ITAC InfoCast IT&IFRS European Experts Part2of2

This is not an official transcript. Please refer to the podcast recording for the actual wording.

CICA IT Advisory Committee

ITAC InfoCast

IT&IFRS: The European Experience

Part 2Podcast 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

http://www.cica.ca/itac




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




Consolidations

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




Consolidations

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




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




Note Disclosures

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




Note Disclosures

IFRS Note Disclosure requirements (cont’d)• 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




Note Disclosures

IFRS Note Disclosure requirements (cont’d)•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



IT&IFRS Considerations Impacts on Secondary Systems




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 reportingIFRS 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





Impact of IFRS on Management Reporting Sys•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





Impact of IFRS on Management Reporting Sys•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)





Impact of IFRS on Management Reporting Sys• 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



IT&IFRS Considerations Strategic Perspective




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?



IT&IFRS Considerations when starting the

CGAAP-to-IFRS Gap Analysisin late-summer or early fall




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”




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 protected].

This podcast is brought to you by Chartered Accountants of Canada

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ITAC InfoCast IT&IFRS European Experts Part2of2