"If you know the enemy and know yourself, you need not fear the results of a hundred battles." —Sun Tzu
The attitudes and opinions regarding International Financial Reporting Standards (IFRS) diverge as much as Congress's stance on how the government should handle the Middle East. On one end of the spectrum, some senior executives say, “I am not going to worry about it until the SEC really finalizes the conversion dates. It is probably not going to be that big of a deal anyway.” At the other end of the spectrum, the accounting firms retort, “You need to address IFRS now as this could have a bigger resource drain on your organization than Sarbanes-Oxley.”
Ask the external auditors what the IFRS implementation impact might be to the company specifically. They will usually say “it depends”. It is not that they are being coy, the auditors do not know. It really does depend. IFRS versus GAAP differences include a long list of over 160 areas to potentially address. PriceWaterhouseCooper’s IFRS and GAAP Similarities and Differences published in September 2009 is a daunting 220 pages long.
The real question all public companies should be asking regardless of the SEC position on timing is…what effort will it take for our company to adopt IFRS? If an organization knows how much time and effort it will take to comply, executives can settle whether action is needed now or later. Each of the 160+ IFRS/GAAP differences (battles) could be either inconsequential or rather significant depending upon:
External auditors are best equipped to answer the first three questions. The intricacies in the accounting and systems battlefield become evident when an organization starts to ask the fourth question above. The complexities are found in the core data residing in an organization’s information systems. Changing how the data is stored, calculated and reported in the information systems requires time and effort to address and herein lies the IFRS implementation challenge.
Take, for example, one of the 160+ IFRS/GAAP differences is IFRS prohibiting the use of LIFO for inventory valuation. Assuming the LIFO valuation versus average cost (IFRS allowed) is relevant and material, an organization should want to know the conversion impacts. An organization would want to know how LIFO is calculated currently. Two companies in the same industry may arrive at a different answer and have a completely different set of conversion challenges.
Again, the LIFO example is merely one of the 160+ IFRS/GAAP differences and the implementation considerations could vary substantially between companies. If the SEC continues to stick with a 2015 projected conversion time with a required three years of IFRS and GAAP comparison history, January 2012 could become the reality for conversion. Compounding this deadline is the reality that system conversions can take several months to complete. Therefore, we believe it is a prudent step to start to understand the differences in early 2011.
Once the auditors answer the relevance and materiality questions, understanding the implementation differences could be done in as little as two to four weeks depending upon the organization size and IFRS relevance. We have researched many of the differences and also understand how many of the ERP and financial reporting systems can be configured to provide a dual reporting environment during the three conversion years.
Prudent preparation with a clear understanding what challenges lie ahead will prepare your organization to address IFRS efficiently and with minimal impact to your bottom line.
