IFRS Checklist for Companies

Top 10 issues to address before conversion deadline

As Canadian enterprises prepare for the January 2011 International Financial Reporting Standards (IFRS) conversion date, board members need to be asking the right questions and be engaged to understand the status and implications of IFRS conversion with their organizations. Directors should consider not only the oversight of the conversion process itself but also the potential implications relating to risk, stakeholder relations, financial reporting and internal controls.

PricewaterhouseCoopers (PwC) recently sponsored a survey report called IFRS Readiness in Canada: 2010; CFERF Executive Research Report to determine how prepared adopting companies are (both Canadian public and private) in their IFRS conversion efforts and what the impacts have been across their organizations. Conducted by the Canadian Financial Executives Research Foundation (CFERF), this report features results from 146 senior financial executives across Canada.

Our survey shows that smaller companies are facing more resource constraints and they’ll be the ones that may be more challenged to meet the impending January 2011 deadline unless they find more internal help or reach outside their organizations.

As the deadline approaches, communications is going to be a major issue for companies as they need to explain the changes to a range of stakeholders who are impacted by IFRS, not just those in finance departments.

To help guide organizations as they prepare for the January 1, 2011 conversion, PwC compiled the following checklist of action items, which is also helpful to guide directors in their discussions with management from a financial reporting and governance perspective:

1. Create a critical path. Proper execution is critical in the final months. The survey shows that half of public companies were less than 60% through their conversions. Allocating remaining tasks will be key to successful completion.
2. Secure resources. Almost one-third of survey respondents with revenues under $49 million said they didn’t have enough resources. While resources may be stretched, particularly for smaller companies, look ahead to what needs to be completed and secure necessary support.
3. Talk to lenders about IFRS changes. Being on the same page with your banker will be important so there are no surprises after the changeover takes place. This has already started to happen. Overall, 39% of respondents have begun speaking to lenders and one-third are very aware of the impact that IFRS will have on debt covenants.
4. Consider tax implications. So far, 53% of tax departments within companies have investigated the potential impacts on tax. IFRS changes will apply to such items as income tax, foreign income tax, tax planning and transfer pricing.
5. Mock up financial statements. Create new IFRS versions of financial statements to get ready for the transition and to allow for comparisons to the old financial statements.
6. Meet with analysts. The main goal will be to educate analysts so they are very comfortable with the changes they will see to financial statements and disclosures. Some companies will have to spend more time with analysts explaining how IFRS will impact their business.
7. Ensure management includes board members as they prepare for conversion. Sixty-five percent of companies have begun to engage and train their board members on IFRS. It is particularly important for board members to be educated about the conversion due to their fiduciary responsibilities.
8. Train people outside the finance department. Those not core to the transition could still have a major role to play in the conversion, including support departments such as human resources, investor relations and information technology. The survey found that only 42% of non-finance staff members are in the process of being trained on how the conversion will impact the company.
9. Update controls documentation/certifications for IFRS considerations. There is a need to maintain high standards of risk-based internal controls so there is efficiency, reliability and compliance for existing and new processes, including the impact of increased used of spreadsheets to support IFRS change requirements. More involvement from management appears appropriate as only 27% said they were somewhat or not at all aware of potential impacts on controls documentation/certifications in the conversion to IFRS.
10. Ensure opening balance sheets are completed. Details of the company’s financial balances need to be ready for the beginning of the accounting period. Two-thirds of respondents of the survey already expected their opening balance sheets to be completed by the end of the second quarter of fiscal 2010 which is positive news.

Overall, while there has been significant progress in the market working towards IFRS conversion, companies need to leave enough time in the transition to prepare for contingencies should they run into unanticipated issues as they complete the conversion. Enhanced communications with key internal and external stakeholders, backed by executable action steps with assigned resources and accountabilities are critical to reaching the finish line.