IFRS Risk Planning and Controls Execution: Strategic Considerations for Financial Managers

EXECUTIVE SUMMARY * Based on the current SEC road map, your company will need to evaluate how to perform U.S. GAAP/IFRS parallel accounting over a multiyear period. * In creating a parallel accounting environment, your internal control and operational audit staff may need to consider the ramifications of modifying your company's systems and processes. * Internal control and operational audit staff are in a great position to assist your company in evaluating impact areas with the IFR8 conversion. Their financial and accounting backgrounds, combined with the knowledge of the underlying processes and systems, will provide in-depth knowledge for conversion planning. * It is critical for internal control and operational audit staff to get involved early to help guide the company in the planning and to ensure that their portion of the overall conversion cost estimate is included. ********** Conversion to IFRS will be far more than a technical accounting exercise. Implementing IFRS will impact many, if not all, aspects of your business operations, including information technology. It may bring companywide changes that will spawn new risks. These include system changes, modifications to processes impacting employees' day-to-day duties, and new accounting policies. U.S. GAAP and IFRS share many similarities, but they are also different in many areas. Staff responsible for internal control over financial reporting (ICFR) under Sarbanes-Oxley (SOX) section 404 and operational audits will need to understand how your company plans to apply IFRS so they can take appropriate actions based on both operational risks and the risk of material weakness in ICFR. While your company may be familiar with the general principles of IFRS, such as a potential need to depreciate components of fixed assets on a detailed level, a thorough review will make clear that there are many rules and requirements in these principles-based standards. Once they have analyzed the standards, companies may realize they do not have much flexibility under IFRS, but ICFR staff can assist with that analysis. [ILLUSTRATION OMITTED] Companies will also need to evaluate the impact these differences may have on their accounting policies, as well as the underlying information technology systems that support the company's financial reporting structure. Changes to policies and systems on this scale will invariably give rise to additional risks that your organization may need to monitor and control. PARALLEL REPORTING RISKS Under the SEC's proposed road map, companies would need to maintain a parallel reporting environment for approximately three years. In creating a parallel reporting environment, your ICFR and operational audit staff will need to consider the ramifications of modifying your company's systems and processes. These staff members will need to review the company's enterprise resource planning (ERP) and consolidation systems' ability to manage parallel accounting. This can be complicated and expose the organization to additional risk. ERP and consolidation systems will need to be assessed to determine if they can handle the requirements of dual ledgers and reporting. Although the system may be structured to handle the requirement, consider the volume of data that will pass through the ERP system. Is bandwidth sufficient to process transactions m a timely manner? For example, your parallel accounting environment may be structured to process a single transaction into two separate accounting streams, which may cause processing lags due to volume. Systems will need to be configured and controls created to avoid cross-pollination of IFRS transactions with U.S. GAAP transactions (and vice versa). Also, for most companies a plan will be needed to maintain statutory reporting ledgers. Beyond systems, your organization may also need to modify its accounting processes for simultaneous IFRS and U. …