IFRS Not Just About Technical Accounting, Advisor Warns

by Glen Shapiro, LawAndTax-News.com, New York

25 August 2008

While much of the talk around convergence and adoption of International Financial Reporting Standards (IFRS) has focused on the impact on accounting and financial reporting functions, a new paper released by Deloitte warns company leaders that the impact of IFRS on technology systems should not be underestimated and left too late in the planning process.

The Deloitte paper, 'Technology Implications of IFRS Adoption for US Companies,' focuses C-suite executives, particularly the chief financial officer and chief information officer, on the technology planning process necessary for companies to implement the right systems, processes and controls to ensure a smooth transition to IFRS. The paper notes that viewing IFRS simply as a reporting change can lead to costly rework at a later date, result in cumbersome processes and increase control requirements.

“Adoption of IFRS is not just about understanding technical accounting differences. Companies will need to understand the impact such differences have on technology and information systems,” said D. J. Gannon, a partner of Deloitte & Touche LLP and leader of its IFRS Solutions Center.

“IFRS adoption generally can’t be accomplished by finance alone. Technology executives and their functions should be brought into the visioning and planning stages early in order to avoid potentially costly rework at a later date,” added Glen Feinberg, a Deloitte Consulting LLP principal within the IFRS Solutions Center.

“And as adoption rules outside of the United States are running on various timetables, it is also important to have a global strategy around adoption to avoid reimplementation for international sites once the US organization determines its approach," Feinberg added.

In the paper, Deloitte discusses the advantages for companies that take a comprehensive approach to IFRS implementation, with particular emphasis on the size and complexity of the business, characteristics of the current infrastructure and capabilities and number of applications that are involved in the collection of financial data and generation of financial statements. Specific action steps that are addressed include:

• Upstream Systems. Identify and document all internal and external data sources that must be migrated and assess required enhancements to legacy systems.
• General Ledger. Assess high-level changes to Chart of Accounts based upon differences between IFRS and local Generally Accepted Accounting Principles. Analyze the reconciliation process between subledgers and the general ledger with attention to journal entry methods and templates.
• Reporting Data Warehouse. Identify changes in financial information requirements due to IFRS transition. Assess impacts on existing data models and the readiness of data governance activities.
• Downstream Reporting. Evaluate external reporting templates to identify changes to support increased/different disclosures.

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