International Financial Reporting Standards in Panama

The purpose of this page is to provide information in English about the adoption of International Financial Reporting Standards (IFRS) in the Republic of Panama.  At this moment, this page is under construction.  Please check back often.
 

INFORMACIÓN EN ESPAÑOL: 

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Status of IFRS in PANAMA in 2005

Panama has adopted IFRS as its primary set of accounting standards

After seven years and two failed attempts for adoption, the International Financial Reporting Standards (IFRS) have become the primary set of accounting standards for the financial statements of companies in the Republic of Panama.  The adoption occurred through Law 6 of February 2, 2005 “Whereby a program of fiscal equity is implemented”.  Law 6 of 2005 added a function to those of the Technical Board of Accounting (“Junta Técnica de Contabilidad”, JTC); the new function would consist in the power to adopt the set of financial accounting standards to be used for the preparation of financial statements of companies in the Republic of Panama.  The new provision also states that IFRS would become the new accounting standards of Panama.

Law 6 of 2005 is in itself a law about a fiscal reform, that is, a law dealing with changes in tax laws and the use of tax money.  In fact, the provisions adopting IFRS were not included in the original law proposal introduced by the administration of President Martin Torrijos in January 2005.  It seems that during the second of the three debates required for the proposal to become a law, the issue of IFRS was brought because some lawmakers and other persons involved in the debates were worried about how to prevent companies from cooking up their books and financial statements in order to avoid paying their taxes; apparently one of the solutions was to mandate the use of IFRS as a means to reduce flexibility in the accounting treatment.  

The quest for IFRS

Attempts that failed

Making IFRS mandatory for companies in Panama is a quest that started in the mid 1990s, when JTC passed Resolution 4 of 1998 adopting the standards, then known as IAS.   The resolution mandated that all financial statements be prepared in accordance with IAS starting with the accounting periods that began on January 1, 1999 and onwards.

However, the resolution was never fully implemented by companies.  Following a temporary suspension granted in August 1999, Resolution 4 of 1998 was annulled in October 2000 by the Third Bench of the Supreme Court, on the grounds that JTC lacked power to enact accounting standards for companies. 

A second attempt was made in August 2000 by JTC to adopt the standards.  This time, JTC issued Resolution 3 of 2000, in which it ordered the use of IAS, in the meantime correcting – or so they thought – the vices of their previous resolution.  The adoption was mandated for financial statements of periods starting on January 1, 2001 onwards. 

Yet, this second attempt was fruitless too.   The Third Bench granted a temporary suspension in late 2001, just when the resolution was about to take full effect.  It was finally annulled in June 2003.

Successful adoptions

Some regulators, however, were successful in their intent of adopting IFRS.   Here are those cases:

• The Superintendence of Banks (SB) of Panama adopted IFRS for banks in 1998.  The following year, the SB changed its mind and enacted Accord 4-99 of May 11, 1999, which permitted banks to adopt either IFRS or US GAAP as their set of accounting standards.  
• By Presidential Decree, the Executive Branch mandated the use of either IFRS or US GAAP as set of accounting standards for small financial entities (known as financieras). 
• The National Commission of Securities (“Comisión Nacional de Valores”, CNV) enacted Accord 2-2000 of 28 February 2000 and Accord 8-2000 of May 22, 2000, making mandatory the use of either IFRS or US GAAP for the financial statements of companies under CNV regulation.
• The Co-operative Autonomous Panamanian Institute (“Instituto Panameño Autónomo Cooperativo” IPACOOP) mandated the use of IFRS for all co-operative entities in the country.

As we can see, although it was not possible to order the use of IFRS for all companies in the country, some regulators found that they had power to order its use for the companies that they regulated.  And it worked for them.

Is it the end?

It’s not the end of the story.  On May 18, 2005, papers were filed to request the Supreme Court to invalidated, on grounds of unconstitutionality, the adoption of IFRS in Panama that occurred through Law 6 of 2005.  Three are the arguments that the proponent have used to make their request:

• That the adoption was made in an irregular manner, since the texts of IFRS were not promulgated along with the provision that adopted them.
• That it represents the adoption of texts that were issued in English, a provision that violates the Panamanian constitution, which recognizes Spanish as the official language in the country.
• That, although ordering the adoption of IFRS in Panama, the government has not reached a copyright agreement with IASB; therefore, Panama would be in violation of IASB rights over IFRS is companies are ordered to prepared their financial statements with IFRS without settling the copyright issue first.

It is not clear when the Supreme Court might issue its ruling over this issue.  Yet, it must be said that this time it will not be possible to order a temporary suspension of the law, because the court is not permitted to do that – the two JTC resolutions were administrative actions, not laws, and therefore could be suspended temporarily.

NJGP

June 20, 2005