Thai businesses are facing a myriad of challenges, and if leaders lack effective strategies to adapt amidst these changes, their business operations will not align with strategies, leading to unmet expectations of all stakeholders.
Boonlert Kamolchanokkul, Assurance Lead Partner at PwC Thailand, shared these insights at the 'Corporate Reporting Forum', a key segment of the annual 'PwC Thailand's Symposium 2024'. The event, themed 'Beyond Boundaries: Shaping Tomorrow's Innovations', highlighted that Thai businesses are facing critical challenges from global megatrends, including emerging technologies, climate change and regulatory updates. Executives are under immense pressure to stay informed about these trends and changes. Identifying emerging issues and managing them proactively are essential to ensure that businesses maintain competitive edge.
"Another significant change that Thai leaders must closely monitor to stay updated and plan for potential impacts is the new International Financial Reporting Standards, IFRS 18 and IFRS 19. These standards will be effective for annual reporting periods beginning on or after 1 January 2027," Boonlert said.
Evaluating the impacts of IFRS18 and IFRS 19
In April, the International Accounting Standards Board (IASB) issued two new standards, IFRS 18: Presentation and Disclosure in Financial Statements, and IFRS 19: Subsidiaries without Public Accountability: Disclosures. These standards will be effective for annual reporting periods beginning on or after 1 January 2027. The impacts of these new accounting standards are as follows:
- IFRS 18, when implemented, will result in a change in the format of the profit and loss statements now divided into five categories: operating, investing, financing, income tax, and discontinued operations. It requires companies to disclose the calculation method and reconciliation between the management-defined performance measures and the nearest corresponding figure in the financial statements, highlighting any differences. This change aims to enhance comparability across different entities and within the same entity for the different periods, and increase transparency when management publicly discloses profit or loss information that's different from the financial statements.
- IFRS 19 focuses on the disclosure of subsidiaries without public accountability. Subsidiaries can now prepare financial statements with significantly reduced disclosure requirements compared to those mandated by current financial reporting standards. This new standard also provides an additional option for subsidiaries that currently prepare financial statements in accordance with the Thai Financial Reporting Standards for Non-Publicly Accountable Entities (TFRS for NPAEs). They can enhance their measurements by switching to preparing financial statements according to the financial reporting standards (TFRS) while reducing the burden of disclosure requirements.
Boonlert said that the Thai Financial Reporting Standards are expected to be updated in line with IFRS 18 and IFRS 19, effective for financial statements covering annual periods beginning on or after 1 January 2028. These updates provide companies with greater flexibility particularly in preparing financial statements for their subsidiaries. Management must decide between TFRS for NPAE or IFRS 19 in preparing the financial statements to maximise group benefits. The changes ensure users receive more relevant and focused information, improving their ability to analyse and compare financial statements across entities.
Using GenAI for efficiency in accounting and finance
The adoption of generative AI (GenAI) has surged exponentially in Thailand - and not just at the individual level. Many organisations are now leveraging GenAI across various dimensions of the business, particularly to enhance accounting and finance tasks. GenAI not only assists with the management and processing of financial documents but is also particularly effective at predictive financial analysis and prescriptive analytics.
This enables Chief Financial Officers (CFOs) to gain deeper insights, make better informed decisions and strategically plan the organisation's finances effectively.
GenAI is being used to improve efficiency and reduce operational costs in a wide range of sectors. For instance, in other countries GenAI can help with investor relations by comparing industry data and drafting responses to investor's questions. It can also be used for various mergers and acquisitions tasks, such as research, model creation and evaluating business valuations to provide options for business development departments.
"When implementing GenAI, leaders should begin with a framework that aligns with the business strategy. It's essential for assessing the impacts and managing data governance risks. Support should be built by starting with internal pilot projects and creating use cases to raise awareness. This is crucial for fostering an organisational culture that recognises the potential of GenAI. At the same time, business leaders must also be aware of the potential risks and implement a framework for responsible AI to ensure trust and transparency," Boonlert said.
Assess whether ESG strategies impact financial reporting
According to Boonlert, governments and regulatory bodies in many countries are issuing policies or regulations related to Environmental, Social and Governance (ESG). While Thailand does not yet have comprehensive direct regulations similar to those of the EU, Thai listed companies are required to disclose their ESG performance within the One Report, alongside the financial report.
Consequently, Thai businesses are beginning to study and adopt ESG practices within their organisations to drive long-term value creation and prepare for potentially stricter regulations. This includes a focus on transparent and reliable sustainability reporting, he said.
As a result, CFOs play a crucial role in the management and strategy of financial operations, sourcing funding, and offering diverse options that align with the organisation's ESG approach. They also need to collect both financial and non-financial data to ensure transparency in ESG reporting and monitor related performance. All stakeholders must be informed of the ESG strategic plan.
One of the fundraising approaches that align with ESG principles and is currently gaining significant interest is the issuance of green financial instruments. These instruments incentivise organisations to engage in environmentally friendly activities, such as green labelling to support carbon emission reductions and using clean energy sources to achieve net-zero greenhouse gas emissions.
Green activities significantly influence accounting practices, especially in the classification and fair value measurement of financial instruments. It is the responsibility of the CFO to evaluate and manage the financial reporting outcomes of these green financial instruments, as they may impact and cause fluctuations in the company's profit or loss.
"CFOs must evaluate the impacts of various ESG plans on financial reporting. For example, improving business operations to address the effects of climate change could affect the availability of raw materials and natural resources, which impacts financial statements. This may include asset impairments, the fair value of assets, and the ability to collect debts, especially from debtors affected by climate change.
"Furthermore, investors and business stakeholders are placing greater emphasis on climate change, with international investors seeking sustainability reports to inform their investment decisions. Business leaders must follow accounting practices that ensure transparency, instilling trust in both financial and non-financial disclosures" Boonlert said.
Source: PwC Thailand