As with any new IFRS implementation, board oversight at an early stage and on an ongoing basis is critical. In order to ensure an effective and efficient implementation process, it is imperative that the board remains engaged in this process and sets the tone for the entity. The board must be aligned with management in setting the direction and strategy for this IFRS implementation. It is important for the board to have a proficient understanding of the new Standard and its potential implications on areas such as financial reporting, KPIs used in benchmarking, loan covenants and remuneration schemes. Without a clear understanding, it may be challenging for the board to maintain an effective level of oversight and to engage in productive and insightful dialogue with management.
Although still in the early stages of their implementation plan, some entities have already begun to encounter a number of unforeseen challenges, which further substantiates the need to begin the implementation process early. As you begin to discuss implementation with management, consider the following issues that have been identified by select entities, and think about whether management has planned sufficient time to address these issues.
Contracts are not as 'standard' as expected. The terms and conditions within contracts are critical drivers to applying the five-step model. Many entities are finding that the language included within contracts is not quite as straight-forward as expected and consultation with those external to the financial reporting function (e.g. legal counsel) is required. Meaning, existing terms within the contract are challenging to interpret and apply under the context of IFRS 15. Although this presents itself as a challenge on implementation, this can also be viewed as an opportunity to rethink the terms and conditions of contracts on a forward going basis to ensure the original intent of the contracts can be conveyed in the context of IFRS 15.
Obtaining information from legacy systems: Given the retrospective application of the Standard and the increased disclosures, entities are finding that an increased volume of information is required. This information is not always readily available from legacy systems, which may not have captured and maintained the data at the level of detail required under IFRS 15. One such example may include the new quantitative disclosure requirements around disaggregation of revenue.
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