IFRS and Change Management

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Change Management will be an extremely important consideration as Canada transitions its accounting policies (Canadian GAAP) to International Financial Reporting Standards (IFRS) effective January 1, 2011 for all publicly accountable entities. This means that lots of financial professionals will need to shed the old way of doing things and embrace IFRS.

I discussed Canada’s upcoming IFRS transition with Robert L. Harris, B. Comm., MBA, CHRP who has years of experience and expertise in change management, to get his opinions and guidance for financial professionals on change management in general, and specifically in regards to IFRS. Change management has been identified as a critical success factor by all observers and practitioners involved with IFRS transition.

Robert’s comments are as follows:

Even though IFRS change is required, that doesn’t mean it is going to go well.  In fact, change implementation in general, has a terrible track record – studies show that about 2/3 of all change efforts fail.   Hence the paradox – on the one hand, IFRS is required; on the other hand, it is probably unwanted, at least initially, by the majority of those being mandated to change.  

At the outset of any change initiative, about 80% of all stakeholders (i.e., those impacted by the change) experience mild to strong “resistance” – meaning, if given a choice, people would just as soon not do what they’re being required to do.    What often results is a form of “begrudging compliance” whereby people, at the 11th hour, start to engage to the extent that they must.   This of course has ramifications to the many organizations which require excellence in accounting reporting. 

So, what can be done to make this change, or any change for that matter, go more smoothly?   Here are some tips:

Critical is how the change is communicated.   All too often, there is a tendency for change communicators to disproportionately talk about the “benefits and advantages” of the change, with little effort given to balancing these upsides with the potential downsides that will also accompany the change.   This “cheerleading” approach causes others to tune out.  Instead of the change being understood and embraced, it is ignored or even ridiculed.  

What is needed instead is a balanced communication that starts by explaining why the change is necessary, followed by anticipated outcomes and, more importantly, what are the perceived downsides to the change and how these will be minimized or softened.  Finally, it is critical that the communicator explain what is not impacted by the change; that is, those things that are valued and will remain the same.

Studies also show that how you communicate the change is the most critical variable in whether the change succeeds.    Robert Harris describes this process more fully through his Strategic 4-box Communications Model.  You can learn more by visiting Robert’s website at https://www.rhresources.com/.

I hope this helps. This is one of a series of blogs that is meant to convey information relating to Canada’s transition from Canadian GAAP to IFRS.

For further information, please refer to the ongoing series of IFRS blogs on the Edelkoort Smethurst Schein CPA’s LLP web-site and please remember to contact your CGA or other accounting professional for further guidance.