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AdoptingIFRS in Oracle EBS
www.centroid.com
IFRS - International Financial Reporting Standards are a series of accounting standards developed by the International AccountingStandards Board (IASB), that is becoming the global standard for thepreparation of public company financial statements.
IFRS focuses on the standardization of financial reporting standardsacross international borders. This standardized reporting practiceprovides a uniform view of a corporations accounting statements.
As of 2011, approximately 120 countries currently require or permitIFRS reporting.
The US Securities and Exchange Commission is weighing a five-yearwork plan that would lead to conversion of all US public companiesto IFRS. This is in response to global demand from regulators,investors, businesses and auditors for a single set of accountingstandards.
While support for maintaining US GAAP remains strong inthe US, it is clear that multinational corporations or corporations that simply do business internationally will need to begin preparing for IFRS one way or another.
What is IFRS? 1
SEC Timeline for Adoption 2
What are the New Standards? 3 - 5
IFRS and GAAP 6
US GAAP -vs- IFRS Similarities 7
US GAAP -vs- IFRS Differences 8
Convergence -vs- Compliance 9 - 10
IFRS and EBS R12 Examples 11 - 13
The Centroid IFRS Team 14
The Centroid Advantage 15
WHAT IS IFRS?TABLE OF CONTENTS
WHAT ARE THE NEW STANDARDS?Financial Statement Preparation Standards
The first standard refers to statement preparation; this includes theformat, content and layout of financial statements. For organizations that generate financial statements out of their GL today, their current ERP solutions have powerful statement generation tools, dual accounting representations using Subledger Accounting (SLA) and Business Intelligence (BI) tools to meet the IFRS reporting challenge.
SEC TIMELINE FOR ADOPTION
2009A limited group of large US Firms are permitted to use
IFRS on an optional basis for fiscal periods ending on or after December 15, 2009.
2011The SEC evaluates achievement of roadmap milestones and decides whether to adopt a mandatory approach.
2011 -13Possible effective date for convergence
2014Accelerated filers begin filing in IFRS standard
2015Possible adoption start date
2016Non-accelerated filers begin filing in IFRS standard
2018Complete adoption
Features include:Consolidation features (GCS), line aggregation, adjustment capability, XBRL publication, cube management, “slice and dice.”
Standard Area Covered Products
IAS 01 Financial Statements Hyperion FinancialIAS 27 Consolidate or Separate Management,IAS 28 Associates Oracle General LedgerIAS 31 Joint VenturesIAS 33 InterimsIAS 34 EPSIAS 07 Cash Flow StatementsIFRS 03 Business Combinations
WHAT ARE THE NEW STANDARDS?WHAT ARE THE NEW STANDARDS?IFRS Consolidation Standards
The next set of standards focuses on professional-level accountingand consolidation practices where corporations handle specificsituations; for example - merger and acquisition activity, foreign currency translations, etc. and/or specific high-level transactions (e.g., government grants, discontinued businesses, etc.). Organizations can chose to use Oracle’s EPM solutions to facilitate modeling corporate adjustments before pushing them down to the ERP General Ledger. Also, all of Oracle’s ERP solutions contain many powerful general accounting features in each of its General Ledgers.
Detailed Transaction Standards
The last set of standards often require detailed transaction data to be summarized and reported correctly, which means capturing this data in the subsystems. Oracle’s ERP solutions will provide specialized industry products and subledger solutions for service consumers. Specific compliance and features are constructed with the IFRS Statement in mind.
Features include:Flexfields, segments and other chart of accounts features, translation (or remeasurement) multiple ledgers and accounting engines. Model Corporate Adjustments.
Standard Area Covered Products
IAS 10 Post Balance Sheet Hyperion FinancialIAS 20 Government Grants Management, IAS 21 Foreign Currency Oracle GeneralIAS 29 Hyperinflation LedgerIAS 36 Impairment IAS 37 Provisions & ContingenciesIAS 38 IntangiblesIAS 40 Investment PropertyIFRS 01 First Time AdoptionIFRS 05 Discontinued, Held for SalesIFRS 06 Mineral ResourcesIFRS 08 Operating Segments
Standard Area Covered Products
IAS 41 Agriculture Specialized industryIAS 32 FI: Presentation products andIAS 39 FI: Recognition, Measurement subledger solutionsIFRS 07 Financial Instruments for service consumersIFRS 04 Insurance Contracts
Specific compliance and features constructed with the IFRS statement.
Standard Area Covered Products
IAS 02 Inventories Specialized subledgerIAS 11 Construction Projects solutions: Projects, FixedIAS 16 PP&E Assets, CRM, Order IAS 17 Leases Management and revenueIAS 18 Revenue recognition in AR,IAS 19 Employee Benefits Procurement and AP,IAS 23 Borrowing Costs Inventory and Costing
Tracks data required by the specific statement, such as revenue recognition in receivable, costing methods in inventory, etc.
IFRS AND GAAP US GAAP: 25,000 Pages IFRS: 2,500 Pages
US GAAP is rules-based, meaning that there are very specific“If/Then” pronouncements. IFRS is principles-based, so there isgreater dependency on judgement. IFRS is also more vague in howcompanies adopt or implement those standards.
There are quite a few similarities between IFRS and US GAAPbecause the convergence project between IASB and FASB (thestandard setters responsible for IFRS and US GAAP respectively) hasbeen going on for a while (since 2003 actually).
For example, both IFRS and US GAAP have the same rules aroundrevenue recognition. German GAAP on the other hand does nothave revenue recognition; instead an organization would book salesinvoices directly.
US GAAP -VS- IFRS SIMILARITIES
Approach (some examples) IFRS US GAAP Revenue Recognition
Fair Market (e.g. AR or inventory valuation)
Detailed Disclosure
Segment Reporting
Chart of Accounts Not Mandated
Distinction Between Tax &External Reporting
CONVERGENCE -VS- COMPLIANCEUS GAAP -VS- IFRS DIFFERENCES
Some specific differences between the two standards include:
- Fair Market Revaluation - Under IFRS, organizations must revalue fixed assets. Under US GAAP, only certain assets like real estate must be revalued. - Extraordinary Items - Negative goodwill has gone away under IFRS. - Consolidation - Only entities that are under your control should be consolidated under IFRS. - Research and Development - Development costs are placed in the Balance Sheet under IFRS. - Inventory - IFRS does not allow LIFO or “Last In First Out.” There are particular tax advantages to LIFO, so that is why firms practice it. But under IFRS, LIFO is not allowed because inventory in the Balance Sheet is not quite reflective of actual cost.
There are 2 main approaches to IFRS adoption:
Convergence:
- Restructure existing applications so the primary ledgers reflect the standards set forth in IFRS.
Approach (some examples) IFRS US GAAP
Fair Market Revaluation
Extraordinary Items None Rare (negative goodwill)
Consolidation Control 2 Models
Joint Ventures Proportional OK Only Equity
Research & Development Capitalized Expensed
Inventory No LIFO LIFO OK
Impairment
Fixed Assets& Investments
1 Step,Reversible
Only CertainFixed Assets
2 Step,No Reversal
Ledger Set
Primary Ledger Secondary Ledger
IFRS Accounting US GAAP Accounting
SLA SLA
Transactions
Subledgers
AP AR FA CST
IFRSReporting
US GAAPReporting
CONVERGENCE -VS- COMPLIANCECompliance:
- Maintain current accounting practices per US GAAP guidelines and then build a secondary ledger to reflect the standards set forth in IFRS.
IFRS AND EBS R12 EXAMPLES
E-Business Approach with R12
SCM products like OracleInventory handle Inventory,Costing- They do all the IFRS options- Actual w/flavors: landed, period actual, etc.- Standard w/flavors: process, BOM, semiconductors- And variances to actual- Rev dates & Inventory Aging- Reconfigure LIFO to standard or actual- Use a second IO for dual costing
IFRS - GAAP Differences
US GAAP - Component accountingis permitted, usually assets aredepreciated as a wholeIFRS - Component accounting isrequired
E-Business Approach with R12
Assets- Componentized assets with different useful lives - Parent Child features - Grouping features (restricted revaluation support)- API (to import the real estate & assessor’s valuation)- Asset revaluation
Inventory - IAS 02
Asset Componentization - IAS 16
Ledger Set
Primary Ledger Secondary Ledger
US GAAP Accounting IFRS Accounting
SLA SLA
Transactions
Subledgers
AP AR FA CST
IFRS - GAAP Differences
Inventory CostingUS GAAP - Allowable costing methodsinclude LIFO, FIFO and Average Cost
IFRS - LIFO not allowedInventory ValuationUS GAAP - Inventory is valued at thelower of cost or market, and cannotbe written up at a subsequent date
IFRS - Inventory is valued at the lower of cost or net realizable value:if the net realizable value of an itemthat has been written downincreases subsequently, then thewrite-down is reversed under IFRS
IFRSReporting
US GAAPReporting
IFRS AND EBS R12 EXAMPLESIFRS AND EBS R12 EXAMPLES
IFRS - GAAP Differences
Impairment, specifically FixedAssets
US GAAP - Based on fair value - Non-reversible
IFRS - Based on the recoverable amount (the higher of the asset’s value-in-use and fair value less costs to sell) - Reversible
E-Business Approach with R12
Assets- API to accumulate and contrast recoverable values- API processes losses automatically and executes all immediate and long-term accounting- Automated comparison and impairment accounting- Automatically process the losses- Automatically execute all the immediate and long-term accounting
Impairment - IAS 36
IFRS - GAAP Differences
Development CostsUS GAAP - Development costs aregenerally expensed as incurred
IFRS - Development costs (directlyattributable expenditure) arecapitalized when certain criteriaare met
E-Business Approach with R12
GL and Project features deploy forCapitalized Development- GL Cost Centers with Balance Sheet accounts capture the costs- Allocate to P&L when time to release OR- Project Accounting stores Projects on the Balance Sheet - Release to P&L via BOM & inventory- Integration with costing- Direct release to P&L via Project Accounting- Project Time & Costs features
Intangible Assets - IAS 38
IFRS - GAAP Differences
Identifying Operating Segments
US GAAP - Segments are based onactual Management Reporting.(excludes intangible assets)
IFRS - Operating segments areidentified by Risk and reward.(includes intangible assets)
E-Business Approach with R12
General and Subledger- Use our very flexible chart of accounts design to track and identify different operating segments- Reporting features like FSG with BI Publisher
Operating Segments - IFRS 08
IFRS - GAAP Differences
IFRS and GAAP determineFunctional Currency usingdifferent emphasis
US GAAP - Cash Flow Based
IFRS - Factors based with moreemphasis on pricing factors.
Both FAS 52 and IAS 21 specify: - Remeasurement (Historic Rate Conversion) from Accounting to Functional Currency - And Translation (Current Rate Conversion) from Functional to Reporting Currency
E-Business Approach with R12
General and Subledgers- Reporting Currencies and Revaluation work together to provide both Remeasurement or Translation- Chose the level of detail per your business needs: - The Subledger Transaction Level - Or the General Ledger Activity Level - Or the General Ledger Balance Level- Can also be done in HFM
Foreign Currency - IAS 21
THE CENTROID ADVANTAGETHE CENTROID IFRS TEAMWe provide the solutions you need for increased performance -maximizing your investments - guaranteed.
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Centroid's Applications and Industry consultants are a focused team dedicated to working with our clients to help guide them on the path to achieving IFRS compliance. We work with our clients to identify the most optimal approach between GAAP to IFRS convergence, or complete IFRS Adoption.
Using an established portfolio of common accounting and reporting changes for IFRS, we're able to establish a framework for transiting in an expedient manner. Oracle E-Business Suite Release 12 enables clients to take full advantage of Oracle R12's multiple ledger functionality. With the introduction of Subledger Accounting (SLA)in R12, customers now have the ability to translate their ledgers into an IFRS compliant set of accounting entries.
We continually survey over 2,000 finance executives to gauge their concerns/progress regarding IFRS. Our results along with industry updates are reviewed on a quarterly basis on Centroid’s IFRS Webinar series. For more details on the IFRS survey and our Webinar series, go to www.centroid.com or feel free to contact us.
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