IFRS Implication on IT 3
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Transcript of IFRS Implication on IT 3
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ACC 626
Rachelle Kou
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Need comparatives – typical conversion takes 2-3 years to plan and implement
Avoid cost overruns – IT involvement represents 50% - 70% of overall project cost
European experience – underestimated IT impact - conversion is not simply an accounting issue!
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Establish IT Steering Committee and project plan
Tone at the top! ◦ Instill a sense of urgency for the project
Keep Board of Directors and Audit Committee informed of project plan and progress
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Key: project management and competent IT personnel
Knowledge transfer between IT and accounting departments
Involve internal auditors ◦ Project risk management
◦ Internal Controls over Financial Reporting (ICFR)
◦ Disclosure controls
◦ Change management
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Add data fields for financial reporting systems:◦ IFRS requires more detailed disclosures◦ Accounting policy changes, E.g. % of completion method
Amend key inputs into internal reporting systems:◦ Budgeting & forecasting, performance management,
incentive-based compensation
Reconfigure existing IT systems:◦ Calculate or process data on a different basis◦ E.g. Separate general borrowing costs from those related
to qualifying assets
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ACCOUNTING CHANGES IMPACT ON IT SYSTEMS
Revenue recognition:• Must use % of completion
method
• Calculate work progress - Need new data fields to capture
cost incurred to date, overall budgeted costs etc.
PPE:• Different calculation for cost base •Componentization
• Require additional measurement area within the accounting system to record significant asset
components and depreciation
Investment Properties: • Choice of FV methods• Challenges for parallel reporting:
- Local: Amortized cost, separate land and building
- IFRS: FV, measure as one unit
• Need separate approach in ERP system
• Restructure PPE accounts to separate out investment properties
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5 dimensions:
Source: “Technology Implications of IFRS adoption for U.S.Companies”, Deloitte Consulting 2008
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Asset Management – modify for changes in PPE accounting◦ (a) Need additional depreciation area
◦ (b) Alternative: Duplicate all fixes assets master
records that have measurement differences
(a) (b)
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Inventory & Purchases◦ Prohibited LIFO
◦ Lower of cost and NRV
Asset Valuation◦ Impairment testing & reversals of impairment
losses
◦ Cash-generating units
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Linkage to upstream systems:◦ Modify GL design and Chart of Accounts◦ Analyze reconciliation process between sub-ledgers
and GL◦ Change calculation engines for revenue recognition
and expense allocation method
Linkage to downstream reporting systems:◦ Change mapping tables for generating F/S◦ Update mappings to internal reporting systems
Multinational companies need to modify GL structure to ensure compliance with multi financial reporting format
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Standardize financial data for more extensive disclosure requirements
Create/modify data governance function and metadata repositories to reflect revised data models
Increased need for data storage and retention
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Revise external reporting templates
Consolidation systems ◦ Amend extraction process in include missing data
for consolidating entities
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Additional CPU and memory requirements ◦ Avoid untimely reporting!
Change existing EDI or web interfaces to 3rd
party IT systems
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1. Tweak existing system:
Manual adjustments to change GAAP numbers to IFRS numbers
2. Modify existing system
Common account approach
Duplicate ledger approach
3. Implement whole new financial reporting system
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1. Conversion at group level
Top-level adjustments at consolidation stage
2. Conversion at subsidiary level
Adjustments at each subsidiary
3. Conversion at source
Modify source system at each subsidiary
Sustainable solution
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Test all proposed system changes
Parallel dry run of processes and controls◦ Involve end users!
Monitor internal controls over financial reporting (ICFR) to ensure compliance with SOX-44 (US) and NI 529-09 (Canada)
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General application environment◦ Business process controls and automated
transaction controls
◦ ICFR – verify accuracy and reliability of new data
◦ Review spreadsheets and other end-used applications
◦ Ensure integration with core financing systems
Documentation of internal controls◦ Increased use of judgment and textual description
◦ E.g. Identify asset components, lease classification
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Identify required changes to IT systems
Modify or entirely replace systems
Update internal controls
Continuously monitor and test changes
Project management team
PLAN EARLY!