PricewaterhouseCoopers (PWC) on their publication “Making a change to IFRS” out-lined some points to be taken into your consideration which may useful for you. So I bring it here for your knowledge on making a change to IFRS.
There some nice services offered not only by PWC but also KPMG, and the 3 rest big 5 accounting firm you can apply into your initial phase till everything converged to the IFRS.
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 the entire organization. It will change the way people need to work and could require decisive shifts in strategic management (see case studies, inside pocket).
IFRS numbers can look very different. The biggest differences are expected to be in accounting for financial instruments, deferred taxation, business combinations and employee benefits.
Transition often affects many areas, including:
- Product viability – It is not just the CFO who has to understand IFRS. For example, product managers in financial service companies need to recognize that IFRS fair-value requirements can reveal volatility in certain products and put investor confidence at risk.
- 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. For example, a manufacturing company’s treasury department recognized foreign exchange risks in its subsidiaries’ contractual agreements, and made the difficult decision whether and how to mitigate them by hedging.
- Employee benefits – IFRS accounting for pensions and new treatment of stock options may precipitate a significant change in company policy that will affect all employees and need very careful management by financial and HR departments. 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 take:
- Adapt annual reports and accounting manuals
- Change or adapt management information systems
- Review systems and assess their limitations
- Revise systems to obtain requisite data
- Design group reporting packages to gather information from subsidiaries
- Integrate and embed internal and external reporting requirements
Is it a straightforward process? rarely, just a technical exercise for the finance function?
Never. 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.
What resources and time will you need to:
- Understand the key issues and their potential impact
- 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
- Smooth the rough edges in your financial operations
- Prepare budgets and forecasts under IFRS requirements
- Develop a communications strategy to prepare the market and stakeholders for the potential impact on key performance measures
- Consider the effect on data for local tax filings and the implications for transfer pricing
Implementation – TRANSITION
Phase 1 – Preliminary study
This prudent first step puts the company in control by providing two key benefits:
An accounting diagnosis to give a high level of understanding about the impact of IFRS on key numbers and ratios, and highlight key accounting issues and any potential ‘surprises’.
A recommended way forward, focusing on operational issues, resources and project management.
This empowers companies to make an informed decision about how to proceed with IFRS conversion.
Phase 2 – Initial conversion Project set-up
This is done so that the business can be run effectively while the transition project is managed to a successful conclusion. Component evaluation and issues resolution. This results in fully informed decisions on IFRS accounting policies and conversion strategy, as well as operational and systems changes Initial accounts conversion. At this stage, the first comprehensive IFRS financial statement will be prepared (but not reported externally), so that the business can see itself in the new IFRS context for the first time.
Phase 3 – Embedding
This phase enables the business to implement change in a smooth transition to a new way of operating, using the new IFRS language comfortably and authoritatively.
This step-by-step change is likely to have three strands: processes, people and systems. At each stage, new IFRS policies will lead to new procedures, potential reorganisation,
new or enhanced systems and a need for knowledge transfer to achieve new skills.
Every company has its own particular needs and culture. Some companies will not need to go through each facet of the project cycle – and the duration of each stage within the process will change from company to company.
However the transition is planned, the best way to tackle each phase of the project is to think in terms of three streams that run simultaneously. The priority of each stream will gradually change as progress is made. These streams are:
1. Changing the numbers
This stream addresses accounting and finance issues by enabling management to:
- Identify the key issues and differences compared to national GAAP
- Identify the need for adjustments and additional disclosures, and provide appropriate explanation.
- Amend or produce new accounting policies and manuals, and produce the first IFRS financial statements.
- Consider how the viability of certain products and services may be affected, and if reported business performance changes, thus enabling business managers to take appropriate action.
2. Changing people and processes
This stream addresses the organizational, behavioural and procedural changes by enabling management to:
- Consider the implications of the change to IFRS for corporate governance and the structure of the organization
- Deliver the transfer of knowledge at both the executive and operational levels
- Change reporting and business processes and procedures, as necessary to achieve the required new way of working
3. Changing information systems
This stream addresses the need to change or replace existing systems by enabling management to:
- Identify current data gaps and systems deficiencies
- Develop a detailed systems strategy to support new processes and procedures, thus enabling an informed capital investment decision to be made
- Implement a phased introduction of new systems to ensure that all staff are fully equipped for their new responsibilities, and that the business can run smoothly at each stage.