ITAC InfoCast IT&IFRS European Experts Part2of2

CICA IT Advisory Committee ITAC InfoCast IT&IFRS: The European Experience Part 2 Podcast brought to you by: Chartered Accountants of Canada

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Introduction
Second installment of 2 part series exploring the IT implication of IFRS
Welcome back our European-IT&IFRS experts:
Steen Skorstengaard, Partner at Deloitte
Mahmoud Safavi, Senior Manager at KPMG
See first installment for full bios or see the show notes on the ITAC WebPage www.cica.ca/itac

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Consolidations
How does IFRS impact the IT consolidation process?
Impact on consolidation sys differs completely from impact on ERP/transactional systems, as related to corporate accting office. Impacts to consider include:
System Configuration: Differences in the composition of entities included in consolidation within group chart of accts, translation of foreign currencies impacts configuration
Data conversion

How does IFRS impact the IT consolidation process? (cont’d)
Impacts on consolidation sys (cont’d)
Dual Reporting: Needed to accelerate pre-existing plan to replace consolidation
Also, implmnted budgeting/planning sys
Assess IFRS cnvrsn impact on planned IT initiatives for next 2-3 yrs and see what you can move around to manage projects in-line with IT strategy
Identify synergies btwn IFRS & projects in pipeline

How does IFRS impact the IT consolidation process? (cont’d)
Consolidations not the biggest challenge; but will have some impact
Some issues if intend to deal with 2010 Dual-Reporting at the consolidated level
IFRS joint-venture rules can impact system configuration and data structure
Key is configuration and availability of info

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Note Disclosures
IFRS Note Disclosure requirements
IFRS requires significantly more note disclosure, e.g. core financial statements for pharmaceutical increased from 130 pgs to 185 pgs (55 pages!)
First year esp. significant as must explain open balance; must reconcile with previous GAAP
Must ensure data is accessible for note disclosure
Additional notes on: PPE, provisions, open bal, end bal, plus-minus; need stronger data structure, reporting mechanism

IFRS Note Disclosure requirements (cont’d)
Notes were a big challenge in Europe, since underestimated at the beginning
Required significant amt of manual effort; manually unwind acct; reconcile DR & CR on piece of paper
Can be avoided if set-up right accouting structure, classify items correctly  extract disclosures more efficiently from sys over the long run

New disclosure requirements more detailed, e.g. continuity schedules for provisions
Can be achieved via standard functionalities, but some may need to expand chart of accts, alternative: create new GLs to deal with issue
Dual-Reporting: dual continuity sched. for PPE might be more problematic
Changing presentation face, nature vs function needs to be considered

Since disclosure “gap” were identified too late (much after the acct’g gaps)  system workstream did not have time req’d to develop efficient/effective systems.
Note disclosures requirements should be examined in parallel with accounting standards
Bring IT to the Table; they can help can identify existing functionality within systems (esp. standard ERP) that can be used to facilitate disclosure process

CICA IT Advisory Committee IT&IFRS Considerations Impacts on Secondary Systems

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Management reporting
Impact of IFRS on Management Reporting Sys
Management reporting and related systems
As CGAAP is being phased out, need to determine what will be the basis of mgmt reporting  IFRS or CGAAP? Will have major impact on system
Can stick to CGAAP, but harmonizing financial reporting and management reporting has benefits
Switching from CGAAP to IFRS as basis of mgmt rpt’g system is a significant transformation project

2010 Dual Reporting Issues; budgets until that point are based on CGAAP; so management must determine whether 2010 is the right time to switch;
Need to examine timing and strategic implications of this issue

Cycle of budgeting drives complexity around issue; e.g. 2011 budget built in mid-2010 therefore need new mgmt rpt’g infrastructure in place by mid-2010
If budgets are in local GAAP (e.g. CGAAP) and “actuals” are in IFRS: will need to spend additional time to reconcile each time books are closed (quarterly, annually, etc)

Long-range forecasts (e.g. run for 5 years); update infrequently (e.g. bi-annually, once every 3 yrs, etc)
Need to identify when to rebuild, e.g. if built 2009-2014 forecast – when do you go in and rebuild? If assumptions rolls forward year over year, does that mean you have update 2009 to reforecast?
Steering committee should be aware of issue and identify a strategy to deal with it

CICA IT Advisory Committee IT&IFRS Considerations Strategic Perspective

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience IT&IFRS - Strategic Considerations
Vision for the IT&IFRS Conversion Project
Identify what is being achieved: is it compliance, compliance-plus, or “Rolls Royce” exercise?
Decision will drive scope; must be built on IT side as well
Build in assumptions and set restrictions; e.g. won’t re-implement SAP; due to time/budget constraints
Options restricted by time left; e.g. SOX Q4 freeze will prevent implementation of system

Vision for the IT&IFRS Project
Identify risks and set-up strategy
Assess impacts of sys chgs/upgrades/etc in pipeline
Assess impact of sys chgs on SOX/CEO-CFO Cert.
IFRS implementation will vary, but certain basics:
Think through what to do upfront
Major ERP vendors may have sol’ns BUT may not be realistic to use due to constraints
Identify trade-offs: e.g. Large scale sys chg means less time to identify accounting differences

IFRS impact on previous IT Investments
Need to be cautious about inefficiencies caused in operations if sys/proc impact are not well considered
These inefficiencies might remove efficiency gains from previous business proc re-engineering (BPR) & system implementation projects  current accounting policies are in-line with these BPR project, thus IFRS changes may result in such inefficiencies

IFRS impact on previous IT Investments
Undoing previous IT investment especially an issue where workarounds are used, e.g. if build fixed asset sub-ledgers outside of the system , will lose all business process, operational gains of having had implemented fixed assets sub-ledger within the system  what was the point of implementing the fixed asset sub-ledger in the first place?

CICA IT Advisory Committee IT&IFRS Considerations when starting the CGAAP-to-IFRS Gap Analysis in late-summer or early fall

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience IT&IFRS Conversion Considerations
Prioritization
Start with areas with most significant impact on system/process areas; as these areas can be time consuming to adopt these requirements
Other areas consider workarounds BUT at the same time determine strategy & timelines to deal with them using existing system on a longer term
These strategies need to be aligned with existing IT and overall business strategies

Coordination
Coordination is key: involves diff bus. units, stakeholders, etc
IFRS conversion process may be longer than 2 yrs, but must be aligned with bus sys strategy, e.g. if BI solution should consider how you can improve IFRS conversion related inefficiencies
Europe still dealing with effects of the IFRS conversion

Reduce options with shorter time horizons
Longer one waits less time to do sophisticated solutions forced to use other options that work, but may drive other risks/efficiencies
Reducing timeline will give less opportunity to deal with unforeseeable challenges; less time to build in contingencies
Be pragmatic: don’t underestimate effort, e.g. may have to delay go-live in Q2 2010
Beware of “unkowns”

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience End of Part 2 of 2
Thank you to the listeners for joining us!
Thank you to Steen and Mahmoud for sharing their valuable experiences with us
For more info, visit us at www.cica.ca/itac
For more info on IFRS, visit the page hosted by the CICA at www.cica.ca/ifrs
Contact us at [email_address] .
This podcast is brought to you by
Chartered Accountants of Canada

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ITAC InfoCast IT&IFRS European Experts Part2of2

by itacinfocast on Aug 04, 2009

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