At some point over the next five years, publicly traded US companies will be required to convert from US Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS). Although conversion is anticipated to be required by 2014, the exact date has not yet been established by the Securities and Exchange Commission. More detailed guidance is expected to be issued by the SEC during the 3rd Quarter of 2009.
Based upon experience gained in other countries which have made the conversion to IFRS, the effort required to make the conversion will be significant in terms of both time and money. For example, a survey conducted by Accenture in December 2008 of 200 executives at US companies larger than $1 BN indicated that these executives expect to spend between .1% to .7% of revenue for their US GAAP to IFRS conversion.
Regardless of how you count it, those percentages quickly add up to real money. For a $15 billion revenue company, expected costs could therefore range between $15 M and $105 M for their IFRS conversion efforts. Obviously, many different factors will play a role in the ultimate cost (more about that in later postings) for a company, but IFRS conversion should not be discounted as only an “accounting” issue.
IFRS conversion efforts will have impacts on many parts of a company. Beyond the need to change underlying accounting practices and policies, many diverse areas of a company will be impacted. For example, other areas of significant impact will include:
- taxation policies and practices
- information systems
- asset tracking and reporting
- human resources
- compensation
- financial instruments
- inventory treatment
I could go on with a list of impacted areas within a company, but the main point being is that an IFRS conversion effort is a major program of change for companies. As a major program of change, by definition it will be a risky proposition. The purpose of this blog is to explore and discuss aspects of IFRS conversion risk and discuss tools and approaches (software or people based) that exist to help mitigate those risks for companies.
Recognize that my company, NorhPoint Software and Services LLC, has just released a software tool called IFRS Risk Assesor, or IRA, so my posts will be a bit biased. We have been around since 1992, and have deveoped other enterprise risk management tools which can help organizations manage risk (or create value which is really just the flip side of risk) in other aspects of their business. Learn more about us at www.thenorthpointgroup.net .
Moreover, since I was deeply involved in the design and launch of our product, I really do believe its capabilities are unmatched in helping companies (or their professional services partners) identify critical IFRS conversion program risks and develop effective mitigation strategies for those risks.
I hope that you have an opportunity to stay with this blog and that you are able to learn things of value that will help you and your companies or clients be more successful in your IFRS conversion efforts. I look forward to your contributions and comments and hope we all end up better informed and more effective in our IFRS conversion efforts.
Tags: IFRS, IFRS conversion, IFRS conversion risk management, IFRS risk management, IFRS risk management software
