Ticking the boxes: Accounting and audit regulations to take into consideration

The Myanmar Companies Act requires companies to appoint an auditor, and the first auditor may be appointed by a company’s directors. Subsequent auditors may be proposed by the company’s directors and approved by the shareholders at the annual general meeting.

Company directors are required to submit a set of audited financial statements at each annual general meeting. A company is required to hold its first annual general meeting no later than 18 months from the date of its incorporation, and in subsequent periods at intervals of no more than 15 months. Within 21 days of the annual general meeting an annual return will need to be filed to Myanmar’s Companies Registration Office.

Financial Reporting Standards

The main accounting body, the Myanmar Accountancy Council (MAC), is responsible for the adoption and implementation of the Myanmar Financial Reporting Standards (MFRS). MFRS has adopted all international financial reporting standards (IFRS) except for the following:

• IFRS 9: Financial instruments;

• IFRS 10: Consolidated financial statements;

• IFRS 11: Joint arrangements;

• IFRS 12: Disclosure of interests in other entities;

• IFRS 13: Fair value measurement; and

• Interpretations from the Standing Interpretations Committee and International Financial Reporting Interpretations Committee (IFRICs). Besides the adoption and implementation of accounting standards, the MAC also governs the qualification and certification of auditors of the country. The MAC sets a stringent set of criteria in order to qualify as an auditor, requiring that all auditors be either a certified public accountant or hold an accountancy certificate or degree conferred by any foreign country recognised by the Myanmar Accountancy Council. Additionally, auditors have to be citizens of Myanmar and registered with the MAC to obtain a certificate of practice.

Foreign investors need to be mindful of potential differences between MFRS and IFRS when accounting for their investments in Myanmar. For example, many power plant projects are awarded by the government in the form of build-operate-transfer (BOT) contracts. MFRS may allow companies constructing such infrastructure assets to recognise them as fixed assets. However, IFRIC 12 Service Concession Arrangements (which has not been adopted by MFRS) may preclude the recognition of fixed assets, as such assets are usually transferred back to the government at the end of BOT term for a nominal consideration. Under IFRS, the firm undertaking the BOT contract would instead record the arrangement as a service contract and recognise both construction revenue and operating/maintenance revenue over the BOT term. Myanmar companies undertaking such BOT contracts would therefore need to make an accounting adjustment to comply with IFRS before reporting to their foreign investors.

The MAC currently exempts group companies from presenting consolidated financial statements as long as the stand-alone financial statements of each group entity is filed with the authorities. Such an exemption makes it more challenging for Myanmar group companies which will need to start preparing consolidated financials in accordance with IFRS 10 (consolidated financial statements) for the purposes of reporting results to their foreign investors or meeting loan covenant requirements of lenders.

Complex financing options and structured products such as derivatives are not available in Myanmar, and most Myanmar companies are generally financed by shareholder loans and in some instances by collaterised bank loans. Accounting for derivatives and hedging transactions under IAS 32/39 (financial instruments: presentation, recognition and measurements) would therefore be irrelevant.

Most Myanmar companies also presently do not have share-based compensation plans and therefore IFRS 2 (share-based payments) would not be applicable.