Implementing IFRS: Use a Fork, Not a Forklift
International Financial Reporting Standards (IFRS) are now required or permitted in nearly 100 countries, including the European Union and most of Asia Pacific. In the US, the SEC has proposed a roadmap for the adoption of IFRS by US public companies by 2014, where 2012 would be the first year for which IFRS-formatted financial statements would be required. In Canada, the time horizon is even shorter -- with only seven months to go, half of Canadian public companies are less than 60 percent through conversion, according to accounting firm PriceWaterhouseCoopers.
Conversion to IFRS can streamline closing, reconciliation, reporting, and improve financial compliance, as well as better align business objectives and financial reporting processes across a global enterprise. While the benefits sound good, the potential for disruption sounds ominous. The changeover to IFRS will impact companies across departments from finance to manufacturing operations to IT, and companies will need to be proactive and prepare well in advance.
While at first glance IFRS may appear to be an onerous and costly regulatory change, it can in fact be an opportunity for efficiency and market growth. Since compliance comes down to the implementation and documentation of internal controls, procedures and processes, looking to leverage ERP to help meet compliance, regulatory and governance objectives, such as IFRS, is a logical first step. ERP technology will be a key enabler in the transition to IFRS, and for the financial consolidation and reporting process in particular. Likewise, a flexible technology framework can help make the transition to IFRS more efficient and streamlined.
The focus should be on the technology areas supporting IFRS transition, which includes financial consolidation and reporting systems, the general ledger (GL), and financial sub-ledgers. While there are many differences between GAAP accounting systems and IFRS, most companies will find they need to focus on differences in their own reporting requirements. IFRS reporting standards highlight the fact that companies will need to maintain—and, in some cases, strengthen—internal controls over financial reporting. A clear benefit of converting to IFRS is the opportunity to centralize and streamline financial reporting functions throughout the organization with a single set of accounting policies managed in the ERP system. With an integrated ERP system, companies can automatically leverage embedded application risk mitigation tools to maintain controls and apply policies to keep information security on track during the transition process.
When transitioning to IFRS, consider taking a phased standards-embedding process to convert systems to IFRS in conjunction with the overall technology roadmap, planned systems deployments, and scheduled upgrades. In this way, IFRS components are included when performing upgrades to financial systems, to make better use of time, budget, and human resources. A well planned, phased approach to IFRS conversion -- metered in small forkfuls vs. a forklift -- can also take the intimidation and fear out of the process, which is half the battle.
Looking for more IFRS info? Check out our new white paper, Smooth Transition: Preparing for IFRS, by Lane Leskela at TEC. The AICPA also has a lot of resources, including an IFRS for SME’s US GAAP Comparison Wiki. Canadians can view PriceWaterhouseCooper’s site dedicated to Canadian IFRS conversion.
What steps has your organization taken to transition to IFRS?
Posted by Matt Muldoon, Vice President, Product Marketing, Epicor