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Considerations
in IFRS Conversion Projects
2 Background of IFRS & IT Impact Other key benefits include opportunities to improve/
streamline business functions and processes, globally
integrate the financial IT systems, and achieve consolidation/
Today, more than 100 countries require/permit the use of
reporting efficiency. On the other hand, there are risks
International Financial Reporting Standards (IFRS), or are
associated when a company decides to convert to IFRS.
converging with the IASB’s standards. On February 24,
Some of these risks are excessive resource spending,
2010, SEC Chairman Mary L. Schapiro released a public
improper data management or migration, incomplete
statement regarding convergence between International
revisions of policies and procedures, future changes that
Accounting Standards Board (IASB) and Financial
standard setters may issue, and more.
Accounting Standards Board (FASB) standards: “For nearly
30 years, the Commission has promoted a single set of While there are many benefits and risks to converting
high-quality globally accepted accounting standards, to IFRS, a few key factors should be taken into
which would advance the dual goals of improving financial consideration prior to implementation or during project
planning. Although the IASB and FASB are working
toward convergence, many differences currently exist
between the two sets of standards (see Key Differences
between IFRS and GAAP below). It will be important to
monitor the changes as the two boards complete their
joint work plan as outlined in their Memorandum of
Understanding (MoU). Furthermore, companies should
first assess which principles/standards will impact their
organizations directly, conduct some research, and have
a strong understanding prior to implementation. A
detailed discussion regarding project planning is further
explored under Implementation Considerations.
Exhibit 1
Potential System Impacts During IFRS Implementation
Type of System Sub-ledger System General Ledger System Consolidation System Internal Reporting System
Typical Impact Configuration in Revision of chart of Extract, transform and Data warehousing
existing system accounts load (ETL) tools system/metadata
repositories
New or upgrade of
Multiple set of GL Data quality management
sub-ledger system Business intelligence
accounts (or “books”) system
Alternative reporting
solution Reporting queries/
programs
Examples Conversion from LIFO GAAP, IFRS and local External reporting Budget and forecasting
reporting statutory reporting requirements (examples) models
listed in the left
Tracking of R&D Tax reporting Revenue analysis reports
expenditures Role of XBRL in facilitating
Segment reporting
Possible change in entities
Disclosure requirements to be consolidated
Exhibit 2
Transaction Differences
Inventory IFRS does not permit Last In Process and unit cost Manufacturers, retailers,
First Out (LIFO) method calculation changes may distributors
be required in inventory
Method of measuring sub-ledger system
inventory
Reversal of write-downs
Property, Plant & Equipment IFRS requires certain assets PPE assets may be required Manufacturers
and depreciation be recorded to account separately by
at component level significant component pieces
Intangible Assets (such as R&D) Development costs may System changes may be Manufacturers/high-tech
and Impairment be capitalized when certain required to capture R&D (e.g., software development)
conditions are met and require projects’ costs in more detail
more detailed reporting
Impairment testing
Share-based Payments Timing of recognition Changes may be required in Companies exchanging stock
the Payroll/HR/or alternative or other equity instruments for
Valuation of liability-classified sub-ledger system goods/services
transactions
Exhibit 3
External and Internal Reporting Differences
Segment reporting Basis of segmentation Additional categorization may Segmentation defined may
be required in the GL differ due to Internal reporting
Segment reporting disclosures structure and business risks
required may differ Secondary segment may associated
need to be defined within the
reporting system
Interim reporting IFRS requires discrete Data capture may need to Costs that do not meet
period approach be revised to capture the definition of an asset cannot
information properly be deferred
Financial Statement Presentation of comprehensive GL chart of accounts may need Dual chart of accounts/general
Presentation and Disclosures income to be re-mapped to present ledger
dual reporting
Consolidation of subsidiaries Adjustment of financial
Data capture may need to statements: balance sheet,
be revised for a reporting or income statement & cash flow
consolidation system
Internal Business Reporting Potentially impact an Data structure may need Supply chain dashboard/KPI
organization’s current reporting to be revised within a data that reports from inventory
infrastructure warehousing environment sub-ledger system
b. Separate financial statements (e.g., Although great efforts are being made to arrive
subsidiary level) at a singular IFRS that cuts across all global
jurisdictions, there is the distinct possibility that
In an international company operating under companies may face different versions of IFRS.
various jurisdictional requirements, it may be ap- For example, there could be IFRS issued by
propriate for changes connected with IFRS to be the IASB, adjustments under European Union
made at a subsidiary level. This means, of course, regulations, localized versions of IFRS, and so
that the underlying transactional detail must be on. IT systems can play an important role in
compiled at the subsidiary level. The subsidiary facilitating reporting under such varied scenarios
systems may or may not be able to capture such if the systems can render data and information
detailed information, which means that system at a granular enough level to be rolled up in
enhancements must be made at that level. different ways. Unless a company’s IT systems
allow for such fluidity, workarounds may need to
c. In parallel within the ERP system
be developed.
Some ERP systems have the capability for run-
ning parallel “sets of accounts,” for example,
Exhibit 4
AICPA’s Suggested Timeline Chart
Impact
Assessment Communication, Implement Tax Strategies,
Modify Contracts & Agreements
IFRS Accounting Policies
Implementation
Strategy
Work Streams: Accounting & Reporting, IT Systems & Processes, Tax Compliance & Planning, Business & Organizational,
HR & Training, Risks & Controls, Project Mgmt & Communication
Reporting structural differences between local GAAPs A relevant part of the IFRS/Local GAAP gap analy-
and IFRS are often, even though not exclusively, reflect- sis can be captured using XBRL GL, the Canadian
ed at trial balance level — See Exhibit 5 for an example GAAP, and IFRS XBRL taxonomies
A standard chart of accounts (SCOA) with pre- Software applications based on standards such as
defined mappings to IFRS and local GAAP financial XBRL help companies transition from local standards to
reporting concepts can distinguish these differ- IFRS more easily. While all the functionalities that the
ences and make them available in an application- Convergence Assistant does can easily be achieved
independent environment — meaning that they by a proprietary-based application developed for the
can be applied to corporate data no matter in what purpose, utilizing a standards-based application has
accounting software or ERP application that data additional benefits; the Convergence Assistant and the
was created or is stored — and immediately artifacts that it generates can tailor to the user’s specific
applicable to the business’ specific data with a requirements, integrate in their existing processes and
simple account-to-account mapping IT infrastructure without the need to modify them in any
Other differences can be reflected at more granu-
way, and cross-support other key internal reporting and
lar level — journals, transactions — that can also auditing processes.
Exhibit 5
An example of reconciliation between different financial reporting standards at trial balance level
Cash and cash equivlalents 20,199 19,778 Inventories - FIFO 31,364 30,242
Receivables 18,490 16,292 Trade and other receivables 18,490 16,292
Inventories - LIFO 25,364 23,242 Finance lease receivables 198 188
Prepaid expenses and other 8,955 7,137 Other financial assets 8.757 6,949
current expenses Current tax assets 85 60
Deferred income tax 85 60 Other assets - -
73,093 66,509 Cash and bank balances 20,199 19,778
79,093 73,509
Income Statement
Income Statement
The example in Exhibit 5 is limited to differences that are captured at trial balance level, but it demonstrates how the availability
of a sufficient level of detail underlying the financial statements (or metadata attributes) enables the representation of
relationship between reporting concepts in the two formats that cannot be expressed in a direct mapping between the concepts
themselves. The same approach can be applied to information that is captured below the trial balance level, for example at the
transactional level, or in separate data sources, which can also be standardized and linked using XBRL GL.
The next IFRS IT resource will be issued late 2010 to provide a deeper dive of IT-related topics not discussed in this paper such as:
infrastructure, data governance and data repositories, configuration changes, report design requirements and many more.