International Financial Reporting Standards
Converting to IFRS represents much more than a change
in accounting rules. This is a new performance measurement
system - a new primary GAAP - that needs to be taken on board
throughout your entire organisation.
It will change the way people and processes work and could
require decisive shifts in strategic management. IFRS
numbers can look very different.
- Capital instruments - IFRS has complex
rules governing what constitutes debt and equity. These rules
can result in equity-type instruments being reclassified as
debt.
- Derivatives and hedging - IFRS can significantly
increase income volatility because all derivatives must be recorded
on the balance sheet at fair value. Companies can be forced
to re-examine the way they do business, because they may spot
embedded derivatives for the first time.
- Employee benefits - IFRS accounting for
pensions and new treatment of share options may precipitate
a significant change in company policy that will affect all
employees and need very careful management by financial and
HR departments
- Product viability - It is not just the
finance director and the finance team who have to understand
IFRS. For example, product managers in financial service
companies need to recognise that IFRS fair-value requirements
can reveal volatility in certain products and put investor confidence
at risk.
The list goes on: fair valuations, capital allocation, leasing,
segment reporting, revenue recognition, impairment reviews, deferred
taxation, cash flows, disclosures, borrowing arrangements and banking
covenants.
Actions you can expect to have to take:
- Adapt annual reports and accounting
manuals
- Review existing systems and assess their limitations
- Change or adapt
management information systems
- Revise systems to obtain the requisite data to
facilitate appropriate disclosures
- Design group reporting packages
to gather IFRS - compliant information from subsidiaries
- Integrate and embed internal and external reporting
requirements
What resources and time will you need?
Companies that have implemented IFRS know that it places an
enormous responsibility on management to be able to communicate
effectively to the market in the new business language. It is easy
to underestimate the sheer volume and complexity of the work involved:
- Understand the key issues and
their potential impact on company results or business operations
- Develop a communications strategy to prepare the
market and stakeholders for the potential impact on key performance
measures
- Consider the effect
on data for tax compliance and any transfer pricing arrangements
in place throughout the group
- Plan, assign responsibilities and manage problems
- Train a wide variety of people
in the new systems and the practical implications of IFRS
for their daily work
- Generate and quality assure new information
- Realign information systems
and procedures with IFRS
- Prepare budgets and forecasts under IFRS requirements
For assistance in assessing the impact that IFRS conversion will have on your business, or help in developing a conversion plan please contact John McDonnell by telephone on 01 704 8559 or by Email.
