To achieve the expected outcomes of the conversion to IFRS, Canadian companies can draw on the experience of others – for example Europe and Australia, as the Canadian approach is developed. A few examples of IFRS issues reported by groups surveyed are as follows:
• A significant number of European companies experienced unexpected complexity of technical issues. Scale, complexity and time frame were underestimated. Lesson learned – need to develop IFRS knowledge with preliminary assessments as soon as possible to avoid “last minute fire drills” and minimize risk of missed reporting deadlines. Start early, and then follow up with a detailed planning exercise up front – this is extremely important.
• Unfamiliarity of numbers after conversion. Lesson learned – education of end users both internally and externally, and especially for business unit leaders who may be unfamiliar with the implications of the changes with respect to IFRS conversion. Investor relations will also require a strong educational grounding to communicate the impact to investors.
• IFRS changes not fully embedded in back offices and G/L systems requiring stand alone manual workarounds. Some European companies now have to redesign systems to fully support IFRS and eliminate inefficiencies. Lesson learned – longer lead times to proactively redesign processes and augment systems to eliminate inefficiencies of these workarounds. The manual work around is a “quick win”, but companies fail to adjust, and this is not sustainable. This also causes stress within the Accounting team. It is important to push down the conversion to the transaction level through-out the organization as early as possible.
• Project lacked adequate buy in from senior management early on. Lesson learned – the tone from the top is important for change management. Sponsorship of the IFRS project by the Board of Directors is essential.
• The IFRS project was hampered by poor project management. Lesson learned is to have proper PMO or equivalent, capable of coordinating project activities using well structured project methodology (even if the company is small). Project management cannot be underestimated.
• Slight accounting differences resulted in material differences in financial results. Lesson learned is to have a methodical approach to reviewing accounting differences – this is essential to understanding financial impacts.
• Poor communication existed between business units and project team. Lesson learned – invest time necessary to explain the changes, and roll out new business processes, internal controls, accounting practices, and changes to reporting requirements throughout the wider organization.
• Insufficient communication with external stakeholders. Lesson learned – capital markets are “reactive”, and this requires that companies “proactively” manage information and explanations to the investor community.
Canada is in a great position to learn from others as we have more time to plan, and we should invest the time and money up front and build the lessons learned into our accounting and business processes. It does not make sense to do it the reactive way with a quick fix, and then deal with the implications afterwards. Get started now, and do it right the first time.
Another way to capitalize on the IFRS conversion experience of others is to examine how other companies in the same industry are dealing with IFRS changes. In the diagnostic phase, accounting work streams may take advantage of accounting policy benchmarking with peer companies in the industry – if nothing else but to know the general direction of industry accepted best practices with regard to IFRS. In Canada, this concept is being talked about as a best practice for the future, where companies can share information and decide collectively how best to deal with accounting choices and report financial information. For example, industry forum may be created in Canada to discuss componentization and other practices. So, in addition to reviewing European and Australian experiences, industry benchmarking will be another method to ensure a successful IFRS implementation.
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 accounting professional for further guidance.
Edelkoort | Smethurst | Schein CPAs LLP is located in Burlington Ontario servicing the Golden Horseshoe and Greater Toronto Area and beyond. The firm is fully licensed with CPA Ontario to provide assurance, tax and accounting services as well as registered as tax preparers with the Canada Revenue Agency (CRA) & Internal Revenue Service (IRS). The firm is also registered as an IRS Certified Acceptance Agent.
All blog posts published on this site are for informational purposes only and do not constitute professional advice. Readers should contact a professional to discuss their individual situation. Neither the author or the accounting firm shall accept any liability for any reliance placed on the information posted.