copyright © 2010 deloitte development llc. all rights reserved. understanding the impact of ifrs...

Copyright © 2010 Deloitte Development LLC. All rights reserved.

Understanding the impact of IFRS Cost effective assessment

Americas' SAP Users' Group – Chicago

April 16, 2010

Nick Difazio Partner – National IFRS PMO Deloitte & Touche LLP

Ben ReschPartner – Regional IFRS PMO Deloitte & Touche LLP

Copyright © 2010 Deloitte Development LLC. All rights reserved.2

Worldwide IFRS adoption map – For public companies

Global use — Used in over 100 countries by more than 40% of the Global Fortune 500

• Current: European Union (EU) countries, Hong Kong, Australia, New Zealand and many Middle East and South American countries

• Future: Chile (2009); Brazil (2010); Argentina, Canada, India and South Korea (2011); Mexico (2012), Japan early adopters (2010)

• Proposed: U.S. mandatory (2015) may provide early adoption, Japan mandatory (2015) — Based on Regulatory Roadmaps

Europe2005

Australia 2005

Canada2009*/2011

China2007

Brazil2010

India 2011

Chile 2009-11

Japan2010*/2015

South Africa2005

Adopted or will adopt

Developing plans to adopt

No plans or unknown

Mexico2012

United States 2009‒14

Argentina 2012

* Early adopters


SEC statement on convergence and global standards

Summary SEC statement on convergence and global standards Overview of the SEC (“the Commission”) statement

− Reviews Commission’s IFRS activities to date− Summarizes public feedback on the IFRS roadmap− Outlines an approach going forward

Includes a “Work Plan” setting forth specific areas and factors for consideration before potentially transitioning to IFRS

Withdraws the initial proposal on early use; although does not rule out an ability to early adopt in the future

Execution of the Work Plan, combined with the completion of the convergence efforts, could position the Commission to make an informed decision on an IFRS mandate in 2011

Future SEC rulemaking would be required to implement– likely effective in 2015

On February 24, 2010, the SEC issued a statement expressing its continued support for the development of a single set of high-quality globally accepted accounting standards and recognized IFRS as being best positioned to serve that role.


IFRS in the U.S. – Revised SEC timeline

2011: SEC to decide whether to mandate IFRS

January 1, 2013 Beginning of the first comparative IFRS year under current proposal

December 31, 2015: Companies could be mandated to report financial results using IFRS

2010: Expected release of revised “IFRS roadmap” and SEC workplan

Dual reporting period: IFRS & U.S. GAAP

Transition date

2010 2011 2012 2013 2014 2015

IFRS Reporting date

Proposed SEC timeline (as revised)

U.S. GAAP Financial Statements (through third-quarter 2015)

IFRS Financial Statements


Role of convergence

SEC statement reinforces support for the ongoing convergence activities of the FASB and IASB

SEC statement emphasizes completion of current initiatives by June 30, 2011

Convergence considerations

Convergence does not necessarily result in identical standards; focus is on converging general principles, not every detail

Ongoing convergence is limited to a defined group of projects

Several of the most time consuming areas of IFRS conversion deal with areas not subject to convergence

“Convergence” will not result in a transition to IFRS by U.S. issuers in and of itself


Planning to help ensure a cost effective implementation

− Answering key stakeholder questions regarding impact (e.g., earnings)− Determining high-effort and long lead-time items− Developing resource estimates and a plan of attack by area− Preparing for and accomplishing statutory conversions, as required

Monitoring the statutory reporting environment

Evaluating the impact on in-process ERP implementations and upgrades

Considering long-term benefit opportunities

− Simplification and streamlining of statutory reporting

− Simplified internal controllership processes—platform for finance transformation in selected areas

− Identification of impact on in-flight system modifications

− Tax planning opportunities

Based on our experience and knowledge, many companies are doing the following:

Many companies are performing or planning an IFRS impact analysis in light of IFRS developments and ongoing convergence efforts

What are U.S. companies doing now?


2011

Plan and design Solution development

Implementation and dual reporting

2012 2013 2014 2015 2016

Cutover to IFRSBegin U.S. GAAP and

IFRS Dual Rptg.

2010

Technical

accounting

Statutory reporting

Program

management

Tax

Process and controls

Systems

Organization and change

Develop Structure

Model IFRS chart of accounts

Create global IFRS policies

Develop reporting package

Gather system requirements

Design, build, and test changes to ERP and other systems

Deploy systems

Evaluate dependencies on other Company Initiatives

Obtain IFRS tax

assessment

Assess process and control

impactsRedesign processes and controls

Assess organization

impacts

Prepare IFRS compliant financial statements

Identify Impacts on other internal and external stakeholders

IFRS conversion by Country

Implement organizational changes

Conduct user training

Assist business units in adopting IFRS

Assist Company to run U.S. GAAP and IFRS in parallel Identify and address reporting gaps

Identify/address process and control gaps

Identify and address system gaps

Identify and address org and people gapsDevelop user training

Identify other initiatives

Ongoing program management, change management, and communication

Obtain IFRS Tech Acctg assessment

Identify tax implications of global IFRS policies

Set Conv. Sequence

Evaluate tax alternatives

Determine hand-offs

Align with operating model

Develop communication plan/infrastructure

Transition

phases

High-level IFRS conversion roadmap

The following high-level IFRS conversion roadmap illustrates a potential IFRS adoption timeline and would need to be tailored to a company's unique facts and circumstances. Note that the expected date of IFRS adoption is based on the February 24, 2010 SEC Statement in Support of Convergence and Global Accounting Standards.


IFRS considerations in a systems implementation

Consider areas of overlap with an IFRS conversion throughout the implementation processEvaluate the interdependencies in the assessment phase.

Common areas of focus Suggested activities as part of assessment

Chart of accounts (COA) structure • Understand what additional COA may be required under IFRS

• Understand if there is certain COA detail that might ultimately facilitate or simplify disclosures requirements under IFRS

• Map the IFRS sub ledger impacts to system functionality

• Facilitate COA rationalization effort is consistent with dual reporting approach

New entities potentially requiring consolidation

• Assess existing legal entity structure and COA under IFRS

• Consider legal entity structure changes for entities that could potentially be consolidated under IFRS

Dual reporting strategy • Develop a dual reporting strategy which comprehends the system

• Create journal entry methods/templates to accommodate new requirements

Ledger interfaces • Understand that the differences in the accounting treatment between current accounting standards and IFRS will likely drive changes to general ledger design

• Facilitate that the system legal entity structure and account structure can accommodate IFRS reporting

Timeline/roadmap for implementation

• Mapping/integration of systems and IFRS Roadmaps


Sub-Ledger General Ledger Consolidation Level

Pros

• Provides detailed data for financial analysis and reporting

• Accounts for changes in the subsidiary’s financial statements

• May integrate with existing general ledger system and structure

• Balances between level of detail and effort of implementation

• Accounts for changes in the subsidiary’s financial statements

• May integrate with off-line and 3rd party solutions

• Requires less implementation effort • Enables parallel / dual reporting with

no impact on transactional ledgers or general ledger chart of accounts

Cons

• May require additional effort to capture necessary detail

• May require additional system modules, off-line or 3rd party solutions

• Limits detail available for management reporting

• Requires reconciliation efforts between off-line solutions and general ledger

• Limits detail available for management reporting

• Limits ability to reconcile between ledgers at subsidiary level

• Requires manual intervention — prone to error

• Is less sustainable as a long-term solution

Best fit

• High financial statement impact• Information is available at required

level of detail• Sub-ledger detail is integral for

managing the business

• Limited financial statement impact

• Decreased need for detail for internal/external reporting

• Low financial statement impact• Calculations for adjustments are

centralized

Decision drivers

• Financial statement impact

• Current system release level

• Current sub-ledger and G/L structure

• Current chart of accounts structure

• Long-term business/IT strategy

• IFRS conversion strategy

• Time to conversion• Additional benefits

derived from proposed solution

Solutions

Options are available for parallel / dual reporting


Our experience with IFRS implementations has provided valuable insights

Issue Prioritization is Critical - Frequently a handful of issues will drive the vast majority of the work

Clearly Defined and Communicated System Requirements - Gaps typically exist between accounting conclusions and information finance technology needs

Effective Communication, Training and Change Management - Typically under-scoped, leading to ad-hoc questions and concerns

Granular Implementation Planning - Implementation roadmaps often are not sufficiently detailed to be actionable to identify key resource requirements and interdependencies

Disciplined Project Management Coordinated with Other Functional Initiatives - Downstream process and system analyses are frequently dependent on accounting policy selection

Consider U.S. GAAP Convergence as Well as IFRS - IFRS is driving significant changes to U.S. GAAP, in some cases on a more accelerated timeline


Contact information

Nick Difazio [email protected] +1 313-396-3208

Ben Resch [email protected] +1 312-486-2492

Information on IFRS can be found on the following sites:

www.deloitte.com/us/ifrswww.iasplus.com

mailto:[email protected]

mailto:[email protected]


This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this presentation.

copyright © 2010 deloitte development llc. all rights reserved. understanding the impact of ifrs...

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