Slide Heading. Information System. Heather C. Paquette KPMG September 23,2009

Transcription

1 Slide Heading IFRS and the Key Effects of Information System Heather C. Paquette KPMG September 23,2009

2 What is IFRS? A Knowledge Check A. International Fun Reporting Standards B. International Financial Reporting Standards C. I Find Retirement Swiftly D. Integrated Financial Reporting Standard E. B is correct but A and C have merit 2

3 Agenda Overview of IFRS IFRS Conversion Approach IT Lessons Learned Case Study Organizational Impacts Internal Audit Involvement Successful Elements of a Conversion Questions? 3

4 What is IFRS? Globally-accepted set of accounting standards Contains similar concepts as U.S. GAAP Limited industry-specific guidance Less detailed application guidance US GAAP 25,000 Pages c IFRS 2,500 Pages 4

5 Current Views on U.S. Adoption of IFRS Source: IASB Required or permitted No/unknown plans Convergence plans 5

6 SEC Roadmap Proposal Issued November 19, 2008 Comment deadline ended April 20, 2009 Identified milestones for IFRS decision Potential SEC decision in 2011 Indicated potential IFRS adoption 2014 for large accelerated filers 2015 for accelerated filers 2016 for other filers Proposal for early adoption of IFRS by large companies operating in IFRS industries 6

7 Characteristics of Companies Likely to Consider Early Adoption Jurisdictions already utilizing IFRS Perceived favorable accounting treatment Competitors currently file under IFRS Subsidiaries domiciled in IFRS countries Attractive foreign capital markets Global ERP systems implementations Significant finance transformation initiatives 7

8 IFRS Transition Milestones and Timeline 12/31/09 12/31/10 12/31/11 Comparative years on IFRS basis (2 years) Year of adoption 12/31/12 12/31/13 12/31/14 Assess impact of conversion Transition Date Design and Implement conversion Note: Illustrative ti timeline for US large Accelerated Filers. Start first IFRS year Reporting Date 8

9 Examples of Differences with U.S. GAAP Revenue Recognition less application guidance Inventory LIFO not permitted Fixed Assets component depreciation required Reversal of Impairment required if underlying facts and circumstances change 9

10 Examples of Differences with U.S. GAAP Restructuring Provisions recognized once company is committed to a plan Consolidation measurement of control, including de facto Income Taxes a number of differences exist 10

11 Some Benefits of Adopting IFRS Streamlined global and statutory reporting IFRS 1 first time adoption alternatives Easier access to foreign capital markets and investments Facilitate t cross-border acquisitions, iti joint ventures and spin-offs 11

12 Challenges of Adopting IFRS Manage magnitude of effort: more than just an accounting exercise Plan sufficiently upfront Facilitate organizational buy-in and commitment from company-wide resources Identify and address new risks to maintaining effective internal control Coordinate with other major initiatives and 12 projects

13 What are Companies Doing Little current interest to adopt early Broad preparation activities are occurring across industries. 15% 15% 45% 25% Little none Raising awareness Plans for 09 Assessment activity 13

14 14 IFRS Conversion: It s more than an accounting exercise

15 Organizational Impact IFRS Beyond Finance IFRS Compliance Requirements Business implications Data availability in source systems Process redesign Systems scalability & architecture Organization design Controls Financial Reporting and dtax Impact Regulatory & Risk reporting 15

16 Systems and Processes Impacts Identify information gaps for conversion Evaluate/revise policies and reporting procedures Evaluate changes needed to internal controls over financial reporting Embed IFRS in local ledgers as appropriate and minimize manual al workarounds 16

17 Systems and Processes Impacts Perform dry-run data collection to check integrity of numbers Develop transition plan for data transfer and parallel system runs Establish contingencies for data collection needs 17

18 Assessing the Effect of IFRS on Information Systems Source: KPMG LLP (U.S.),

19 Types of Changes to Information Systems New data requirements Chart of account changes Interface and mapping changes Consolidation of entities New reporting requirements Financial reporting tools 19

20 Information Systems Conversion Alternatives High Full Conversion Cost to im mplement Time to implement Hybrid Approach Shadow Workarounds High 20

21 Common ERP Alternatives IFRS Chart of Accounts Company Codes Enterprise ERP structure Multiple Ledgers Parallel Ledgers Consolidation 21

22 Information Systems Impact Time and Complexity of Changes Source: KPMG LLP (U.S.),

23 IT Lessons Learned IFRS information systems conversion costs represent 50 % of the overall costs to convert Benefits from integrating IT and business early IT conversion approach is a function of time, cost, resource commitment, and other competing factors Opportunities for achieving synergies with other IT projects and strategic initiatives 23

24 IT Lessens Learned IFRS conversions have more often led to enhancement, rather than system replacement. Multiple global legacy systems can create problems for conversion as reporting entities learn to convert to IFRS. Some companies implement new systems Some companies elect to embed IFRS at the local ledger 24

25 Case Study Project Background Initial assessment Gap identification Milestone planning Key Financial Systems SAP PowerPlant PowerTax 25

26 Scope and Approach Taken Understand Environment Assess Accounting and Reporting Assess reporting requirements Assess systems and processes impacts Assess People and Change impacts 26

27 Selected Impact Areas Process IFRS Requirement Parallel Reporting Property, Plant and Equipment Consolidation Regulatory Assets IFRS requires 3 years of comparative financial statements (1 current and 2 historical) IFRS requires assets to be depreciated at the component level IFRS requires some of client s subsidiaries to be accounted for using the cost method opposite of current equity method accounting IFRS may not allow balance sheet accounting for Regulatory Assets 27

28 Sample Recommendations System SAP Management Reporting Approach Add IFRS Special Ledger; Add a chart of accounts to support both reporting standards Dual reporting and journalizing of GAAP and IFRS differences Upstream and downstream systems and processes significantly impacted Create IFRS period-end review reports SAP Consolidations / Financial Reporting Add consolidation configuration groups; Add new Consolidation and Period-End reports for dual reporting Modify of data extracts to Excel for EC-CS upload and change in validation 28

29 Sample Recommendations System Approach SAP FERC Change source program to remap P&L entries for IFRS Create compatible org model to allow reporting down to the Service Company Update chart of accounts and cost collectors PowerPlant v9 Upgrade to newest version of PowerPlant (v10.2) which h may include IFRS functionality Not upgrading may cause significant manual effort Engage and coordinate with vendor to upgrade system Modify interfaces and chart of accounts 29

30 Next Steps - Planning Conversion Assess Business impact Design Conversion Work Plan Implementation and parallel run Q Q of business vement Level involv high low Project Management Master conversion planning, resource allocation, progress monitoring, coordination, communication 30

31 Organizational Impacts IFRS reporting requires a strong control environment Tone at top Job descriptions i and placement Training Impact to business level processes and controls Less specific application guidance Requires more judgment Process changes will require control and test of effectiveness changes 31

32 Organizational Impacts Consideration of department skill sets PMO support Financial reporting, including IFRS specific System skills needed Consideration of internal audit involvement 32

33 Likely Internal Audit Focus Assess Design Implement Monitor Appropriate and timely involvement during all phases Governance over significant entitywide project Possible management distraction Significant financial cost Impact to entity level, process, application and ITGC controls 33

34 Likely Internal Audit Focus Missed opportunities with other finance or IT transformation initiatives Appropriate board and senior management monitoring Consideration of appropriateness of accounting policy elections and underlying process and controls 34

35 Start early Elements of a Successful IFRS Conversion Plan to utilize synergies with other projects Corporate-level sponsorship and strong governance Engage key stakeholders and resources Invest in education at all levels, including shareholders 35

36 Resources for more information about IFRS International Accounting Standards Board Questions? 36