The purpose of this blog is to provide readers with a basic IFRS Conversion Project Management “Road Map”. Remember –the way in which an organization’s IFRS project is managed, will be as important as the accounting expertise required to understand, and transition to the new IFRS standards. The IFRS Project Management framework that follows is an approach that I am recommending, after carefully studying and reviewing several different methods. This model can be tailored to an organization of any size, in recognition that it is not possible to have a “one size fits all” approach. However, using a structured approach will ensure that all areas are considered, whether they are relevant or not. This will also assist in justifying to the external auditors and other stakeholders that the IFRS transition was comprehensive and complete.
Remember also to discuss and review the IFRS transition carefully with your accounting professionals. If your organization does require external consulting support, I would be pleased to discuss this with you. In that regards, please note that I am well positioned to assist your organization in the IFRS transition. I have over 25 years of financial management experience in a wide variety of industries including Energy, Consumer Packaged goods, Retail, Medical Supplies, Health Care, Paper products, and Agricultural / Construction Equipment. I have experience in both publicly listed and private companies. Furthermore, I have successfully managed key projects such as Bill 198 / SOX, and recently completed the CGA Executive program to refresh and upgrade accounting expertise which included IFRS. I received the CGA accounting designation in September 2009.
As you read through this blog, you will notice that it is written in the context of using the services of Edelkoort Smethurst Schein CPA’s LLP as an external consultant, the method that I would recommend if I was in a position to work with, and support your organization. You will also note a reference to several appendices – these have been excluded from this blog – if you wish to have further information on this, please contact info@es-cpas.com
Background
Canada will be transitioning from Canadian GAAP to IFRS for all publicly accountable entities, effective January 1, 2011. This would include companies listed on the TSX and Venture exchange. For comparability purposes, the transition will require that companies be in a position to report under IFRS for 2010 as well as 2011. As a result, it is important for companies to begin their initial review during 2009, to determine the scope, complexity and resources required for the project, and provide updates to the investor community on its impact.
IFRS Project Management
I recommend using the 5 Phase Canadian GAAP to IFRS conversion model designed by E&Y, and endorsed by CICA. This IFRS project management model can be adapted to an organization of any size, and follows a prescribed structure that will ensure the project takes into consideration all aspects of the conversion. A generic overview of each of the 5 phases and the related “work streams” is attached as Appendices, and I have tailored this to your company as follows:
Phase 1 – Diagnostic / Scoping
Identify changes, differences, business consequences of IFRS conversion including; accounting and reporting differences, potential areas of business affected by these differences identified, types of processes and system effects and issues resulting from the differences in conversion. Identify areas of focus in future phases of the project.
During this phase, I would meet with you and other managers / staff as applicable, to gain an understanding of the financial reporting system, major business processes, ERP systems that support finance, and the internal controls framework. The purpose of this scoping exercise is to gain a general understanding of the complexity of the business, financial reporting etc and how this will be impacted by IFRS. During this phase, I would also review the company’s accounting policies and financial statements / disclosure. Although each specific IAS standard would not be studied during this phase, it will highlight the key areas for future review such as PP&E componentization, interest in joint ventures, business combinations etc, and any significant business / system issues. It would also recommend a cursory review and assessment of IFRS-1 elections and exemptions, only available for first time adoption of IFRS as part of this scoping exercise. I would meet with you at the conclusion of this phase to provide feedback, and discuss next steps.
Phase 2 – Design and Planning
Set up structure and project management organization. This is very important – conversion will likely fail if not planned properly. Include cross functional team members (Tax, business, IT and process changes etc).
During phase 2, we would build on the knowledge gained in the previous phase, and prepare a detailed project plan, which would include; launch the project, obtain an explicit mandate from senior management that the IFRS project receive the required support across the company, establish a steering committee and project sponsor (CFO), identify key project resources, define a training plan, define an internal and external communication plans, and prepare an IFRS conversion framework (checklists / milestones). At this point, the company would essentially have a “blue-print” that would be used to guide the conversion project, including tasks, timelines, and budget.
Phase 3 – Solution Development
Select accounting, reporting and tax solutions in compliance with IFRS requirements, applying overall conversion strategy. Develop accounting, reporting and tax solutions. Determine and develop sustainable business processes and system changes. Develop comprehensive conversion plan for remaining steps of the conversion project.
This is the “nuts and bolts” phase of the project. During this phase, accounting policies would be reviewed and selected, including PP&E, tax reporting, and consolidations, as well as resolving other issues such as the impacts on the overall business and information systems. We would analyze the impacts on each functional area including tax, investor relations, treasury, and human resources. We would determine the system changes required, and the “downstream” impact to performance metrics and banking covenants etc. It would also include a thorough review and assessment of IFRS-1 elections and exemptions, only available for first time adoption of IFRS. The outcome of this phase would be a detailed conversion plan which would drive the implementation phase of the project.
Phase 4 – Implementation
Sign off, implement, test and roll out solutions developed in phase 3, including accounting policies, accounting and procedures manuals, tax solutions, business solutions including any new processes, and IT solutions. Sign off on solutions developed with auditors and the audit committee. Test solutions based on test design including; finalization system testing, user acceptance testing (end to end test), dry run exercises, confirm (accounting) choices and roll out solutions. Another objective is to produce the opening Balance Sheet and dry run of general ledger accounts.
During this phase of the project, the company would build upon the planning, reviews, developments and approvals in previous phases of the project, and essentially be rolling out IFRS. This is where the “rubber hits to the highway”. The information applicable to 2010 quarter ends would need to be “stored” and retrieved during 2011 for comparative purposes. The 2010 information would also enable the company to provide guidance to various stakeholders on the impact of IFRS on the financial results and business operations. Lessons learned from Europe and other countries having already converted to IFRS, include the need to push the details down to the transactional level, and avoid “band-aid” work around solutions such as excel spreadsheets to convert from Canadian GAAP to IFRS (See Appendix 8 – IFRS Lessons Learned).
Phase 5 – Post – Implementation Review
Objective – IFRS Implementation is considered to be complete when an organization is able to report under IFRS with its own financial reporting system without external support. Access and de-brief the implementation, address deferred items, review compliance of implemented solutions, make transition from IFRS “conversion” structure to “operational” structure. IFRS conversion project is considered a success, and complete when it has effectively addressed all aspects of the IFRS change (Accounting, HR, Investor relations etc), completed on a time, within budget, without significant support from external advisors.
This phase is important because the company needs to be 100% confident that it is in a position to report accurately with IFRS on an ongoing basis. Ideally, the project will be substantially completed by mid-2010, so that the company will have several quarters to assess the accuracy of information before 2011.
The accompanying Appendices are an important part of this letter in that they provide additional details and insights. The final and perhaps most important component is a project schedule which would detail all aspects of the project including specific areas of review, timing, resources and budget. It is extremely difficult to provide an estimate for this without further discussions. I have a template available for project management purposes which would be completed, and I would suggest that this be done at the conclusion of the diagnostics phase (phase one).
Fee Proposal
Hourly fees for this consulting assignment are negotiable, and would really depend upon the complexity and length of the assignment. I am always very cognizant of the need to control expenses, and would make every effort to work as efficiently and effectively as possible to reduce time (and fees) while ensuring the quality standards required. Furthermore, any routine tasks of a “clerical or mechanical” nature can be discussed as to assigning these to other staff, external resources or perhaps invoiced at a reduced rate, as required. In order to learn more about your business, I would also be available to review selected files in advance of the project that you would consider appropriate under the circumstances.
If you wish to discuss this further, and perhaps move forward, I would be pleased to provide a more detailed proposal including budget cost estimate and timetables.
Please don’t hesitate to contact me if you have any questions, and I look forward to hearing from you.
Best regards.
Sincerely,
Edelkoort Smethurst Schein CPA’s LLP MBA, CMC, CGA
Managing Director
Edelkoort Smethurst Schein CPA’s LLP
Email: info@es-cpas.com
Web: gfsconsulting.ca
Member: Certified General Accountants of Ontario
Member: Certified Management Consultants of Canada
Member: Institute of Internal Auditors
Qualifications
• CGA – Certified General Accountant – completed 2 year program in July 2009, which included IFRS discussions.
• CICA – Completed all four IFRS e-learning modules.
• IFRS Seminars / Publications – attended several IFRS seminars, and supported / written numerous IFRS articles.
• + 25 years of financial reporting, management and business experience.
• + 4 years of internal audit experience.
• + 5 years Bill 198 “SOX” experience.
• Project Management experience.
• CMC – Certified Management Consultant.
• MBA – Finance.
• BA – Economics.