IFRS and Information Technology. Chris Anderson, Grant Thornton Jim Menzies, Grant Thornton

Transcription

1 IFRS and Information Technology Chris Anderson, Grant Thornton Jim Menzies, Grant Thornton

2 Agenda IFRS timelines Planning Potential impacts by industry Disclosures Key risks to consider when converting IFRS Information Technology concerns

3 When will this change impact you? January 1, 2010 Opening balance sheet under IFRS. Valuations may be required for certain opening balance sheet accounts, depending on accounting policy choices under IFRS Fiscal 2009 Fiscal 2010 Fiscal 2011 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 IFRS Opening Balance Sheet Start of IFRS Reporting IFRS Reporting IFRS Comparatives

4 Information flow and components

5 Planning Identify the relevant differences between GAAP and IFRS for the organisation ranked by magnitude of changes required, risk and anticipated timing Specifically looking to determine the magnitude of the changes to Business processes & internal controls Business management ERP and related information systems Tax accounting and tax returns Staff and Board accounting standards competencies When assessing policy alternatives, this needs to include nonfinancial aspects.

6 Planning (cont.) The initial assessment will focus on categorization of the magnitude of the changes required and implementation options (i.e. ERP modification versus other viable workarounds) Subsequently, Phase 2 Implementation related work should identify specific and detailed estimates of effort, time and costs to make the changes Failure to plan means plan to fail!

7 What might be impacted at the detail level? Manufacturing & Mining Property, plant and equipment Inventories Impairment of assets Business combinations Provisions Retail & Financial Hedging Leases Discontinued operations Inventories Impairment of assets Business combinations Provisions Crown Corps and Not For Profits Impairment of assets Business combinations Provisions Everyone think about Share based payments Employee comp & benefits Financial instruments (sensitivity analysis) Intangibles Income taxes

8 Planning - Disclosures Consider Financial ratios/ covenants that could be impacted by IFRS convergence Disclosures Liquidity risk - maturity analysis Market risk - sensitivity analysis How profit and loss and equity would be affected if a reasonably possible change in the relevant risk variable had occurred Financial Disclosures need data! Financial Risk Credit Risk the risk that an entity will experience financial loss due to a counterparty failing to discharge an obligation; Liquidity risk the risk that an entity will encounter financial difficulty in meeting its obligations arising from financial liabilities; and Market risk the risk that the fair values or cash flows of a financial instrument will change because of changes in market conditions. Market Risk Currency exchange risk the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in exchange rates Interest rate risk the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates; and Other price risk - the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market conditions not related to interest rate risk or currency exchange risk.

9 Key risks associated with converting to IFRS Failure to capture all accounting and disclosure differences. Accounting and reporting multiple GAAP at transition. Failure to communicate the impacts and results to stakeholders including boards, audit committees, investors and analysts. Excessive costs and unreasonable or excessive work levels brought on by ineffective planning, project management and/or rework. Inability by management to conclude and certify on the design or effectiveness of the company's internal controls over financial reporting. ~ "20 Questions Directors and Audit Committees should ask about IFRS Conversions", CICA

10 Key risks associated with converting to IFRS (cont.) We have found that the IT impact of conversion is consistently underestimated Changes to systems, new data or new systems have to have adequate internal control application level accounting functions and controls IT General Controls environment may need to include new systems, else any SOX/C-SOX testing will be expensive Focus on the basics and do them well Program change control Logical access control Hardening So need strong SDLC, Change control, PMO

11 IFRS Information Technology Concerns Year 0 comparatives get going! 2 books of record in 2010 IT systems Financial statements General ledger Business processes, internal controls and affected management information Are you in an integrated supply chain? New data requirements??? Non financial data (dates, KPIs) New calculations Interface changes. Service Providers What information do they have? Conversion Knowledge of GAAP and IFRS. Testing all the changes Maintenance Systems old data Disclosures Overly complicated spreadsheets 11

12 IFRS Information Technology Concerns (cont.) Business management The potential impact of IFRS includes not just the financial statements, but also business management data related to key performance indicators, management reporting and performancebased compensation. Potential impacts on operational controls, such as performance targets, and the accuracy and reliability of the data supporting key management operational decisions must be considered to ensure that desired behaviours, post-ifrs, continue to be encouraged and rewarded. * Example: more detail, new data, different calculations for revenues from contracts (not allowed to use completed contract method)

13 IFRS Information Technology Concerns (cont.) Consider also Potential for additional data, different information or new information available upon conversion for key performance indicators and other decision making Will existing data be readily available and comparable Ensure that sufficient controls are in place regarding the accuracy and reliability of this (new) data. Old data may still have to be MAINTAINED for income tax or other filings leads to concerns over storage, integrity, retrieval.

14 IFRS Information Technology Concerns (cont.) HERE IS SOMETHING TO SCARE YOU What about members of an integrated supply chain, where your suppliers and customers can access, even UPDATE, your ERP system? They better be talking the same language! Data definitions, inventory methods, units of measure may all change. Interface changes have to work, interfaces and aggregations have to balance/ be reconciled so don t create more than you have to! Overly complicated spreadsheets

15 Project Management Architecture

16 Final Thoughts The path to IFRS is a multi-year journey. You may have ERP upgrades, IT controls improvements, website changes all happening at the same time. You need a PMO and SDLC that is strong and connected to the CFO and other key users Don t appoint just any Project Manager

17 Contact Information and Resources Chris Anderson, CISSP, CISA, QSA Partner, Business Risk Services T (416) E canderson@grantthornton.ca Jim Menzies, CA Partner, IFRS T (416) E jmenzies@grantthornton.ca IFRS Transition Resources