Getting Ready for IFRS: What Directors Need to Know
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The Canadian Accounting Standards Board (the Board) has finalized its decision to require Canadian publicly accountable enterprises to adopt International Financial Reporting Standards (IFRS) as Canadian generally accepted accounting principles starting in 2011.
Boards of directors need to be engaged now to be strategic and address the implications of the conversion for their organizations. For many companies the conversion to IFRS will be far more than an accounting exercise, and directors should consider not only the oversight of the conversion process itself, but the potential implications relating to risk, stakeholder relations, financial reporting, internal controls, and merger and acquisition activity. IFRS will impact each industry sector differently, requiring companies and boards of directors to fully understand both the impact of the new standards on their industry sector and on their unique circumstances.
The Canadian timeline affords companies with an important opportunity to benefit from the experience of others who have learned the hard way — through experience. More than 100 countries have adopted or will be adopting IFRS, and PwC has led conversions around the world. Below we list ten lessons learned from these conversions to assist you in your discussions in the boardroom and your oversight of the transition to IFRS.
- Establish a clear vision at the onset. Maintain credibility by establishing the tone at the top and setting up the right governance structure and clear decision-making powers.
No matter what the size of your organization, getting buy-in from the start in order to move forward is important. In addition, it is crucial to ensure the right structure is in place up front, and the CFO, senior executives and the Board deliver consistent messages to the people who execute the IFRS projects, as well as the entire organization.
- IFRS is not simply a financial reporting issue — it is pervasive across the business.
Involve your operations people to get input early in the conversion process. For example, consider how IFRS will impact structuring of contractual arrangements or incentive compensation schemes.
- IFRS resources will become scarce and expensive, so grow your own.
The need for IFRS resources has increased in the last six months and will continue to do so through 2011. It is critical to plan your IFRS resources through the transition and to build knowledge of IFRS within the organization.
- Develop a robust conversion plan that takes your peaks and valleys of activity into account (e.g. quarterly reporting)
Within your detailed project plan take into account competing demands, include room for contingencies and establish a framework of accountability.
- Consider how IFRS will impact KPIs and your communication strategy.
It is crucial to develop and execute your communication strategy as early as possible. This will give you the time to communicate significant impacts and possible areas of volatility to stakeholders and analysts.
- Take steps early to communicate with and influence regulators, tax authorities and other stakeholders around the impact and acceptance of IFRS.
Don't wait until 2011 to educate your key stakeholders. Use the lead time to educate and sensitize key stakeholders to IFRS and its impact on your company.
- IFRS will continue to evolve during the implementation phase so become engaged with the standard-setting process.
There are numerous significant projects currently underway at the IASB (e.g. revenue recognition, pensions and leasing). If these areas impact your business, participate either as a company or as an industry group to ensure your voice is heard.
- Embrace the opportunity to fix other things now. Make the most of opportunities for other project efficiencies.
While you are in change mode take advantage of opportunities to fix legacy systems and processes that need improvement.
- Consider opportunities for reporting rationalization/streamlining (e.g. multi-GAAP reporting, tax balances, Basel II).
In Canada, the primary basis of reporting will be IFRS. Take the opportunity to embed IFRS and eliminate inefficient reconciliation processes for overseas subsidiaries and rationalize data models (i.e. tax balances, Basel II).
- Implementation is best done at the business unit level rather than at the corporate level. It is a top-down and bottom-up approach, with business units involved earlier rather than later. Impact on the business units could be profound.
If implementation is not done at the business unit level the impact could be costly and could delay your project. Engaging business units and embedding IFRS at the transaction level will help drive a successful conversion project.
Are you looking to learn more about IFRS?
Our publication, Putting IFRS in Motion: Are you on track?, provides you with an understanding of the background and context behind the decision to adopt IFRS and the key strategic issues you'll face in converting to IFRS. Our aim is to discuss the following topics:
- The global trend to adopt IFRS
- Reporting in an IFRS world
- Who will have to adopt IFRS?
- Use of IFRS by Canadian SEC registrants
- Reporting during the transition period
- Applying IFRS on day one
- Tax implications
- Transition planning and implementation
To get the most up-to-date information on IFRS and thought leadership, and to read a copy Putting IFRS in Motion: Are you on track?, visit www.pwcifrs.ca.
To stay connected to the latest director-related news, events and publications visit www.pwc.com/ca/directorconnect.