Several weeks ago we introduced the topic of IFRS accounting standards to you and summarized a Sage whitepaper detailing how Sage Accpac can assist you in making the transition easier. As mentioned previously, the world is making a move towards a single set of global accounting standards in order to guarantee comparable financial statement preparation and disclosure on an international level. The United States plans to convert to these new reporting standards in 2014, and will require any publicly traded companies to report on both the current GAAP and IFRS standards in both 2012 and 2013. However there may be some benefit for all companies (including those not required as of yet) to convert to the IFRS standards as there is a good amount of speculation that the GAAP standards will eventually become obsolete across the board. 

Now that you are aware of the coming changes, what initial steps should you take to ensure your organization is ready? We realize the concept of completely changing the way you prepare your financial statements can be overwhelming, and that many of you are concerned about how the new standards will affect the way you do business. The first step to success is to do your homework. The more information you have regarding changes you’ll be making, the better prepared you’ll be when the time comes to implement the new processes. 

We found a great whitepaper on ifrs.com titled, Financial System Considerations in IFRS Conversion Projects, which we think will help you lay the foundation of knowledge for the new accounting process, and we’ve highlighted some of the information for you here.

Potential System Impacts of an IFRS Conversion
The impact to IT and financial systems can vary depending on your company’s existing structure and environment. This may include its IT and financial systems capability/integration, industry complexity, company size, relevance of business process/transaction, internal control structure, mergers and acquisitions process, and other attributes.

The extent of changes may also vary depending on the consolidation method that management chooses. Consolidations may be implemented at the corporate-level or at each individual country/entity. However, companies that implement at the corporate level may potentially run the risk of error and potentially re-stating their financial statements as well as other situations if the numerous journal entry adjustments are not tracked or controlled properly. Furthermore, if a dual reporting system is in place during the transition period, the reconciliation process needs to be taken into consideration. Reconciling between two different “views” of the financial statements poses different problems than singularly supporting one version or the other. Therefore, having an effective reconciliation reporting system is an important aspect to the learning curve of the IFRS transition.

Primary Differences beween IFRS and GAAP
Transaction Differences

Inventory

- IFRS does not permit Last In First Out (LIFO) method

- Method of measuring inventory

- Reversal of write-downs

Property, Plant & Equipment

- IFRS requires certain assets and depreciation be recorded at component level

- Intangible Assets (such as R&D) and Impairment

- Development costs may be capitalized when certain conditions are met and require detailed reporting

- Impairment testing

Share-based Payments

- Timimg of recognition

- Valuation of liability-classified transactions

In addition to the transaction examples above, the IASB and FASB are also working jointly on several MoU projects target for completion in 2010 and 2011. Some of these major convergence projects include:

• Revenue Recognition
• Leases
• Financial Instruments
• Consolidations
• De-recognition
• Fair Value Measurement
• Financial Statement Presentation
• Financial Instruments with Characteristics of Equity

Once these projects are completed and new standards are released, these changes will impact how the transactions are recorded, processed and/or reported within a financial system.

Certain IFRS/GAAP differences may be adjusted through General Ledger journal entries or chart of account structuring and do not require system changes at the sub-ledger level. The approach will vary depending on your organization’s structure and environment.

Impact to Financial or Business Reporting
Converting to IFRS will impact a company’s external and internal reporting requirements. Although some transactional differences require only journal entry adjustments within the GL, other changes may impact an organization’s current reporting infrastructure (such as data warehousing environment or associated reporting program). Furthermore, journal entry adjustments for multiple countries and parallel reporting in IFRS and GAAP may become cumbersome without additional tools to assist in the process. Companies will either have to (1) maintain both processes for statutory reporting until the three year requirement is complete, or (2) maintain one process and make topside adjustments to the other statutory reporting requirement.

Lessons Learned from the European Experience

• Start the planning process early. The average IFRS conversion time is likely to be between 2 ½ – 3 years
• Seek to identify difficult accounting or systems issues early in the process. Researching and securing the judgment of professionals on technical issues can take time.
• Allow for unforeseen problems, and perform system tests prior to going live.
• When evaluating accounting/reporting issues, give due consideration to long-term impacts of the resulting decisions.
• Devote extra attention to the extensive disclosure changes that may be required by the conversion.
• Complete training early and often.

To read the entire whitepaper, Financial System Considerations in IFRS Conversion Projects, click here..

There’s no doubt that getting the most out of your IT investment should be one of your top priorities. Many IT vendors have taken notice and are doing their part to ensure you’re working smarter and have access to the accurate data you need, when you need it. However the concept of IT Optimization can be defined in many ways, and we think a recent article on bigfatfinanceblog.com by Alan Radding narrows these down quite well.

1. Mission Optimization: The first step you should take is to determine what exactly you want your IT to do for finance, and your business as a whole. Your IT should be leveraging data, systems, and networks to help the business attract customers and generate more revenue.
2. Platform/Vendor Optimization: The more platforms your company supports the more difficult they are to manage. While a single platform may be unrealistic – you should strive to have as few as possible.
3. Application Optimization: Be sure to run the best mix of applications for your company. Focus on those like business intelligence, analytics, performance management and collaboration.
4. GRC Optimization: Define governance policies in a way that IT systems can be appropriately automated, monitored, and enforced.
5. Security Optimization: This goes hand-in-hand with GRC Optimization to address data protection and privacy. This last step should have a broad scope and should be built into everything IT does from the outset.

If done correctly IT optimization can lower costs and generate revenue. To read the article in its entirety, click here.

With over 100 countries now requiring or permitting IFRS reporting, some of which include Hong Kong, Malaysia, Australia, India, Pakistan, Turkey, Singapore, Russia, South Africa, the European Union and the Cooperation Council for the Arab States of the Gulf – there is little doubt we’re officially headed towards a global accounting system.

In Canada the Canadian Accounting Standards Board (AcSB) has confirmed that IFRS will replace the Canadian GAAP (Generally Accepted Accounting Principles), on January 1st, 2011, for publicly accountable profit-oriented enterprises.

In the U.S. companies making the change must run the GAAP and IFRS reporting in parallel for fiscal years 2012 and 2013, in preparation for 2014 when IFRS rules will become effective.

What Is IFRS?
IFRS is a single set of global accounting standards, developed by the IASB as a means to guarantee comparable financial statement preparation and disclosure throughout the world.

Why do we need global accounting standards?
With so many businesses throughout the world, both small and large doing business internationally – there was a need for a single, world-wide system of high-quality standards to improve transparency and support between investors and partnering organizations. It effectively allows international companies to speak the same financial language.

What challenges will this change pose?
Converting to IFRS will present a number of challenges for companies. You should have the responsible parties (CFO, Controller, etc.) within your organization begin to learn about the new standards and work with external accountants to help you in the process. It is vital that the learning and training process begin immediately to ensure you are ready when the time comes. Some specific items you’ll want to cover include:

• Researching technical accounting issues
• Learning the differences between IFRS and GAAP
• Ensuring your software is capable of handling the change

Why should small and mid-sized companies care about IFRS?
Though IFRS standards tend to apply more to publicly accountable organizations – or those listed on stock exchanges, it doesn’t stop there. Some say that GAAP guidelines will eventually disappear requiring all businesses to report under the new IFRS standards.

IFRS and Accpac
If you currently use Accpac – you are in luck. Sage Accpac already has the necessary features and functionality to support a transition to IFRS.

For example, Sage Accpac…

• Is familiar with IFRS reporting as they already has over 13,000 clients in IFRS jurisdictions.
• Currently allows users to choose from a wide range of configuration options to ensure their transactions are processed and their accounts are kept in compliance with whatever local rules they happen to operate under.
• Allows users to revalue monetary assets to comply with IFRS rules.
• Has seven IFRS-compliant inventory costing methods, and a full range of IFRS-compliant project accounting methods to choose from.

For more information on this topic click here.

According to a recent survey performed by Unit4 Coda, Accountants are under added unnecessary stress. The survey found that accountants feel they are being held to unrealistic deadlines and have an over-reliance on spreadsheets due to inefficient accounting systems. Further, among the top contributors to unnecessary stress is an apparent disconnect between executive management teams and accountants.

A report of the survey’s findings on unit4coda.com states, “Over 66 percent of the survey’s respondents(1) said an average close period takes over five days to complete, but the survey also revealed that more than 55 percent of accountants are expected to complete a close in a maximum of five days.”

Other items noted were:

• 70 percent of respondents reported that inadequate reporting from their financial systems was a source of stress.
• 58 percent spent more than four hours reconciling subsystems to the GL with 25 percent taking two days or more.
• 53 percent of accountants reported clocking overtime hours during a period close.

It appears as though many companies are still struggling with antiquated processes and software which is adding unnecessary pressure on accountants and employees as well as increasing the likelihood for error. If this situation sounds familiar, it is definitely time to take a look at how a better system and automation process can improve the overall operations of your organization.