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Meeting the Challenge : Planning for IFRS Conversion
IFRS Conversion is also known as :
International Financial Reporting Standards,
IFRS,
IFRS conversion,
IFRS reporting services,
IFRSTRACK,
conversion to IFRS ,
IFRS conversion process ,
IFRS Conversion Timeline,
IFRS related changes,
IFRS conversion rapidly,
IFRS Compliance,
IFRS Step by Step,
IFRS Information,
IFRS Conversion Services,
Path to IFRS Conversion,
IFRS Conversion Managers,
effective IFRS conversion,
speedy IFRS conversion,
costs of IFRS conversion,
IFRS Conversion for IT Challenges.
The IFRS Challenge
There’s no longer any doubt: International Financial Reporting Standards (IFRS) are coming down the
pipeline. The business and accounting press are full of news about IFRS, and businesses are realizing
they need to pay attention.
Over 100 countries now require or permit IFRS reporting, including Hong Kong, Malaysia, Australia,
India, Pakistan, Turkey, Singapore, Russia, South Africa, and also the European Union and the
Cooperation Council for the Arab States of the Gulf.
In the U.S., the Securities Exchange Commission (SEC) has proposed a tentative roadmap to IFRS that
features a set of progressive milestones. As proposed, the roadmap would let about 110 companies
use IFRS for their end-of-year SEC filings for fiscal years ending after December 15, 2009.
For the years 2012 and 2013, companies will need to run U.S. Generally Accepted Accounting
Principles (GAAP) and IFRS reporting in parallel in preparation for 2014 when large accelerated filers
must compile their financial statement under IFRS rules and report a comparative statement for the
previous two years (2012 and 2013) using both IFRS and U.S. GAAP.
In Canada the timeline is even sooner. The Canadian Accounting Standards Board (AcSB) has
confirmed that IFRS will replace Canadian GAAP effective January 1, 2011, for "publicly accountable
profit-oriented enterprises." This means that these companies will need to restate statements under
IFRS in their fiscal year 2010 in order to be able to file comparatives in 2011.
The shift to IFRS represents one of the most challenging developments the
accounting world has ever faced.
Companies preparing for the switch to IFRS will need to focus on technical accounting issues, the
differences between IFRS and GAAP, and the specifics of adopting different definitions, conventions,
approaches, and accounting policies.
IFRS will fundamentally change how businesses report their results. Now is the
time to start planning...
As an owner or manager of a small or medium-sized company, you’re probably uncertain about if,
when, and how you should adopt the new requirements. This white paper is designed to be a helpful
guide for those planning for the IFRS changeover.
Many companies have no choice and will have to start reporting financial results according to IFRS dates.
For others, even though IFRS is not a requirement, there are very good reasons to comply. Whether
compliance is by necessity or choice, there are a number of issues you must consider, especially
regarding the systems you use to manage and report your financial information. This paper outlines
these issues.
IFRS revealed IFRS and Sage Accpac
IFRS is a single set of global accounting standards that require transparent and comparable information
in general purpose financial statements.
The standards have been being developed by the International Accounting Standards Boards (IASB),
based in London, England. The IASB cooperates with national accounting standard-setters to achieve
convergence in accounting standards around the world.
In a nutshell: IFRS is one single set of global financial reporting standards developed to guarantee
comparable financial statement preparation and disclosure.
The drive to international accounting standards IFRS and Sage Accpac
The move towards international accounting standards is being driven by globalization and the breaking
down of national barriers. As the world’s capital markets have become more integrated, demand has
increased for a uniform standard for financial statement presentation and disclosure.
Advocates for a single, international system of standards say that one set of high-quality accounting
standards will improve transparency and support international investor relations. Companies acquiring
other companies, and those being acquired, will be comparing apples to apples and speaking the
same financial language.
The fact is that many small enterprises are already doing business in the global marketplace. And that’s
only going to increase: According to the U.S. Small Business Administration, exports by U.S. small
businesses quadrupled to $400 billion between 1992 and 2007. The organization also predicts that half
of U.S. small businesses will be involved in international trade within the next 10 years.
Why should small and midsized companies care about IFRS?
Typically, IFRS is required for publicly accountable organizations-companies listed on public stock
exchanges. But it’s not solely for publicly listed companies. The definition is broader. Companies with
"accountability to those present and potential resource providers and others external to the entity
who make economic decisions, but who are not in a position to demand reports tailored to meet their
particular information needs" will also be required to comply.
According to Deloitte U.S., GAAP will eventually disappear, leaving IFRS as the only standard. So, it’s
not really a question of whether to adopt, but rather when.
But if this is not enough to drive you to conversion, consider this:
If your company is...
- publicly traded or planning to go public
- providing services to listed or other IFRS-compliant companies
- contemplating a merger or acquisition with a listed or other IFRS-compliant company
- operating globally or plan to
- you need to think seriously about making the switch.
How can companies benefit from IFRS? IFRS and Sage Accpac
While the changeover will prove time-consuming and require careful planning, IFRS will benefit
companies. The U.S. standard-setter, the Financial Accounting Standards Board (FASB), believes that
convergence to international standards will help ease global business transactions. The organization
believes that IFRS could provide new opportunities for small companies that would have otherwise
limited their business to within the U.S.
Other potential benefits include: improvements in process efficiency, risk visibility, and financial
systems performance; simplified reporting; greater transparency and comparability for investors; and
improved access to capital. And companies adopting IFRS will enable comparability with their industry
competitors.
Converting to IFRS
Converting to IFRS will present a number of challenges for your company. Your company’s chief
financial officer or controller is advised to work closely with your external accountants to determine if,
when, and how you should change your financial reporting to conform to IFRS rules.
Each case is different, and most IFRS rules include some exceptions, which may or may not apply to
your specific circumstances. An accounting professional is best able to help you comply.
It is critical for all companies, large or small, to start training employees in IFRS. Companies that plan
for the possible IFRS convergence or conversion will have a competitive advantage over those
that wait.
Companies that plan to convert to IFRS must start preparing and training now. Time is of the essence,
particularly in Canada. But even in the U.S., certain companies will be eligible to use IFRSs in their
financial statements filed with the SEC for fiscal years ending on or after December 15, 2009. That’s
right around the corner.
Preparing your accounting system for IFRS
In addition to training, a key component of preparing for IFRS is ensuring that your accounting, financial
management, or ERP (enterprise resource planning) system is capable and ready for the change.
If your organization uses Sage Accpac ERP, you are in luck. Sage Accpac has features and functionality
that will support your transition to IFRS.
- Sage Accpac currently allows users to choose from a wide range of configuration options to ensure
their transactions are processed and their accounts are kept in compliance with whatever local rules
they happen to operate under.
- All of the countries in the European Union are already compliant. In the Asia Pacific region, a large
number of countries (including Australia, Hong Kong, and New Zealand) have national standards that
are virtually identical to IFRS. Sage Accpac has over 13,000 clients in IFRS jurisdictions.
The impact of IFRS on your accounting system IFRS and Sage Accpac
Issue: Valuing foreign currency monetary items
Monetary items are revalued using the closing rate at the reporting date. Most exchange rate
differences are recognized in profit and loss on the reporting date.
Sage Accpac resolution: Sage Accpac allows users to revalue monetary assets to comply with
IFRS rules.
Issue: Valuing foreign currency nonmonetary items
Values of foreign currency nonmonetary assets carried at fair value must be translated into the reporting
currency at the date that the fair value was determined, rather than the balance sheet date.
Sage Accpac resolution: Sage Accpac allows users to revalue nonmonetary assets to comply with
IFRS rules.
Issue: Costing inventory
IFRS specifically prohibits using the Last in-First out method of cost determination.
Sage Accpac resolution: Sage Accpac has seven IFRS-compliant inventory costing methods to
choose from.
Issue: Accounting for project costing
IFRS does not allow the Completed Contract method of project costing.
Sage Accpac resolution: Sage Accpac provides a full range of IFRS-compliant project accounting
methods to choose from.
Issue: Conversion period
During the transition, a chart of accounts needs to be able to accommodate ledgers for both GAAP
and IFRS.
Sage Accpac resolution: Sage Accpac encourages companies to work closely with their external
accountants to ensure appropriate comparative financial statements are prepared during the transition
period. Sage Accpac balance and transaction information can be used to prepare IFRS-compliant
comparative reports.
Issue: Fixed assets
IFRS will require more analysis of fixed assets and a different means of depreciation for finance leases
and restatement for property.
Sage Accpac resolution: When the Sage Accpac fixed asset management solution is engaged, all IFRS
fixed asset reporting changes (component accounting, in particular) are handled properly.
Issue: Data model changes
IFRS could require your company to contemplate data model changes in your valuation system and
actuarial models.
Sage Accpac resolution: You will have to make decisions regarding valuation systems and actuarial
models based on you company’s specific circumstances. Sage Accpac will be able to handle
whichever choices you make.
Issue: Reporting
IFRS will change requirements for consolidated entities, mapping structures, and financial statements.
Sage Accpac resolution: Sage Accpac provides customers with multiple tools to create their financial
reports and deal with consolidation. Whether using the standard Financial Reporter included with General
Ledger, Sage Accpac Insight, or Financial Link Pro, Sage Accpac customers will be able to meet their
IFRS reporting needs.
U.S. IFRS Conversion Timeline
U.S. Conversion
The year 2014 is when U.S. Publicly Accountable Enterprises must start reporting using IFRS rules,
and the transition period is two years. This means that a company, if it has a year end of December 31,
must restate its balance sheet dated January 1, 2012, from U.S. GAAP to IFRS but continue reporting
under U.S. GAAP until fiscal 2014. For the year ending December 31, 2014, the company must
compile its financial statement under IFRS rules and report a comparative statement for the previous
two years (2012 and 2013) using both IFRS and U.S. GAAP.
Canadian Conversion
In Canada, if a company has a year ending December 31, its financial reports for the year ending
December 31, 2011, need to include comparative statements also compiled under IFRS for the year
ending December 31, 2010. Note that this will require the company to restate the Opening Balance
Sheet dated January 1, 2010, from Canadian GAAP to IFRS, but also note that it will need to continue
to report under Canadian GAAP for 2010. January 1, 2010, is known as the "Transition Date," which is
the earliest date that the company is required to prepare IFRS-compliant information. Companies will
be expected to keep investors and other stakeholders informed of the expected effects of changing to
IFRS from 2008 on until their full transition to IFRS compliance.
This timetable means that Publicly Accountable Enterprises should already be in the process of
determining the impact of converting to IFRS compliance.