of America
• In the Middle East, Oman a member of GCC does not have any issues of compliance
in the measurement part of IASs but in the disclosing financial information part it
needs to work out.
 This paper seeks to discuss the following Aspects

• To examine the extent / areas of convergence

of International Accounting Standards (IAS) in
select companies in the Sultanate of Oman.
• To study the description, identification and
declaration practices of select companies with
regard to the Reporting Entity.
 Review of Literature
• Ramana , Karthick, Sletten and Eva, D , in their article, “Why
countries adopt IFRS, used a sample of 102 Non-European
countries, studied variations in the decisions to adopt IFRS” The
study found variations in the decisions to adopt . The study
observed that
• More powerful countries are less likely to adopt IFRS.
• Some countries are not willing to surrender standard- setting
authority to an international body.
• The study also found that a country is more likely to adopt IFRS, if
its trade partners are adopting IFRS too. This facilitates the
trading of securities in these countries, as investors are able to
understand the performance of companies.
 Review of Literature……..Contd.
• `In Oman, Shankeriah. K and Rao DN in their article
‘Corporate Governance and Accounting Standards in
Oman, an Empirical study on Practices argued that
the convergence of IFRS’ has been a challenge mainly
due to the various environments in which the
companies operate. Different countries have different
political, social, religious and tax environments. Oman
being a political stable country, with a liberal tax
regime has a different environment in comparison to
the other European and African countries.
 Methodology
• the data for the purpose of study is collected through secondary
sources. The scope of study is restricted to the extent of
Convergence of International Accounting Standards in the
Sultanate of Oman.
• The financial statements and notes to the accounts of the
companies, for the half year ending 30th June 2010 were used
for the purpose of study.
• The selection of sample is based on the level of performance in
terms of profitability and the frequency of trading of the
securities of the companies. All the sample companies are
S.A.O.G and are profits making companies in Manufacturing,
Services and Banking sectors. These companies are as follows.
Basis of preparation of Financial Statements in the Sultanate of Oman.

• The consolidated and parent company’s annual financial

statements have been prepared and presented as per the
Revised IAS-1 as per the requirements of International Financial
Reporting Standards. Moreover the commercial Companies law
and the capital market authority require that an entity prepares
its annual financial statements with the following new titles and
to be adopted from 2009. In Oman these new titles of financial
statements have been made effective from 2010.
– (a)Statement of Comprehensive Income
– (b)Statement of Financial Position
– ©Statement of Cash Flows
– (d)Statement of changes in Equity.
 Basis of preparation of Financial Statements in
the Sultanate of Oman……..Contd.
• Although companies follow International Financial Reporting Standards, it was
observed that all the 9 companies chosen for the purpose of study prepare
their notes to the accounts without showing the IFRS and IAS sequence and
title, while explaining the items. The items of the financial statements
discussed in the notes to the accounts do not match with IFRS sequence.
Although, all the sample companies do adopt the IFRS, but not in the same
sequence as that followed in the IFRS & IAS. The sequence followed in the
explanation of the various items in the notes to the accounts is different in
sample companies. If this is not followed then it becomes difficult to the users
of accounting information to compare and understand fully and properly the
impact and treatment of the items in the financial statements. All companies
follow or adopt at least 8-10 of the IAS, since the other standards are either
not applicable or not dealt with as they do not affect the financial statements.
This is done as there is no rule to comply with such a practice of numbering
IFRS and IAS.
 Basis of preparation of Financial Statements in
the Sultanate of Oman……..Contd.
• The following International Accounting Standards have been adopted in the Sultanate of Oman from 1995,
although IFRS have been made mandatory for application in Oman since 1986.
• In the year 1995 the following standards were put in place.
• IAS -11 relating to Construction contracts
• IAS -18 relating to Revenues
• In the year 1998 the following standards were put in place.
• IAS -26 relating to Accounting and reporting by retirement benefit plans
• In the year 1999 the following standards were put in place.
• IAS -34 relating to Interim Financial Reporting
• IAS -37 relating to provisions , contingent liabilities and contingent assets
• In the year 2001 the following standards were put in place.
• IAS -12 relating to Income taxes
• In the year 2005 the following standards were put in place.
• IAS -2 relating to inventories
• IAS -10 relating to events after the reporting period
• IAS -21 relating to effects of changes in foreign exchange rates
• IAS -33 relating to Earnings per share
• In the year 2006 the following standards were put in place.
• IAS -4 relating to insurance contracts
• IAS -6 relating to exploration for evaluation of mineral resources
 Basis of preparation of Financial Statements in the Sultanate
of Oman……..Contd.
• In the year 2010 the following standards were put in place.
• IFRS -1
• IAS -17 relating to Leases
• IAS -27 relating to Consolidated and Separate Financial Statements
• IAS -32 relating to Financial Instruments disclosure and presentations
• IAS -38 relating to Intangible Assets
• IAS -39 relating to Financial Instruments; Recognition and Measurement.
• Some of the other standards to be adopted by one of the sample companies, Al Jazeera steel
Products, SAOG in future are;
• IAS-24 to be adopted from 2011.
• IFRS -9 relating to Financial Instruments; classification and Measurement (it is a replacement for IAS-
39 and IFRS -7).
• 5.3 New interpretations and amendments to interpretations
• Amendments to International Financial Reporting Committee (IFRIC) ; IAS 19 to be effective from
2011.
• It can be stated that, the sample companies are either preparing their financial statements or decided
to adopt the IFRS.
Basis of preparation of Financial Statements in
the Sultanate of Oman……..Contd.
• 5.4 With regard to some other areas, there are some
differences between IFRS and FASB.
• IFRS does not permit LIFO (last in first out) as of Inventory
Costing method.
• IFRS allows the Revaluation of assets in certain
circumstances.
• IFRS uses a Single Step Method for impairment write downs
rather than the two step method used in US GAAP making
write downs more likely.
• IFRS requires Capitalization of Development Cost, when
certain criteria are met.
 Conclusions

• The companies selected for the study indicate that they adopt IFRS. . The
capital markets authority (CMA of Oman) and the Ministry of Commerce
and Industry (MOCI, Oman) also make it mandatory on the part of all the
companies in the country to adopt the International Financial Reporting
Standards in the preparation and presentation of financial statements.
These companies have also been following the amendments as required
by IFRS. The sample companies follow either FIFO or weighted average
method of inventory valuation which is required by IFRS. All the three
banks in the banking sector follow single step method of impairment of
financial assets. All the companies use cost model for revaluation of
assets. The sample companies do not show any discussion on the
treatment of Capitalization of Development Cost and the description of
the Reporting Entity in a group structure