Meeting IFRS requirements in the railway sector

The Issue

Ferrovie dello Stato Group (FS) is a state owned group operating in the railway sector. Although the group was not listed and hence not required to prepare IFRS consolidated Financial Statements, management was considering moving to IFRS on a voluntary basis. Before taking the decision to adopt IFRS, management was interested to know what impact the conversion would generate on the financial statements. For this reason PwC (auditor) and KMPG have been engaged in order to support FS’s management to determine the major IFRS adjustments.

Our Approach

Several working groups composed of either PwC or KPMG professionals together with FS professionals have been formed and assigned different financial statements areas. The purpose of each team was to identify Gap differences for each area, and to come up with the quantification of the impacts. Provided that management was interested, many of the impacts have been estimated by the use of hypothesis, assumptions and reasonable short cuts. The working groups were involved in the project for about 6 months.

The Outcome

At the end of the project PwC and KPMG prepared a document “The Simulation to IFRS” showing the reconciliation between the shareholder’s equity under Italian GAAP and IFRS as well as all the assumptions and accounting options taken by management. Top management appreciated the document as it identified the main issues to be addressed in order to adopt the IFRS in the near future. The 2007 budget law (Finanziaria) includes points arising from the work performed. A summary of the results of the project as well as the decisions taken have also been demonstrated by the CFO and the PwC Engagement leader in a presentation addressed to various divisions of the group.