IFRS Implications on IT

ACC 626 Section 2Presented by: Madeline Chiu

Agenda

• What is IFRS?• Common issue with IFRS conversion• IFRS implications on IT• Control implications • Impact on the accounting profession• Takeaways

What is International Financial Reporting Standards (IFRS)?

• A set of global accounting standards developed by the International Accounting Standards Board to replace various local GAAP around the world

• Objective is to increase comparability across global companies

• Canadian public companies required to adopt IFRS by January 1, 2011

Issue with IFRS implementation

• Many companies do not recognize that IFRS implementation is beyond applying changes to accounting policies

• In addition to accounting, IFRS also impacts a company’s operations, IT systems, tax reporting systems, and internal reporting systems

IFRS Implications on IT

• The IT system is the backbone of financial reporting• Complex changes must be made to the IT system to

accommodate for the differences in data collection, calculation and note disclosure

• Surveys have revealed that approximately 50% of total cost of IFRS conversion are IT-related costs

• Many European companies admitted that the implications of IFRS on IT were rarely considered in the planning process

Manual Approach - Spreadsheets

• Inherent weakness of spreadsheets:– Absence of internal control since the spreadsheets

does not undergo the system development life cycle– Usually created by accounting/ finance personnel – Spreadsheets could easily become unmanageable – Prone to human error

Successful implementation requires.... • Planning is critical

1) Identify accounting differences between IFRS and local GAAP

2) Assess how accounting gaps affect the IT system and the respective business process

• Other consequences of the manual approach– Failure to meet reporting deadline– Producing financial statements with material

misstatements• Needs top management support• Establish a program management team• Prioritization

Factors affecting magnitude of IT impact

1) Industry company is in2) Size and complexity of entity3) Its approach to IFRS adoption4) Current system capabilities5) Number of systems used6) Extent of integration between systems

IFRS Implications on IT

Differences between IFRS and local GAAP will affect one/more dimension of IT architecuture:

1) Upstream systems – Financial sub-ledgers, financial instrument systems, product specific systems

2) Data warehouse 3) General ledger – Chart of accounts4) Downstream systems – Financial reporting system,

management reporting system, tax reporting system

Reconfigure versus Replace

Considerations:• Whether the legacy system has the capacity

and processing power to handle the large volume of traffic

• Age of the current system • Current capabilities and its flexibilities Is

there dual reporting capabilities?• Ability to grow with the company

Control Implications of IFRS• Control may be undermined due to volume of changes

and the magnitude of changes to IT systems in relatively short timeframe

• Adequate internal control and change management in place to create a strong control environment– Formal process for approving accounting and/or IT

system changes – Formal training provided to all affected employees – Proper segregation of duties– Documentation of changes made to IT system and

business processes

Impact on the Accounting Profession

• Auditors required to assess whether financial statements are free of material misstatement

• Need to perform testing of controls over IT system to determine reliability of financial information

• Internal auditors– Ensure existence and effectiveness of internal control over

the conversion process and financial reporting process– Review IT and business process changes– Identify control deficiencies and

provide recommendations

Current Issues1) Dual reporting requirements – Many companies would be required to maintain two

sets of books: IFRS and local GAAP – IT system with dual reporting capabilities could help

maintain two sets of books without duplicate effort

2) Extensive Business Reporting Language (XBRL)– Useful tool for companies transitioning to IFRS– Convergence Assistant – allow companies to upload

their trial balance, map company’s trial balance to a standard set of accounts, and create two sets of financial statements (IFRS and local GAAP)

Takeaways

• Plan• Prioritize• Collaborate• Ensure top management dedication• Involve the right people and retain them • Reflect back to SOX and Bill 198 implementation• Try to integrate ongoing IT projects with IFRS

conversion• View IFRS adoption as an opportunity to improve

operations and the financial reporting process

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