Keep Clear and Open Lines of Communication

The transition to IFRS will affect every aspect of your business and all individuals, including the board of directors, auditors, investors, lenders, employees, analysts and rating agencies.    Here are some tips on how to keep interested parties informed and up to date on how the accounting shift will influence your enterprise:     Start early. Begin informing the public as soon as possible. Consider the messages you want to send out both before your first set of IFRS-based financial statements and when you actually disclose the first financials.     Give your organization time. Top management needs to be able to clearly articulate the reasons for differences between performance measurements under the old system and the new system, as well as the implications of changing key business ratios. Keep in mind that the switch may change reported profits, so indicators for assessing business and management performance may also need to change. If that is the case, the public needs to know.     Anticipate questions. IFRS is principles based, so managers need to be ready to explain why your company made certain accounting choices. The data to support the changes should be collected during the process of preparing for convergence -- not after it's completed.

"Face reality as it is, not as it was, or as you wish it to be." -- Jack Welch, Former CEO of General Electric

Certain issues need to be worked out, particularly when it comes to tax accounting, but most accountants generally agree that adopting a single standard has several advantages. It will:

Cut costs. Companies that prepare and file financial statements in multiple jurisdictions will save money by using one set of globally accepted standards. Companies with global operations and foreign reporting requirements could develop regional financial centers, relocate financial resources (depending on where they are needed) and centralize training and development efforts.

Ease international investing. By improving the quality and comparability of financial information, it will be easier for analysts and investors to assess companies across borders. Similarly, it will be less complicated for companies to compare their financial reports to those of their international competitors.

Create greater access to foreign capital markets and investments.

Facilitate cross-border mergers and acquisitions, ventures, and spin-offs.

Prepare for Convergence: 5 Steps

Given that it takes an estimated two to five years to fully adopt IFRS, your business should start preparing sooner rather than later. Here are five steps that can help your organization:

1. Assess the extent of IFRS-related knowledge, experience and skill within your business. Set up a team that includes individuals from accounting, finance, information technology (IT) support, and human resources. Your company already may have some experience in IFRS if it has:

• Considered foreign acquisitions or cross-border joint venture partners,
• Tried raising capital overseas, or
• Reviewed and analyzed the financial statements of foreign competitors.

In any case, knowing how much IFRS knowledge your staff has helps gauge the amount of training that will be required to comply with the convergence deadlines.

2. Analyze your financials. IFRS financial information can look very different from those on GAAP statements. For example, under IFRS, some equity-type instruments can be reclassified as debt and accounting for pensions and share options may result in significant changes. The list of areas that may be affected includes fair valuations, capital allocation, leasing, segment reporting, revenue recognition, impairment reviews, deferred taxation, cash flows, borrowing arrangements and banking covenants. A difference of just a couple of percentage points in financial line items could seriously affect key relationships with business colleagues, customers, vendors, banks, analysts and investors. (See right-hand box for suggestions on how to develop a communications strategy to keep individuals with a stake in your enterprise informed on how IFRS will affect your bottom line and performance measures.)

3. Review IT systems. Your company's current technology systems may need to be modified, upgraded or even replaced to support IFRS. It depends on your industry and the complexity of your organization's accounting methods. Systems that work well for GAAP may not be able to provide all the information needed for IFRS. Differences in the accounting methods may create a need for:

• New input data. 
• A redesign of books and ledgers to account for financial information that is currently not standard.
• Some modification or expansion of data storage methods and capacity.

4. Assess your options. First-time adoption of International Financial Reporting Standards allows one-time options. Consider them early in the process so you can return to the options when assessing which accounting policies to choose.

5. Draft a plan. With all the information gathered in the first four steps, lay out a formal, written plan that outlines responsibilities. Regularly update the plan and make it readily available to everyone affected by the change. Your accountant can help you come up with this plan and keep it current throughout the process.

Click here for the American Institute of Certified Public Accountants' special Web site listing resources and other information related to the adoption of IFRS.