As of this date (May 2009) in the US market, we are still not clear if IFRS adoption will be mandated by the SEC and if mandated, by when. Hopefully, the SEC will issue clear guidance on the US GAAP to IFRS conversion timetable in the coming quarter.
While several recent surveys indicate that CFO’s are somewhat divided on the need for IFRS conversion, it is clear that the IFRS conversion effort will be welcomed by public accounting firms, software providers and systems integration and outsourcing firms alike. Part of the reason for their enthusiasm is that estimates suggest the overall market for IFRS conversion services in the US will be between $90 and $125 billion over the next five years.
Anticipating that the SEC will soon issue a clear roadmap and timetable for US GAAP to IFRS conversion, each of the “Big 4” public accounting firms and 12 out of the remaining 16 firms in the top 20 provide IFRS research, support resources and other services for both existing and potential clients. These services and other helpful information regarding the firm’s IFRS capabilities are easily accessible via the firms’ external websites.
Given the lack of clarity from the SEC regarding an exact date for IFRS reporting cutover, most public accounting firms today are supporting their clients with “diagnostic” services. These services are delivered by multi-disciplinary teams (made up of accounting, taxation, systems and technology, and human resources professionals) over a 6-8 week period of time.
The output from these diagnostic studies is typically a report providing an assessment of the likely scale and scope of effort required from the client when converting to IFRS. It also highlights, to the extent possible, likely areas of risk that the client will face during the IFRS conversion effort.
Our research indicates that there are many reasons companies conduct a diagnostic study. Among the most common are:
- Scoping – to understand the magnitude of effort and investment required for the conversion program
- Educational – to educate the executive team about the magnitude of the IFRS conversion effort
- Internal Marketing – to create a sense of direction and urgency within the organization and to allocate financial and human resources for the program ahead
- Preliminary Program Planning – to provide a foundation for a comprehensive conversion plan and to ensure that the needed Steps, Tasks and Processes (STPs) are considered
- Value Management – to ensure that opportunities to gain business value resulting from the IFRS conversion program are identified and pursued
- Risk Management – to ensure that risks associated with the readiness, implementation and final conversion program are identified and that effective mitigation approaches are established
NorthPoint’s research indicates that most US Fortune 300 companies have either already engaged or are considering engaging, a public accounting firm to conduct a diagnostic study over the next year. As the SEC announces a definitive timetable, the companies that have conducted a diagnostic study should be positioned to better understand the challenges they will face in their IFRS conversion program.
Tags: IFRS, IFRS conversion risk management, IFRS diagnostic study, IFRS risk management, IFRS risk management software
