Adoption of New Accounting Standards – A Brief Guide
Friday 10 October 2014
The transition to International Financial Reporting Standards (IFRS) or adoption of other new standards (e.g. IPSAS) can be a daunting and risky task without a clear and systematic approach being set out from the beginning of the project.
The following suggestions are based on my own experience in assisting over 70 different clients in their IFRS conversions, ranging from start-up companies to non-for profit entities and even to Fortune 500 companies. Of course any approach must be adjusted to the specific circumstances - one size does not fit all. The following approach has been based on that of a multinational corporation undertaking a full conversion from a national GAAP to IFRS. A reduced approach would be used in adopting a single new standard - for example, IFRS 15 "Revenue from Contracts with Customers".
My suggested 10 step approach is as follows:
- Develop a project charter. Define who will do what activities, and assign accountabilities.
- Draft an IFRS diagnostic report. This is a big picture assessment of the major differences in applying IFRS. The objective of the diagnostic report is to rank the issues, risks and financial impacts from high impact to low impacts. The high impact issues are addressed first.
- Develop a project plan. From the charter and diagnostic report, project management skills are employed with budgets, deliverables, Gantt charts, reporting structures, monitoring and assessment tools.
- Prepare white papers. These are reports that assess policy choices, and the measurement, presentation and disclosure requirements of the new standards. They assess the IFRS standard against the entity's current practice, noting any differences and explaining how these will be resolved. For the auditor, this documentation is important to show the choices made by management.
- Conduct IT Assessments. With the adoption of IFRS or any other new set of standards, IT systems must be pre-assessed to determine any changes that may be required.
- Update SOX and internal controls. With any adoption, such processes and systems will probably need to be updated and adjusted.
- Undertake Business Process Assessments. Adopting IFRS affects much more than just the accounting team. Process changes and education will be required in many other areas of the business. This includes such groups as sales, legal, procurement, senior management, the Board of Directors and Audit committees. For example, changing accounting standards may have an impact on bonus systems and bank covenants.
- Assess Policies and Procedures. Once the accounting choices have been made, they need to be documented and communicated to relevant parties within the organization. The documents and white papers mentioned above can often be summarized and serve as the company's policies and procedures.
- Develop draft Financial Statements and Notes. A common mistake is to leave this until the end of the IFRS conversion. Early drafting will often reveal issues that have been overlooked, in good time to resolve them.
- Plan for Training and Development. Training of staff is critical for the success of such a complex and wide-reaching project, and it should reach beyond the accountants!
Author: Chris Boland (Canada) is a professional IFRS consultant specializing in assisting clients with their transition to International Financial Reporting Standards (IFRS) and the application of new standards. He is also a regular instructor for IASeminars. Chris is a Certified Public Accountant, Canadian Chartered Accountant, and also holds the Certified Management Accountant designation. Chris has extensive experience with IFRS, and US GAAP. Prior to establishing his consulting practice and teaching career, Chris was General Manager (Accounting; IFRS) at Canada Post Corporation. His earlier positions at other organizations included CFO and VP Finance; Director of Tax and Treasury, Controller; Manager of Financial Reporting and Controller (Overseas Operations); Manager of Financial Reporting; and Auditor.
IASeminars offers a wide range of live and online courses on financial topics including IFRS, US GAAP and IPSAS. Our events are held on 5 continents, and over the last 12 years they have been attended by more than 15,000 participants from some 130 different countries.
IASeminars offers the following courses (and many others) that are relevant to the subject of this article:
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