Wednesday, March 18, 2009

Cutting Back on IFRS Resources - How Much is Too Much?

Good article from the blog at Controllers' Leadership Roundtable:

In response to the economic crisis and continued regulatory uncertainty surrounding IFRS, 71% of companies are slowing their implementation efforts, specifically holding off allocating staff to the project, or postponing their accounting differences diagnostics. However, companies need to ensure that these cuts do not compromise their long-term plans, and must use 2009 for low-cost, targeted assessment and preparation activities.

Waiting Game:
In the last few months, companies have been slowing-but not suspending-their IFRS implementation efforts. This is manifested in two key areas – companies have avoided ramping up their overall project teams, either by cutting back on their budgets, or by holding off allocating staff. At the same time firms are postponing accounting and IT diagnostics, or conducting them internally instead of using more costly consultants as initially planned.

Other Things on the Plate:

There are two main reasons for this slowdown:
Regulatory Uncertainty: Companies are holding back because of the uncertainty surrounding the IFRS Roadmap; including conflicting comments by senior policymakers about whether the SEC will continue ‘full speed ahead’ towards adoption, and strong dissatisfaction with having to wait until 2011 for the ‘go/no-go’ decision. This should be temporary, and will probably go away when the administration’s intentions become clearer, but as of now, companies are scared of committing to an expensive, company-wide set of changes, only to revert back because of policy shifts.

The Economic Crisis:

Companies have much more immediate spending needs than IFRS – currency exchange issues, higher pension costs, and other ‘distractions’ all crowd out increasingly scarce dollars, and are making it difficult for companies to justify spending for an IFRS transition that may not happen until 2014.

Don’t Cut Back Too Far:
While cutting back on IFRS may be an attractive option, companies need to be wary of stopping their IFRS efforts altogether. IFRS is a long term process, and even with the current uncertainty, companies must lay the groundwork in 2009 for the ongoing project in targeted, low-cost ways, including:

Conducting preliminary IFRS accounting research:

As IFRS standards are still being written, conducting highly detailed accounting diagnostics may be counterproductive at this stage. However, companies should dedicate an individual to track and evaluate IASB standards as part of their job, determine which ones are in flux, and which are stable, and use publicly-available and Roundtable resources to understand the key differences. This allows you to prioritize your future workplans.

Evaluate your organization for IFRS competency: Even if you don’t plan to form your project team yet, use 2009 to evaluate your company for people with good project management skills (including ‘big project’ experience in SOX or an ERP implementation), as well as those who have practical IFRS experience, perhaps through a foreign subsidiary. Determine whether you will be able to move these people onto your team, and determine any competency gaps that might need to be filled by outside consultants.

Start reaching out to key stakeholders:

IFRS will have a broad impact on corporate functions, and you need to start making stakeholders aware of IFRS. Start letting IT know you may need to change your General Ledger and other systems (and make sure you are in their long-term work plans), and inform legal and treasury about any debt covenants and contracts that mention US GAAP terms, and may need to be changed.

The key is not to commit to expensive changes
– the external environment may not give you that flexibility, and many of the detailed changes are unknowable at this point anyway-but to get an understanding of the specific challenges you face, so that you will be in a good position to start detailed planning when its appropriate.

1 comment:

The IFRS Exorcist © said...

This is interesting. CFERF is conducting a survey on readiness for IFRS and it will be interesting to see how the results compare.