Copyright American Institute of Certified Public Accountants Sep 2009
Strategic considerations for financial managers |
Conversion to IFRS will be far more than a technical accounting exercise. Implementing IFRS will impact many, if not all, aspects of your business operations, including information technology. It may bring companywide changes that will spawn newrisks. These include system changes, modifications to processes impacting employees' day-to-day duties, and new accounting policies.
U.S. GAAP and IFRS share many similarities, but they are also different in many areas.
Staff responsible for internal control over financial reporting (ICFR) under Sarbanes-Oxley (SOX) section 404 and operational audits will need to understand how your company plans toapply IFRS so they can take appropriate actions based on both operational risks and the risk of material weakness in ICFR. While your company may be familiar with the general principles of IFRS, such as a potential need to depreciate components of fixed assets on a detailed level, a thorough review will make clear that there are many rules and requirements in these principles-based standards.Once they have analyzed the standards, companies may realize they do not have much flexibility under IFRS, but ICFR staff can assist with that analysis.
Companies will also need to evaluate the impact diese differences may have on dieir accounting policies, as well as the underlying information technology systems that support the company's financial reporting structure. Changes to policies andsystems on dus scale will invariably give rise to additional risks that your organization may need to monitor and control.
PARALLEL REPORTING RISKS
Under the SECs proposed road map, companies would need to maintain a parallel reporting environment for approximately three years. In creating a parallel reporting environment, your ICFR and operational audit staff will need to consider the ramifications ofmodifying your company's systems and processes. These staff members will need to review the company's enterprise resource planning (ERP) and consolidation systems' ability to manage parallel accounting. This can be complicated and expose the organization to additional risk.
ERP and consolidation systems will need to be assessed to determine if they can handle the requirements of dual ledgers andreporting. Although the system may be structured to handle the requirement, consider the volume of data that will pass through the ERP system. Is bandwidth sufficient to process transactions in a timely manner? For example, your parallel accounting environment may be structured to process a single transaction into two separate accounting streams, which may cause processing lags due to volume.Systems will need to be configured and controls created to avoid cross-pollination of IFRS transactions with U.S. GAAP transactions (and vice versa). Also, for most companies a plan will be needed to maintain statutory reporting ledgers.
Beyond systems, your organization may also need to modify its accounting processes for simultaneous IFRS and U.S. GAAP accounting. The financial statementconsolidation of this information, even with systems modifications, will be timeconsuming and will more than likely lead to additional resource requirements for the controller. Staff training for the new processes will also need to be developed and implemented.
CONTINUAL MONITORING AND TESTING
As these changes are implemented, your ICFR/operational audit staff will need to continually monitor risks and testcontrols. These activities are necessary, not optional. The responsibility for determining accounting standards may be shifting to or converging with the International Accounting Standards Board (IASB). However, U.S. regulatory oversight of financial reporting will likely stay with the SEC. As such, the first set of financial statements published under IFRS may be subject to SOX section 302 and...