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Implementation of IFRS at Bombardier: A practical experience

Jean Par Mexico, September 30, 2010

Overview of Bombardier Introduction to the IFRS Project Planning phase Design and solution Implementation roll-out Conclusion

Bombardier - Consolidated overview

Fields of activity
(as at January 31, 2010)



Revenues: $9.4 billion (48% of total revenues) Backlog: $16.7 billion Employees: 28,900

Revenues: $10.0 billion (52% of total revenues) Backlog: $27.1 billion Employees: 33,800

Bombardier - Consolidated overview

Breakdown of revenues by geographical region
(fiscal year 2010)

Other 4% Asia-Pacific 20%

United States 23%

$19 billion

Europe 48%

Canada 5%

Bombardier - Consolidated overview

Breakdown of revenues by geographical region
(as at January 31, 2010)

Other Mexico 4% 3% Canada 32%

Europe 49% United States 12%

Overview of Bombardier Introduction to the IFRS Project Planning phase Design and solution Implementation roll-out Conclusion

Timeline and impacts of the change in Canada

IFRS required for public entities in 2011 Opening balance sheet as at beginning of 2010 Canadian Securities Administrators allowed early adoption (very few Corporations took this opportunity) Increasing regulatory MD&A disclosures More use of fair value measurement Volatility from the impairment model Likely reduction of equity as a result of IFRS 1 choices

Public disclosure requirements

Update on progress and timeline Status on key elements

IFRS Opening B/S

Reporting under IFRS

Dec. 31 2008

Dec. 31 2009

Dec. 31 2010

Dec. 31 2011

Update on progress, timeline and key elements Describe major differences identified, including assumptions

Decisions made on accounting choices available Quantified impact of IFRS on each line of F/S

Certain procedures may have to be implemented as of the opening B/S date

Project is split in four phases

Initial awareness

Detailed assessment

Follow-up on IFRS under review by the IASB

Design and solution development

Implementation roll-out

May 1, 2007

Sept 30, 2009

Feb 1, 2010 IFRS opening balance sheet (transition date)

Apr 30, 2011 First reporting under IFRS

Finance lead initiative

Mostly conducted by existing finance staff GAAP expertise Internal and external financial reporting responsibilities Project management expertise - external hiring Assisted by internal experts from various functions

Provides on-the-job training


Overview of Bombardier Introduction to the IFRS Project Planning phase Design and solution Implementation roll-out Conclusion


Initial critical decisions

What do we want to achieve with the project? (Three possible approaches)
1. Minimize differences This approach minimizes costs and resources by always selecting the accounting treatment closest to current Canadian GAAP This is the preferred approach when there are significant time and/or resource constraints Approach selected by many European companies 2. Adopt best practices accounting treatments When choices are available, this approach allows for validating accounting policies, improving quality and optimizing financial information Requires significant time and resources, and is therefore more costly Likely unrealistic for most companies, unless an early start is planned with significant dedicated resources

Initial critical decisions (contd)

3. Mixed approach Selection of approaches 1 and 2, based on a cost/benefit analysis wherever a choice is available Final position in the range of possible alternatives under the mixed approach depends in great part on resource availability and time constraints

Mixed approach was selected to ensure a proper balance between costs (available resources) and benefits (best practices)


Initial critical decisions (contd)

Senior management buy-in on project
Management at upper levels of the organization must support the project Organize a meeting with senior management: Explain that the conversion is mandatory Broad outline of proposed project conduct Raise awareness of resources required for the project


Initial critical decisions (contd)

Approach to identification of differences and choices
Build the teams responsible for technical analysis Analyze standards and identify differences between Local GAAP and IFRS and identify required and optional changes Detailed comparison of the two GAAPs (no reliance on a standard checklist) Avoid simplistic conclusions: a detailed review raises a surprisingly large number of issues (e.g. long-term contract accounting) Lack of detailed guidance unlike US GAAP Obtain auditors agreement


Define the project organization structure

Monthly meeting *
* More frequently if required

Steering Steering Committee Committee

Inform and submit for decisions

Overall Project Management Corporate Project

Weekly meeting

Transportation Transportation Project Project Management Management

Validate and quantify differences and options

Aerospace Aerospace Project Project Management Management

Timely requests & training

Other stakeholders

External Advisor

Operations: Division Controllers Project Controllers Heads of Finance Heads of Accounting Group Finance

Shared Services: Legal Dept Tax Dept IT Dept Procurement Human Resources Structured Finance



Define the extended project team

Transportation Project Organization Structure
Transportation Project Management

Support Staff (4 individuals)







Other stakeholders: Taxes, Legal, Procurement, SOX, IT, HR


Transportation Extended Team


Steering Committee
CFO V.P. Finance: Corporate Aerospace Transportation Corporate V.P. Financial Reporting

The key decision-makers for financial matters must be members of the Steering Committee, including the CFO of the Corporation

Role of other internal stakeholders

Provide opinions when choices are available Collect data and quantify proposed changes Prepare required documentation

Shared Services
Participate in the project for special requests (e.g. related tax matters) Assist with data collection for some specific topics (e.g. complex contract accounting analysis or issues related to securitization) Review implications on related matters such as debt covenants, employee benefit arrangements and investor relations

All levels
Implement process and system changes

Role of the Auditors

Assist in ad hoc requests on interpretation of standards Review documentation of differences in GAAP: To confirm their relevance and completeness In certain cases, to provide their views on industry practices Potentially assist with respect to IFRS training sessions Audit the adjustments


Other decisions (contd)

Identifying issues related to on-going changes to IFRS

Final scoping of the project is difficult due to expected changes to IFRS during the conversion period (the final scope of the project is a moving target) The difficulty in monitoring the proposed changes to IFRS is compounded by the fact that relying on the content of an exposure draft may lead to inefficiencies if its content is modified before final adoption


Other decisions (contd)

Dual GAAP reporting period
The Corporation remains a Canadian GAAP reporting issuer until its conversion to IFRS More than 100 legal entities currently report under Canadian GAAP for consolidation purposes (local statutory accounts are reconciled to local GAAP, sometimes manually) Systems cannot capture data under two measurement basis and the closing schedule requires measurement in the reporting GAAP (i.e. no time to reconcile manually)


Other decisions (contd)

Decisions to be made under IFRS 1
IFRS 1 provides a required framework for first-time adopters, which supersedes the transitional provisions of individual standards Allows limited fresh start measurement of selected balance sheet items (may have a major impact on the project) General principle is retrospective application by restating the financial statements using the latest version of IFRS Fourteen optional exemptions to this general principle (e.g. business acquisitions, employee benefits) In addition, entities must comply with certain mandatory exceptions to the retrospective application rule (e.g. hedge accounting)

Key decisions under IFRS 1 must be made early


Overview of Bombardier Introduction to the IFRS Project Planning phase Design and solution Implementation roll-out Conclusion


Design and solution

Core teams identify all differences and optional changes in line with decisions made Extended teams
Receive focused training Perform data collections with respect to selected changes (only after having received the targeted training)
Prioritize the tasks to address early on those that require the most time to implement Develop and test methodologies to measure the differences in GAAPs

Core and extended teams must raise opportunities for improvements. For example:
Align financial year ends of subsidiaries Standardize procedures across the operating segments and functions

Line up the rest of the organization

Internal stakeholders
Board and Audit Committee Internal Audit Accounting Policies and Procedures Internal Controls and Processes Risk Management SOX Documentation

IFRS Conversion Universe

IT Systems


Internal processes

External stakeholders


Treasury M&A/Structure Finance Taxes

Manage IFRS Conversion


Analysts Credit Rating Agencies External Auditors

Financial reporting
HR Investors Relations External MD&A, F/S and AIF Internal F/S, Budgets and Forecasts Covenants and Other Financing Clauses Compensation Plans


Line up the rest of the organization (contd)

Conduct a kick-off meeting with all key participants Senior managers must participate Overall review of the project Allocate responsibilities among participants based on an agreed upon timeline


Other tasks
Design and develop financial reporting processes, businessrelated processes and operational systems Prepare a model of the IFRS financial statements
Identify all additional disclosures and their impact on systems and processes

Design tools to prepare IFRS comparative information Provide selected training across the organization Assess impact and define a plan of action for the following related topics:
Budgets/forecasts and compensation plans Debt covenants or other relevant financing clauses
Fair value measurement will bring a higher degree of earnings/balance sheet volatility


Other tasks (contd)

Assess impact (contd):
Relationship with credit rating agencies Update accounting policy database Need to inform/train other stakeholders such as Board members, investors and analysts (consider the benefit of having information on the corporate Web site) SOX documentation, internal audit, etc. System changes Work may be better allocated to pre and post implementation phases External and internal reporting and disclosure processes (F/S, MD&A and AIF as well as shareholder, investor and employee communications)


Overview of Bombardier Introduction to the IFRS Project Planning phase Design and solution Implementation roll-out Conclusion


Implementation roll-out
Test roll-out systems and processes Perform data gathering and prepare IFRS opening balance sheet and comparative financial statements Prepare full IFRS financial statements Communicate impact and new policies to external stakeholders


Overview of Bombardier Introduction to the IFRS Project Planning phase Design and solution Implementation roll-out Conclusion


Important Decisions: Summary

1) Start the project early in order to: Reduce risks related to late decision (e.g.: missing required implementation procedures at the transition date) Maximize benefits from the project (a unique opportunity to improve accounting practices). 2) Enroll the organization in the project: Establish an internal organizational structure dedicated to the project. Obtain support from senior management at the launch of the project, including the Audit Committee. Ensure cooperation from all concerned departments and determine the level of collaboration from external advisors.

Important Decisions: Summary (contd)

3) Understand the scope, nature and timing of proposed changes to IFRS during the transition period and evaluate their impact on the project. 4) Special care should be taken to ensure that systems can produce two sets of financial data during the transition period. Otherwise, an alternative solution must be implemented. 5) Decisions under IFRS 1 should be made early in the process as they will simplify the adoption and would allow to focus on a cost/benefit approach.


Important Decisions: Summary (contd)

6) Build a training program tailored to the needs of the users.

7) Identify the impact of the project outside the finance function (e.g. debt covenants, IT, and compensation plans).

8) Plan and implement changes to internal controls based on expected changes to processes.

9) Identify new disclosure requirements early (this could have a significant impact on systems).


Implementation of IFRS at Bombardier: A practical experience

Jean Par Mexico, September 30, 2010