Professional firms and other business advisors have been raising awareness and emphasizing the need for publically reportable entities to begin their conversion processes to International Financial Reporting Standards (IFRS) for many months now. Presently, the conversion need is no doubt a priority. In the past months, the uncertainty over the economic environment coupled with the internal competition for resources likely meant that management had other issues to deal with, and therefore governing boards and audit committees were not pursuing the conversion process.
In addition, reporting entities that have non-calendar year-ends will have extra time for conversion − their first IFRScompliant financial statements will be for the first year ended in 2012 (an entity with a December 31 year-end will have to issue its 2011 financial statement in compliance with IFRS).
For a public entity, managing investor expectations must always be on the priority list and IFRS conversion will increase that need. It will be important to manage the investor community to ensure that share prices do not suffer by springing IFRS-conversion surprises on the market. In this respect, communicating the impact of the conversion should also be made a priority.
For a smaller reporting entity, the resources available may be limited. Internally, there is unlikely to be a vast body of IFRS knowledge from which to draw and the hours available that could be applied to the project may be equally limited. Furthermore, pressure on auditors to provide assistance with client conversions will no doubt increase between now and the issuance of the first financial statements under IFRS which may lead to delays in service.
Our suggested approach to the task is as follows:
- Spend sufficient time at the planning stage to be able to identify the main conversion issues. Investing time early will mean that time and resources are not wasted on smaller items.
- Consider the resources for the project realistically, including the number of hours available and their timeframe. The planning stage should also involve making realistic assessments of the time required for each step; for example, the amount of time required to draft the first set of IFRS-compliant financial statements should not be underestimated.
- Consider the system implications including the consequences for certifications of controls over financial reporting. In a worst-case scenario, the financial reporting may be cut and pasted together using a series of Excel spreadsheets in order to meet the deadline. However, controls must be in place to manage the risk of misstatement and the need to restate errors in a future period and the associated costs, not least of all in management reputation.
- Our suggestion would be to outsource discrete components of the process to knowledgeable advisors to manage the deadline. Whatever the approach taken, there should be an emphasis on retaining the knowledge of the new accounting standards within the company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
