Converting to IFRS

BY DANITA OSTLING

The SEC's proposed road map for the potential use of IFRS in financial statements prepared by U.S. issuers could result in the mandatory use of international standards beginning in 2014, 2015 or 2016, depending on a company's size. Under the plan, the SEC would decide in 2011 whether to proceed with mandatory reporting under IFRS.

Although 2014 may seem a long way off, it is not too early to prepare for IFRS conversion. Here are some key activities that will contribute to a successful conversion:

R Establish a structured methodology. Conversion to IFRS is best approached using a methodology encompassing the best practices of project management. As with any major finance transformation project, there are a number of essential components: vision and direction, comprehensive planning, execution tactics, business acceptance across the enterprise, and measuring and monitoring for each goal. Full support of the board and senior management will be critical.

R Understand your conversion timeline. A large accelerated filer that would be required to first report under IFRS in its Dec. 31, 2014, financial statements would have an IFRS “date of adoption” of Jan. 1, 2012. Until you complete your initial planning activities, it will be difficult to accurately estimate timelines and assess resource needs and costs. That planning can be done using a diagnostic to understand the differences between a company’s accounting policies and the requirements of IFRS, as well as the related implications of conversion on information systems and business processes.

R Identify the areas other than financial reporting that will be affected. Affected business processes can vary but generally will include internal reporting, use of key performance indicators, employee and executive compensation plans, and investor relations.

R Develop an IT strategy that goes beyond conversion. Systems used to collect and report your financial data may need modifications to meet IFRS requirements. These can affect treasury, financial instrument and payroll systems, general ledger, and asset management, requiring a multidisciplinary IT conversion team.

R Implement effective training. Training will be ongoing across your entire organization. In particular, boards will want to perform frank assessments of knowledge levels in relation to IFRS. Board and audit committee members may need additional education and insight on IFRS so they can continue to function properly in their oversight roles.

R Benefit from European conversion experiences. European companies had only about two years to convert to IFRS. As a result, some treated the change as a basic accounting and reporting exercise and have spent several post-conversion years dealing with resulting business and operational issues. Some have suffered from a failure to effectively communicate the results of the conversion to stakeholders, and have struggled to maintain consistency in the manner in which various IFRS principles are applied throughout the organization. Some also failed to grasp the importance of retaining key employees and the excessive costs that can be incurred by ineffective planning and project management. Learn from those experiences and use the lead time to embed IFRS into your business processes as well as your accounting policies.

R Establish a robust communications plan. Both during and after the transition, it will be important to manage investor expectations and respond quickly to issues. A plan that includes frequent contact with investors, analysts and regulators about the possible effects of IFRS on financial reporting is vital.

—By Danita Ostling, CPA, a partner in Ernst & Young’s Assurance and Advisory Business Service. Ostling is the firm’s Americas IFRS Technical Leader. Her e-mail address is danita.ostling@ey.com. The opinions expressed in this article do not necessarily reflect the views of Ernst & Young LLP.

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