The International Financial Reporting Standards (IFRS) began as an attempt to harmonize accounting across the European Union. Since then it has become an attractive concept around the world but remains difficult to implement globally. Wayne Bossov, an expert in international accounting standards, is a director with Warbird Consulting Partners in Atlanta. In this guest commentary, he provides suggestions for implementing the standards as more firms conduct business globally.
A common challenge for multinational corporations is achieving consistency across operations in different countries with different practices and standards. Because of their size and growth through acquisitions, multinationals often end up using more than one accounting system (some are even using five or more).
But running multiple accounting platforms is not only inefficient, it’s also very costly.
In the early 2000s, the International Accounting Standards Board (IASB) sought to bring consistency to international accounting and began development of the International Financial Reporting Standards (IFRS).
While the IASB and U.S. Financial Accounting Standards Board (FASB) have worked to achieve the convergence of IFRS and U.S. generally accepted accounting principles (GAAP), key differences remain, especially in the treatment of property, financial instruments, debt, and research and development. In addition, IFRS allows for more choices and may be less prescriptive than GAAP; however, IFRS requires more detailed disclosures.
A U.S.-based corporation that does little or no international business may not need to implement IFRS, especially if it has no plans to move or be acquired by a company outside the U.S. But there are several types of companies for whom implementing IFRS makes sense:
· U.S.-based multinational corporations or U.S. subsidiaries of foreign parent companies who are or will be using IFRS.
· Companies who plan an acquisition or merger with foreign-based companies; IFRS makes it easier for potential business partners to analyze financials on the same basis under which the foreign-based companies are now reporting.
· Banks, especially large ones that facilitate transactions with businesses in countries under IFRS.
As more companies, both foreign and domestic, implement IFRS, GAAP expertise is diminishing and maintaining U.S.-only standards will be increasingly difficult and costly. For this and the reasons outlined above, many U.S. corporations are working to implement IFRS enterprise-wide. While this is likely a good idea, company leaders should proceed thoughtfully; changing accounting platforms can be tricky if done without proper planning.
If your company is thinking about moving to IFRS, there are a number of key decisions to be put in motion to ensure the desired results. I have identified what I consider to be the 10 most critical considerations as you begin to plan for this initiative:
1. Obtain buy-in at all levels of the organization, including the board of directors, that IFRS is a strategic imperative.
2. Create a formal steering committee with broad representation from key stakeholders and identified roles and responsibilities.
3. Assign a senior, internal resource who will lead the effort; ideally, an experienced manager with influence throughout the organization.
4. This is a change-management initiative, so be clear about the level of change. For example, in addition to converting to IFRS, do you intend to improve processes as part of the change?
5. Leverage your existing in-house project management methodology. Or, if you don’t have one, create one using an external project manager. Understand that initiatives like this take more time and resources than you think initially. Planning, monitoring and measuring progress are all critical.
6. Be honest in assessing in-house resource allocation and competency, and plan accordingly. Most companies cannot complete this change without utilizing outside experts that have the knowledge, skills, expertise and perspective to guide the process.
7. Identify the respective roles of headquarters and field offices, including foreign subsidiaries. A centralized focus has proven valuable to most IFRS implementations, but active and ongoing participation in the field is paramount.
8. Plan how to involve IT with changes needed to support IFRS implementation. Will IT be involved on a centralized basis? How will regional IT be utilized?
9. Determine how to involve the external auditor team and the role it will play during the IFRS transition.
10. A significant amount of documentation will be generated as part of IFRS implementation and you will need to establish standards for document creation, sharing and storage during the transition.
Clearly, switching accounting platforms is a big undertaking and requires input from across the corporation to be done successfully. But the use of IFRS is only going to increase and making the transition can help your business be better positioned for future growth and investment.
Mr. Bossov has more 25 years experience in consulting, accounting, technology and project management. For prior reporting by Global Atlanta on the International Financial Reporting Standards, click here.