New York, NY (June 14, 2010) – The adoption of International Financial Reporting Standards (IFRS) has occurred within over 12,000 companies worldwide, with an anticipated transition by American companies to the US GAAP: it is believed that the ultimate adoption of IFRS in the United States is inevitable and will affect the majority of organizations in the short term. This process (requiring an estimated allocation of 0.13 percent of annual corporate revenue) calls for new accounting and reporting requirements whose complex processes and systems are modified for clients with the assistance of IFRS professionals.
As a “principles based” set of standards, IFRS establish broad rules and dictate specific treatment in International Accounting Standards (IAS). It is essential that US companies understand the differences that exist between US GAAP and IFRS, and the impact that converging standards and adoption by non-American subsidiaries in particular will have on people, processes, and technology. Those that do act early to plan and assess the impacts of convergence will be better equipped with the resources to control costs and manage implementation to effectively achieve a smooth transition, and actively deploy the appropriate technology to facilitate the process.
The rate at which transition from US GAAP to IFRS occurs is essentially dependent upon an organization’s technology (namely, the degree of embedding into the General Ledger (GL) and below into the sub-ledgers), which will determine how robust a company’s reporting system will be throughout the transition process. Since technology is a key enabler in the transition to IFRS, it is essential that companies focus their systems on readiness. Gradually, a company will reconfigure transaction systems to produce IFRS data directly, both at home and in subsidiaries facilitating IFRS for statutory reporting. The large majority of organizations will undergo a phased embedding process, thus rendering the ability to produce reports in both US GAAP and IFRS until a complete global shift to the latter has taken place.
The transition process is likely to introduce additional challenges beyond mere multi-GAAP reporting: there will be a need to produce reconciliation reports that explain the differences between the reporting frameworks to stakeholders, additional disclosures and commentary will be required, and the volume of data collected from subsidiaries will increase (which could introduce delays in closing and reporting cycles if left unchecked).
To save time when producing reports in multiple frameworks, the longer-term objective would be to embed IFRS needs into transaction systems and the GL to reduce/eliminate the need for manual journal entries. Coping with multiple frameworks in this way requires a system with sufficient dimensions to store the information, the ability to perform and store multiple consolidations, and to report in different formats. Applications such as Oracle E-Business Suite (EBS) and Hyperion Financial Management (HFM) are well-suited to the task, as they inherently support multiple reporting frameworks and the associated challenges, and are capable of working with any of the underlying GL and ERP systems. It is important to adjust the organizational situation and your company’s appetite for change by assessing its technology:
• Can your firm’s current technology support the transition to IFRS?
• Does your technology contain the flexibility required to support the various accounting standards and reporting requirements?
• To what degree does your technology integrate planning, budgeting, consolidation, external financial reporting and internal management reporting?
• Can your technology be loosely integrated with the transaction systems through middleware to prevent changes elsewhere in the systems environment from disrupting financial reporting?
• Does it make sense to continue supporting contrasting legacy systems, or can a business case be made for replacing or combining in certain instances?
• Does your technology offer an accelerated approach to building IFRS financial statements?
The transition to IFRS from US GAAP will introduce firms to several central challenges. The first results from a continued convergence of standards, bringing about unprecedented accounting transformation. There also exists the challenge of non-U.S. subsidiaries transitioning to IFRS as other countries continue to adopt, as well as increasing interest on behalf of customers and suppliers in IFRS accounting outcomes. And, finally, there will be a continued focus on longer lead-time differences between IFRS and US GAAP (as convergence projects will not address all differences).
Before undergoing the US GAAP-IFRS conversion process, keep the following key questions in mind:
• To what degree can your organization facilitate change?
• Does your organization possess the highly skilled resources necessary to adequately implement new IFRS technology?
• What is your company’s history in terms of structural development? How can this be used to analyze and predict the rate and ease at which it will undergo the transition to IFRS?
• How well does your organization cope with and integrate the complexities and rapid progression of technological development?
Currently, there are many features in the Oracle EBS that are currently being used to support US GAAP or Canadian GAAP environments. If your firm is converting to IFRS, you may need to make reconfigurations which will align with IFRS principles.
As your subject matter experts, Mango professionals are able to ensure that your systems are configured to comply with IFRS standards. Mango Concept’s team of technical and functional consultants utilize years of extensive expertise to deliver business process improvement, systems integration, data access and business intelligence to clients to help them become high-performance businesses. As leading experts in IFRS to GAAP transition, Mango consultants work closely with client management and IT teams to provide end-to-end implementation and support services for Oracle Applications, Oracle Fusion Middleware and Oracle Database Suite.
Contact:
Mango Concept
www.mangoconcept.com
646-478-6100 (Tel)
734-342-6403 (Fax)
