Interview: César Cheng Vargas

What generally accepted accounting principles (GAAP) are currently in use in Colombia?

CESAR CHENG VARGAS: Decree 2649 of 1993 defined the accounting standards (Colombian GAAP) for all enterprises in Colombia. However, in practice, the tendency of regulators and governmental entities to issue additional accounting standards necessary to perform their regulatory duties, as well as the frequent adoption of tax rules for accounting purposes, created confusion for preparers and users of financial information. This also damaged the consistency and market-oriented usefulness of the Colombian GAAP financial statements.

In 2009 Colombia began an accounting reform, when the national government supported nationwide convergence from Colombian GAAP to International Financial Reporting Standards (IFRS) through the enactment of Colombia’s Law 1314. From then on, discussions have shifted from deciding whether to adopt IFRS to setting a timetable to effectively enforce them. Now, when applying international accounting standards, based on certain conditions, companies apply either the full version of IFRS (large corporations) or a simplified version (small and medium-sized enterprises, SMEs). In any case, IFRS are here to stay, and Colombia, like most other countries in Latin America, is now decisively adopting these standards.

What is the timetable in Colombia for the mandatory adoption of IFRS?

CHENG: The current adoption timetable defines three groups. Group one includes publicly traded entities; public interest entities; and large companies that are either branches of parent companies that report using IFRS, parent companies of branches that report under IFRS, or companies exporting or importing over 50% of their sales or purchases. These entities will adopt full IFRS in 2015, with 2014 being designated as the year of transition (meaning opening balances of the statement of financial position as at January 1, 2014). Group two is comprised of large and medium-sized companies other than those included in group one. These entities will adopt the IFRS for SMEs in the 2016 fiscal year, meaning the year of transition will be 2015 (opening balances of the statement of financial position as at January 1, 2015). A third group, consisting of micro entities, will apply standards especially developed for their needs (Normas de Información Financiera para Microempresas) from 2015 onward.

Who should lead the adoption of global accounting standards?

CHENG: This must be a joint effort involving entrepreneurs, accountants, higher education institutions and regulatory authorities. We must all be fully engaged to change our mindset, looking to improve the quality of our financial reporting procedures.

This transformation will require the accurate definition of the new requirements, the speedy development of application capabilities, and the effective monitoring and tracking of practical deviations. The resulting environment will not only impact accountants, auditors and current users of available financial information, but also technology and tax practitioners. Higher education institutions play a key role in providing training on the new international standards, as we must initially train the trainers.

What measures should be taken to ensure SMEs also ride this wave of transformation?

CHENG: The vast majority of companies around the globe are private entities that do not trade their stock in public stock markets. Therefore, to cover the needs of this extensive target group, a simplified version of IFRS was issued by the International Accounting Standards Board especially for SMEs. In today’s globalised marketplace, all businesses willing to overcome geographical frontiers should be aware of and promote the use of international accounting standards. The availability of an IFRS version for SMEs should enhance this model’s popularity among applicable companies.