Information systems play an integral role in the IFRS conversion exercise. Starting early with an IFRS assessment allows organizations to uncover the scope of conversion gaps. Although some changes to information and enterprise resource planning (ERP) systems are easy to implement, some areas of IFRS conversion may require changes that have broad system and process effects that require advanced planning and longer implementation time frames. A long-term roadmap incorporating key implementation considerations will facilitate a smoother transition and allow organizations to embrace the benefits of IFRS. The extent to which systems will need to change depends upon multiple factors and choices, including the quantity and nature of accounting changes driven by IFRS, size and complexity of the business, strategy for responding to IFRS, characteristics of the current infrastructure and capabilities and number of applications that are involved in the collection of financial data and the generation of financial statements.

In general, companies can view IFRS conversion as an opportunity to consider the long-term vision or plan for an overall information plat­form. A long-term solution will help organizations optimize their future financial reporting infrastructure and processes, evaluate and mitigate potential internal control issues in the transition and provide a driver to improve the transparency of systems. Planning to “go live” at the beginning of the transition year is preferable because it enables manage­ment to provide full disclosure and comparability in the most effective manner. Organizations should also seek to maximize systems synergies by looking for overlap between IFRS and other legislated regulatory requirements. By seeking the support of IFRS- and systems-experienced personnel organizations will help to mitigate implementation risks and ensure deployment of a properly scaled and configured system.

To identify which IFRS requirements could potentially drive changes in an organization’s IT platform, management should consider the impact across five dimensions as depicted
in Figure 3-1.

1. Source Systems

Source systems consist of financial and nonfinancial subledgers and interfaces that post financial transactions. In evaluating which source systems may be affected, an organization should identify and document all internal and external data sources that must be updated and develop an understanding of the existing system landscape for all affected busi­ness units and subsidiaries. This exercise will result in the identification of missing data due to differences in accounting treatment and allow for the assessment of required enhancements to subledgers for affected accounting fundamentals, such as fixed assets, inventory, payroll, valu­ation or projects applications. Source systems may also require changes to support dual reporting.

Potential effects include:

• Differences in the accounting treatment between current account­ing standards and IFRS will likely create a need for some new input data and processing capabilities.
• Data and transactions that are captured, stored and ultimately sent to or used to support financial systems may not have all the needed attributes or qualities and they may require configuration changes to accommodate these attributes.

Subledgers within the ERP may have additional functionality to support IFRS that is currently not being utilized but could be implemented.

• Transformation layers, which may currently be in use to translate and feed source system data into the GL, data repositories or both are not likely to have been designed with IFRS in mind; data sender or receiver structures may need to be modified.

Example: In asset intensive industries, IFRS may require a new “asset book” with new rules, componentization of assets or both at a much deeper level than is currently maintained.

2. General Ledger

GL relates to the chart of accounts and its associated policies and proce­dures. An additional IFRS ledger may be required to support dual report­ing. To determine what specific changes may be required, an organization should first evaluate the differences between IFRS and local GAAP to assess the potential impact on the chart of accounts roll-ups and addi­tional IFRS accounts. This evaluation should also include an analysis of the reconciliation, integration process or both between subledgers and the GL and of the existing accounting, reporting, close consolidation and reconciliation processes. Depending on the existing general ledger system functionality, system changes or enhancements may be required to handle the dual-reporting requirements and modifications may be needed to the configurations of the settings of various financial subappli­cations, such as fixed assets (depreciation or useful lives) and inventory valuation calculation and master data.

Potential effects include:

• Differences in the accounting treatment between current accounting standards and IFRS will likely drive changes to GL design and the chart of accounts.
• Multinational companies may ultimately realize a need to modify their book or ledger structure to ensure compliance with multiple financial reporting formats.
• Multiledger accounting functionality within newer releases of ERPs should be considered for long-term solutions.
• Changes to IFRS will likely necessitate adjusting various processes, which may affect configuration of the financial applications.
  
  Example: Under IFRS, expenses are classified by nature or by func­tion, so new expense allocations and other calculations may need to be created.

3. Reporting Data Warehouses or Data Marts

Data warehouses or data marts include consolidation and allocation tools and engines. To assess potential changes due to IFRS requirements, an organization should identify changes in financial information require­ments and the impact of these requirements on existing management information systems, such as valuation systems and actuarial models. The organization should also assess the readiness of data governance functions and metadata repositories (used to describe the structure, administration and definition of data files, for example, a website’s metadata may define the size, date and author of an attached document) that may need to be updated to reflect new data definitions.

Potential impacts:

• More extensive disclosure requirements in IFRS will likely require consistent reporting and usage of financial data that may not be standardized in current data models.
• An increased need for documented assumptions, sensitivity analy­ses, potential factors may exist that could affect future development and may expand the scope of information managed by financial systems.
• Data governance functions and metadata repositories may need to be created or adjusted to reflect revised data models.
• Data warehouses may need to support consolidated financial infor­mation from multiple financial systems and ledgers.
  
  Example: IFRS calls for new disclosure requirements, such as in mar­ket valuation of assets, employee compensation plans and derivatives.

This article has been excerpted from IFRS Compass … IT Systems Implications. You can purchase the publication on CPA2Biz.

John Barile, CPA.CITP, CISA, CBCP, is a partner in the Advisory Practice of Ernst & Young LLP and has over 20 years of information technology advisory and audit experience. Janis W. Parthun, CPA.CITP, CISA, is a senior technical manager of the AICPA’s IT Section and Certified Information Technology Professional (CITP) Credential program. Greg Zegarowski, CPA, is the founder of the Financial Leadership Corporation, a company focusing on building sustainable success through enhanced reporting, compliance and data governance. Khalid Wasti, CPA.CITP, CISA, is a director in the Enterprise Risk Services practice of Deloitte & Touche LLP with over 15 years of information technology audits and financial systems and controls experience.