ITAC InfoCast - IT&IFRS - The Euro-Experience Part 1

CICA IT Advisory Committee ITAC InfoCast IT&IFRS: The European Experience Part 1 Podcast brought to you by: Chartered Accountants of Canada This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Introduction •Cdn public companies required to move from Canadian GAAP to International Financial Reporting Standards (IFRS ) •Technology aspect of the move is expected to be a challenge • We explore the IT&IFRS issues with 2 experts who went through this in 2005 (i.e. when Europe moved to IFRS) This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience IT&IFRS Expert: Mahmoud Safavi Mahmoud Safavi, •Senior Manager in KPMG's Advisory Services • Over 11 years of Business System Advisory experience including 10 years of SAP project and support practice • Worked on IFRS conversion at a major German multi-utility organization containing several entities, systems and conversions when he worked in Europe. • Also has experience in consumer business, waste management, and telecomm. This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience IT&IFRS Expert: Steen Skorstengaard Steen Skorstengaard •Partner in Deloitte’s Enterprise Risk Services Group and Calgary IFRS Implementation Leader •17 years in public accounting in Denmark, the United States and Canada •Assisted several large European companies to convert over to IFRS in 2005 •Has led several large SOX and internal audit projects This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA IT Advisory Committee Overview: Leveraging Lessons Learned: How were the IT aspects of IFRS handled in Europe? This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Lessons learned from Europe How did the IT&IFRS conversion go in Denmark? •Challenges in IT depend on the shift in accounting policies from local GAAP to IFRS diff acct’g chgs in Europe vs Canada = diff challenges •Organizations started late on the conversion process • Phase1: built ad-hoc solutions for journal entries, closing process, etc to meet IFRS conversion deadline • Phase2: Post-conversion: Build sustainable, solutions This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Lessons learned from Europe How did the IT&IFRS conversion go in Germany? • Challenge: coordination btwn accounting work stream and the systems/processes work stream • Needed strong “program management” • Better understanding of dependencies btwn work streams • 1st: Understand accounting differences, translate accounting gaps to system/proc requirements • 2nd: Identify IT projects planned for next 2 yrs and identify interdependencies btwn IFRS & these project This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Lessons learned from Europe IT&IFRS conversion go in Germany (cont’d) • 3rd: Assess if curr. systems can meet IFRS needs: • Examine curr. system functionality/configuration • Identify data conversion strategy at conversion • Identify potential “Dual-Reporting” issues • On-going multi-GAAP req’t (tax, local GAAP) • Regulatory requirements vs. IFRS • Mgmt rpt’g based on IFRS or existing GAAP • Not considering above upfront led to under- estimation of efforts in Europe This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Lessons learned from Europe IT&IFRS conversion go in Germany (cont’d) • “Program management” vs “project management”: • Each work stream (e.g. accounting, systems/ processes) requires its own Project Manager • Program Mgmt Office coordinate work streams • Germany: Coordination btwn IT & accounting a challenge; IT runs behind accounting and did not have enough time to react need strategies to manage and automate “workarounds” This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA IT Advisory Committee Specific Issues: Canadian GAAP vs IFRS This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Plant, Property, & Equipment (PPE) How will new IFRS rules affect IT? •Chgs in PPE, borrowing costs, impairments impact same modules & sub-ledgers (SL) •Diffs in eligible vs ineligible PPE costs impact GL + fixed-asset-SL+ source sys (work order, proj mgmt) • Chgs in useful life/deprecation method may impact master data setup/structure in these system(s) • Borrowing costs new way to determine “qualifying assets” and apply costs This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Plant, Property, & Equipment (PPE) How will new IFRS rules affect IT? (cont’d) • To perform impairment tests need to group assets by “Cash Generating Unit” (CGU) • May need automated jobs to track impairments • Data conversion may be significant due to “exemption choices” • Borrowing costs chgs impact on current ongoing projects and current CWIPs • Impairments require good understanding of IFRS note disclosure requirements (e.g. continuity sched) This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Plant, Property, & Equipment (PPE) How will new IFRS rules affect IT? (cont’d) •Dual-reporting: Significant issue, i.e. Cdn diff in PPE/ borrowing costs/impairments more significant than equivalent diff in Europe •Where borrowing costs are classified as a “qualifying asset” under CGAAP, but not in IFRS (or vice versa); will result in big system changes to meet dual reporting requirements This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Plant, Property, & Equipment (PPE) Define Strategy HOW to Componentize PPE •Need a strategy/method to define components, data structure, data design, etc put into IT system • Conceptually, determine how existing PPE info can be re-structured for IFRS • Identify how to breakdown current groupings into reasonable components •Key Challenge is defining data structure, data specifications; how to do, setting materiality/scope, breaking down line items, etc. This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Plant, Property, & Equipment (PPE) Define the Strategy to Componentize PPE (cont’d) • Completing this analysis is major hurdle • Getting data into sys “easier” if functionality facilitates this (e.g. hierarchy, linking, codes, etc) • Needs sufficient detail to be usable by IT • Industry specific issue, e.g. rate-regulated, oil & gas • For rate regulated: asset valuations are a mix of CGAAP and regulatory reporting may need 2 sets of book on ongoing basis, but asset registers may not be able to handle this This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Leases Will new rules eliminate operating leases? •IAS17 may not remove concept of operating leasing, but does not give definitive guidance (i.e. thresholds) •Relies on judgment; subjective as based on “intent” as to whether lease needs to be capitalized or not •CGAAP has thresholds/formula to determine whether operating or capital lease, but IFRS does not •Due to subjectivity and lack of thresholds; some contracts need to be classified manually This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Leases Will new rules eliminate operating leases? • Key issue is configuring “capital vs. operating lease” logic, after that “math kicks in” and generates accounting entries (asset+depr, liability+amort sched) •Need to capture more data for both type of leases to meet IFRS disclosure requirements for both capital & operating leases •May manually review each contract or build an architecture/data structure to classify lease & capture data for note disclosure requirements This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Leases Will new rules eliminate operating leases? •IASB and FASB are in the process of reviewing the leasing standard and the proposed revisions may take everything to the balance sheet; but this is yet to be finalized This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience Leases Leases: Dual Reporting Considerations • Signif sys impact where CGAAP ≠ IFRS when classifying the lease as capital or operating • Can impact fixed asset sub-ledger •Curr Lease Mgmt systems might not have capability to deal with different posting processes •If lease management is done outside the ERP in: • Spreadsheets  assess control impacts (recon errors, manual errors, etc) • Standalone sys dual rpting will be a challenge This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA IT Advisory Committee IT&IFRS Considerations when finished the CGAAP-to-IFRS Gap Analysis This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience IT&IFRS Conversion Considerations Program Management Office (PMO) •Build a strong PMO that • Identifies interdependencies • Coordinates between accounting/reporting, system/processes, and business/operations •Be proactive in involving IT: • Involve IT personnel with good understanding of the operations • Highlight how IFRS is different than regular IT project (less specified upfront, more uncertainty) This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience IT&IFRS Conversion Considerations “The War on Talent will Start” •IFRS Conversion Project is about managing people: • Must include the right people • Have strategy to retain talent; as they may be “stolen” by companies who have started late on the IFRS conversion process • High risk of failure if people have left, don’t know what to do, etc This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience IT&IFRS Conversion Considerations “The War on Talent will Start”(cont’d) •Engage, motivate and tie people to the firm with retention program or retention bonuses •Get them educated and ensure their happy •Identify if right resources are in place and whether the people will still be at the firm in 6 to 12 months This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA Information Technology Advisory Committee ITAC InfoCast: IT&IFRS – The European Experience End of Part 1 of 2 Thank you (the listener) 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 This podcast is brought to you by Chartered Accountants of Canada This is not an official transcript. Please refer to the podcast recording for the actual wording.

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ITAC InfoCast - IT&IFRS - The Euro-Experience Part 1

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