Prepare Your Organization for IFRS Now

Today’s business environment is increasingly complex and regulated, challenging companies to remain competitive in fluid, global markets. What about navigating a myriad of legal, regulatory and financial management mandates, such as International Financial Reporting Standards (IFSR): is your company ready to embrace the challenge as an opportunity to succeed?

“The changeover to IFRS will impact companies across departments from finance to manufacturing operations to Information Technology (IT). Companies will need to be proactive and prepare well in advance for this transition to ensure all departments within an organization are ready.”

Forward looking organizations are embracing the challenge by implementing solid governance risk and compliance (GRC) strategies to help control risk, effectively handle regulatory compliance and in turn drive business performance.  Many look to their enterprise resource planning (ERP) provider to help navigate and comply with international standards and best practices; Published standards in corporate and financial governance such as international accounting standards (IAS), international financial reporting standards (IFRS), and other generally accepted accounting principles (GAAP).

Ultimately, compliance with far reaching government mandates, evolving and emerging regulatory standards is based on the implementation and documentation of internal controls, procedures and processes. Looking to leverage ERP to help meet compliance, regulatory and governance objectives, like IFRS, is a logical first step.

What's IFRS, and how it will impact business? IFRS are the collection of reporting standards developed by the International Accounting Standards Board (IASB) with the goal of developing a single set of high quality, understandable and enforceable accounting standards to help participants in the world's capital markets, and other users, make economic decisions. IFRS are now required or permitted in nearly 100 countries, including the European Union and most of Asia Pacific; and, India, Japan and Brazil plan to adopt or converge with IFRS over the next three years.

In the US, the Securities and Exchange Commission (SEC) has proposed a roadmap for the adoption of IFRS by US public companies by 2014. On this timetable, the current requirement for companies subject to SEC regulations in the US is to prepare opening balances plus the two most recent years of comparative statements; meaning that 2012 is actually the first year for which IFRS-formatted financial statements would need to be produced.

The changeover to IFRS will impact companies across departments from finance to manufacturing operations to Information Technology (IT).  Companies will need to be proactive and prepare well in advance for this transition to ensure all departments within an organization are ready.

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.

Essentials to Transitioning to IFRS

As businesses begin to plan for the transition to IFRS, they need to first assess the overall impact it will have on the organization. Early planning and adherence to best practices will provide a distinct advantage to all organizations as they make the IFRS transition. Potential conversion benefits range from streamlined financial close, reconciliation, and reporting, to improved financial compliance in multiple markets. Consider IFRS' potential to promote the alignment of business objectives and financial reporting processes across a global enterprise.

Following are practical planning strategies to help keep an organizations' IFRS transition focused and manageable.

Companies should focus on the technology areas supporting IFRS transition, which includes financial consolidation and reporting systems, the general ledger (GL), sub ledgers and financial data entry systems. For instance, there are nearly 200 differences between US GAAP accounting systems and IFRS. Most companies will find they need to focus on somewhere between 10 and 40 differences in their own reporting requirements. These differences can be easily and cost-effectively compared, tested and reconciled in a comprehensive ERP system.

IFRS transition doesn't have to be viewed as "another" huge business process reengineering program, as suggested by some business consultants; it shouldn't drain time and money from already tight budgets. To the contrary, with efficient planning, companies should focus on embedding IFRS requirements into their GL and sub ledger systems while gaining the benefits of simplified charts of account and improved reporting structures; ultimately removing the headache of manual adjustments to financial consolidation and reporting. This approach reduces the scope of updates to primary systems, so the focus is on consolidation rules and IFRS reporting formats.

Consider taking a phased standards-embedding process to convert systems from US GAAP to IFRS. One key to a smooth conversion is coordinating the transition to IFRS with the technology roadmap, planned systems deployments, and scheduled upgrades. For example, IFRS components should be included when performing upgrades to financial systems. Additionally, IT coordination will help limit the time, budget, and human resources necessary for the transition.

Effective project planning and management are critical success factors in the transition to IFRS. Given the amount of time necessary to train staff on IFRS and adapt to changes in financial reporting practices, the time is now to start planning. Early action, including the creation of an internal project team to assess the financial processes and systems required, will enable companies to benefit from cost reduction during each phase, and better control the scope of the transition.

The Role ERP Plays in IFRS Transition

The ERP system's business value actually expands in its new role of supporting the ongoing need for multiple reporting in US GAAP, remaining national GAAP systems, and IFRS. Accounting standards, along with tax and other regulatory and financial reporting requirements will inevitably continue to evolve. Thus, adaptable ERP systems capable of tracking and embedding changes will be a key to success.

A clear benefit of converting to IFRS is the opportunity to centralize and streamline financial reporting functions throughout an organization with a single set of accounting policies managed in the ERP system. With ERP, companies can automatically leverage embedded application risk mitigation tools to maintain controls and apply policies to keep information security on track during IFRS transition.

As major markets across the globe begin to standardize financial reporting on IFRS, international transparency in financial performance will improve. The ability to instantly assess and translate value from one operation to another will smooth the flow of payments. Financial services will become more efficient with reduced latency in financial information management. The ability to maintain consistent compliance and single-source reporting for both IFRS and the variety of other external requirements is a critical advantage of advanced ERP systems. Proactive companies will embrace the IFRS challenge-seizing the advantage controlling costs, managing scope and ensuring a smooth transition.