IFRS as a Second Language

The SEC is still pondering the timetable for its expected plan to move U.S. companies to international financial reporting standards (IFRS), but the consensus is that the Commission will likely give companies the option of switching from U.S. GAAP for a few years, and then set a mandatory conversion date sometime in 2013 for public corporations, with private companies following a couple of years later.

2013 may seem a long way off; much can happen between now and then, and there's always the possibility of delays, as the Commission demonstrated in its treatment of Sarbanes-Oxley Section 404 requirements for smaller public companies. As a result, many finance leaders may be thinking they can keep IFRS conversion on the back burner for another three or four years.

Not so, argues a new report from PricewaterhouseCoopers. Take, for example, a company that decides to adopt IFRS as its primary GAAP as of December 31, 2013. It might be required to provide as much as three years' worth of income, cash flow, and shareholders' equity statements under the new standards for the period leading up to the go-live date, as well as a balance sheet for the two fiscal years before conversion. That would create a dual reporting period, from 2011 to 2012, during which IFRS would need to be reconciled to U.S. GAAP.

What's more, the changeover is far more than just a technical accounting exercise, according to the report. Businesses will need to understand the effect of conversion on their data, systems, and processes. For example, International Accounting Standard (IAS) 16 requires that each part of an item of property, plant, and equipment (PP&E) with a cost that's significant in relation to the total cost of the item be depreciated separately. But many U.S. companies capitalize a large PP&E element -- a building, say -- in aggregate rather than breaking it down into components such as its HVAC system, elevators, etc. Planning for this change will likely mean tweaking the software that handles PP&E as well as training certain personnel, such as capital purchasing staff and tax staff.

PwC expects that the ERP and/or consolidation systems already in place at most large multinationals will be able to handle the challenges of multi-GAAP reporting, but redesigning or reconfiguring these tools for the new data requirements will take some time and planning.

The report recommends the following action steps for a smooth conversion:

• Perform a thorough systems analysis. Evaluate the "as-is" situation, including the ERP and/or consolidation modules you currently use, the level of customization, and the complexity of your processes. Then do a gap analysis for both IFRS requirements and other business needs. Can your current systems meet your needs for multi-GAAP reporting?

• Be diligent. Exploring the various ERP systems and consolidation tools takes time, but it will help to prevent control issues and reworks at the back end.

• Tie your systems strategy and solutions to your company's structure and business strategy. Doing so may enable you to realize process and cost efficiencies across the board.

See the full report, "Navigating the Multi-GAAP Reporting Maze," from PricewaterhouseCoopers here.