IFRS: Is your financial system ready? assurancenews
BY Ton DoBBe
The body tasked with setting the international standards, the International Accounting Standards Board, has a difficult task
ahead, while the individual standard-setters
for the various participant countries must
chart their own course on transitioning from
existing standards to these new international
financial reporting standards, or IFRS.
While the shift from U.S. GAAP to IFRS has
not yet been mandated, the Securities and
Exchange Commission has recommended a
very tentative timeframe for transition. The
10,000 or so U.S. companies with securities
listed with the SEC are faced with a potential
roadmap that sees large, accelerated filers being required to file 2014 financial statements
under IFRS, rather than GAAP, with non-ac-celerated filers to follow in 2015.
That seems like a long time off — except
that for many companies, comparative financial statements for 2012 and 2013 will also be
due at the same time. This means that many
companies have only a single fiscal year left
in which to assess their current financial systems and determine their readiness to make
the transition. As in all cases, an ounce of
prevention will be worth a pound of cure,
especially when it comes to the logistical and
technological considerations of making the
transition from U.S. GAAP to IFRS.
Many organizations are making the transition now, rather than waiting for the SEC
directive to come down. The transition will
take longer than many anticipate, so getting
financial systems prepared is a wise move.
The question, then, becomes how.
reporting standards — questions that will
determine how agile their systems are when
it comes to accessing and then slicing and
dicing data in ways that until now these systems have never had to do. These questions
relate to several key areas, and all lead toward
answering the big question of whether current financial systems are able to handle the
reporting requirements of IFRS.
What additional information will be required?
How will this information be applied and
calculated?
How will this information be reported?
On a more granular level, the following
questions will get you started in your assessment.
1. System complexity:
The number of GAAP regimes with which
the organization must comply;
The number of general ledger apps;
IT policy — homogenous or best of
breed?
How a change in reporting requirements
for IFRS would impact reporting — change
data capture from entities? Change in consolidation engine only? Change in reporting
only?
2. How IFRS change is made and where:
Where are corporate-wide changes reflected in the accounts of individual reporting
entities? At the entity level? At the corporate
level only? As an adjustment in the corporate
journal?
Where do IFRS adjustments appear? As
a separate shadow IFRS entry? A separate dimension? A new chart-of-account line? Those
that haven’t yet made the shift need to plan
for where these adjustments will appear.
Will IFRS changes be easily reflected in
automatic data collection? Whether the finance team or the IT team makes changes
contributes significantly to the time required
to process changes.
3. Reporting:
The most powerful nations in the world share a commitment to
finding a common financial language and reporting standards
that will encourage cross-border investment and drive healthy
competition between international companies.
Helping companies come to grips with a difficult transition
chart-of-accounts structure in operational,
statutory and audit reports? Is IT or the finance team responsible for the changes, or
are they automatically reflected in reports?
What about changes in the chart-of-accounts structure in reports produced via
linked spreadsheets? Are rewrites and tests
of the spreadsheets required? Are macros
employed to absorb the changes?
4. Responsibility: At the highest level, an
organization must ask itself these questions:
Who — finance or IT — is able to make
changes to information needs, processes and
reporting?
Are outside consultants required or is expert I T knowledge essential to accessing the
information needed to be IFRS-compliant?
FINANCE VS. IT
While IFRS has been top of mind for U.S. chief
financial officers for some time, studies show
that not enough attention is being paid to the
technological ramifications of the shift and,
worse still, that many existing systems are unable to provide easy access to, and reporting
from, different locations than under GAAP.
In a December 2009 report, “IFRS Perspec-
tives: An Executive Survey,” international
accounting firm PricewaterhouseCoopers
wrote, “Technology is a key enabler in the
transition to IFRS. Forward-looking compa-
nies are taking steps now to gain an under-
standing of how well their existing systems
can support IFRS compliance and what
changes are needed.”
On its Web site, PwC’s warnings are clear:
“We cannot stress enough the importance
of an appropriate level of awareness and
preparedness. In our experiences with IFRS
conversions elsewhere in the world, many
companies failed to adequately plan and
were therefore forced to conduct last-minute
transitions, which increased conversion costs
and left opportunities on the table. Through
adequate advance planning, U.S. companies
can avoid those risks.”
EQUIPMENT FINANCE GROUP
BALKS AT LEASING PROPOSAL
WASHINGTON, D.C. — The leader of a trade
association for the equipment finance
sector criticized the new accounting
standards for leasing contracts proposed
by the Financial Accounting Standards
Board and the International Accounting
Standards Board in late August.
According to William G. Sutton,
president of the Equipment Leasing and
Finance Association, the FASB and IASB
exposure draft “is unduly complex and
will impose a compliance burden on
lessees that will not result in a significant
improvement in the quality or reliability
of financial information.”
The group plans to submit a comment
letter detailing the association’s specific
concerns before the December 15 com-
ment deadline, asking the standard-set-
ters to address a number of concerns
about the proposal. More information
about the lease accounting proposal
is available on the ELFA Web site at
www.elfaonline.org.
MANAGING CHANGE
There are a number of questions that organizations can ask themselves to determine
their systems’ readiness for a different set of
Ton Dobbe is the vice president of product
marketing for Unit4, a global business
software publisher and implementer. reach
him at ton.dobbe@unit4.com.
LESSONS FROM EUROPE
In Europe, where the transition has already
taken place, some organizations made the
critical mistake of underestimating how
IMA CALLS FOR MANAGEMENT
ACCOUNTING RESEARCH
MONTVALE, N.J. The Institute of Manage-
ment Accountants Foundation for Ap-
plied Research has issued a call for pro-
posals for new management accounting
research from the academic community.
Proposal submissions are accepted on a
rolling basis in all related research areas.
The directors who oversee FAR’s research
activities have established research priori-
ties to address these questions:
How can management accounting
and finance best contribute to improving
competitiveness and achieving continu-
ous improvement in the enterprise?
How does management accounting
affect management behavior?
What are important emerging cost
management and performance measurement techniques and issues?
How is globalization affecting management accounting and finance?
How is emerging technology being
used to improve the effectiveness of
management accounting?
For more on the guidelines for submitting a proposal, visit www.imanet.org.
