IFRS Adoption Compliance Issues

Elaine Lau December 15, 2008

Why IFRS?
International Financial Reporting Standards
Globally accepted accounting standards and interpretations Adopted by over 100 countries including the EU

Early adoption of IFRS at end of 2009

110 largest publically held companies in the U.S.

SEC agreed to a roadmap that may lead to all U.S companies adopting IFRS by 2014
SEC to determine this mandate in 2011 Seven milestones will influence decision

Key Impacts of IFRS

Adjustments to financial reporting systems, existing interfaces and underlying databases General Ledger and chart of account structure
Including performance metrics

Global consolidation Sub-system issues related to configuration and data capture Capabilities to manage multiple GAAP accounting during transition

Types of changes
New data requirements Selection & implementation of new system Reconfiguration of existing systems Interface and mapping changes Modifications to existing systems Consolidations of entities Reporting packs Financial reporting tools Changes to chart of accounts

European Experience Lessons

Effort was often underestimated
Misconception of sole accounting issue

Projects often lacked holistic approach

No consideration for collateral effects (e.g.: IT)

Late start often resulted in escalation of costs Many did not achieve business as usual state for IFRS reporting

IFRS in the UK
Financial statements on average 50% longer Challenging Issues
New disclosures in complex areas Valuation of financial instruments & intangible assets Accounting for deferred tax Pension deficits on B/S
Disclose key valuation assumptions

Share-based payment expense on I/S

Need to use sophisticated option valuation models

IT Conversion Effort
Time, complexity and cost may differ for each topic based on company-specific circumstances Advisors/Consultants may help
Protiviti PwC, KMPG, Deloitte, and Ernst & Young

Possible Software Solutions

SAP Accounting for Financial Instruments FERNBACHs FlexFinance IFRS CaseWare IFRS module Microsoft Dynamics AX

Conclusion
Like the Sarbanes-Oxley Act before it, IFRS will significantly impact IT departments How to plan a smooth IFRS adoption
Important to plan early Set the tone at the top for solid foundation Include heads of IT departments right at the beginning Understand the differences between U.S. GAAP and IFRS will translate to technical specifications