Journey to IFRS
Page 2
Momentum for a Global GAAP
Global
GAAP
Enhances Transparency and
ComparabilityFacilitates Accounting
and Reporting
Reduces Cost of Capital
Page 3
The economics of IFRS – CFO.com
► Two new studies discuss the optimism about the future of a global standard. A survey by the International Federation of Accountants asked 143 accounting leaders from 91 countries about the significance of converging standards, and 89% said it was very important or important
Page 4
History
► IASB (International Accounting Standards Board) / IASC (Committee) was formed in the early 1970‘s, about the same time as the FASB
► Early IAS standards allowed many options► Efforts were made to harmonize standards in the early
1990s► Some early adopters came from countries with
multinational companies but few local accounting rules (e.g., Switzerland, Australia)
► IASB was restructured in 2001 and began issuing IFRSs (International Financial Reporting Standards) in 2003
Page 5
IFRS – A truly global accounting standard
Domestic listed companies Number of countries
IFRS required for all domestic listed companies
77
IFRS permitted for domestic listed companies
24
IFRS required for some domestic listed companies
4
IFRS not permitted for domestic listed companies
32
137
Page 6
Evolution of IFRS
IASC
2001 to 2005
ACCOUNTING STANDARD SETTERS
INTERNATIONALREGULATORS
IAS – Core Standards Program
2006 to 2007 Future
IASB
FASB
IASB/FASB?Norwalk
Agreement
Memorandumof
Understanding
IOSCO
EU Mandate
European Commission
CESRCESR
Equivalency?
2000 and Prior
Page 7
IFRS in the world
Source IASB
► IFRS gaining momentum throughout the world as a single, consistent accounting framework
► Move toward IFRS is strong► Europe: 2005 ► Australia ► Brazil: 2010► Canada: 2011
► What is the status of IFRS acceptance in countries relevant for you? ► Statutory reporting requirements► Tax reporting requirements
Page 8
Global IFRS reporting trends
• IFRS quickly picking up share of Global F500 companies
• More than100 countries have moved to or base their local standards on IFRS
• IFRS will become the predominant GAAP in the near future
IFRSDrivers and Potential Benefits
• Enhances transparency/comparability• Eases flow of capital globally, thus possible reduction in cost of
capital• Facilitates accounting and reporting
0
50
100
150
200
250
2004 2005 2006
US GAAP IFRS Japan China Canada Other
Page 9
Why IFRS in India?
► One language
► Comparability enhanced► Understanding enhanced► One set of books
► Access to Global capital markets
► Low cost of capital
► Attract foreign investment
► Elimination of multiple reports
Page 10
Public interest entities – IFRS In India in first wave to cover following entities
► Listed companies
► Banks, insurance companies, and financial institutions
► Turnover in preceding year > Rs 100 crores
► Borrowing in preceding year > Rs 25 crores
► Holding or subsidiary of the above
Page 11
Calendar for IFRS Conversions
► The Standards for IFRS conversions are fluid and evolving► Dates for converting consolidated Financial Statements to IFRS are set by the local regulatory body► The example below illustrates the relevant dates for companies with a closing year end of March 31 and a
adoption date is April 2011 [to be adapted at local level]
Opening IFRS balance sheet*
01/04/2011 31/03/20121/4/2010
Reporting dateDate of transition to IFRS
IFRS Comparatives
1st IFRS Financial Statements
* For a March year-end, adopting IFRS in 2011 with one year comparative
Page 12
Diagnostic Review of Financial Reporting
and IT
Assess Employee Skill Set
Costs of Implementation
Regulatory body/Other
Local Statutory Reporting
Analysts/Investors/Competitors
Issuer Considerations Prior to Adopting IFRS
External Drivers Internal Drivers
Conversion to IFRS
Page 13
What’s Involved ?• The scope and complexity involved in
the conversion to IFRS should not be underestimated.
• The new standards involve changes in presentation, new valuation rules, and additional disclosure requirements.
• A successful conversion must plan and manage change across business processes, technologies, and the organization impacting both the group and business unit levels.
• ERP configurations will likely be impacted across multiple modules.
• Financial system architectures may require substantive modifications.
OrganizationTechnology
Process
Changesin
Presentation
NewValuation
Rules
AdditionalDisclosure
Requirements
IFRSConversion
ERP Environment
Financial Systems Architecture
IFRS conversion dimensions –more than a change in accounting policy
Conversion scope / content
IFRS conversion will impact all levels of accounting in a
business.
IFRS conversions will impact several areas of the business
outside of the accounting function
A top level conversion to IFRS may not be sufficient
Page 14
Key challenges
Managem
ent
reporting
system
Employeebenefit plans
Tax planning
IFRSbusinessissues In
vest
orre
lati
ons
Fina
ncial
acco
untin
g
and
repo
rting
Cor
pora
te fi
nan
cean
dst
ructu
red
fina
ncia
l pro
duc
ts
Empl
oyee
and
exec
utiv
e
compe
nsatio
n
Performance
indicators
► Impact on financial statements► Performance indicators► Volatility► IT/MIS systems► Contractual obligations
(debt covenant, compensation)► Taxes► Distributable profits► Managing market, investors
and analysts
Page 15
IFRS conversion approach
Compliance analysis
► Identifying the main accounting differences
► Identifying the major impacts on the information and the organisational systems
► Action plans and macro-planning
Diagnostic
Organisational and financial optimisation
► Defining scenarios and simulations for selecting the accounting andtax options
► Choosing the information system and organisational architecture
► Calculating the project cost and the necessary resources
Preparation
Rollout and first application
► Adapting information system and procedures
► Drawing up the opening balance sheet
► Drawing up the first IFRS financial statements
Implementation
Page 16
► Updating accounting policy procedures and manuals► Monitoring changes to Standards during conversion period► Updating education and training for personnel► System and data changes for capturing and reporting under IFRS► System and data implications for First Time Adoption and parallel
reporting activities► Changes to processes and systems across the organization, not
solely within accounting areas► Modifications to internal controls► Enhanced internal audit plans► Management reporting updates► Performance management modifications – KPIs and other metrics,
reports, etc.► Audit support – accounting records need to support application of
IFRS
Scope & complexity should not be underestimated…
Page 17
17
• Not just a Corporate-level exercise
• Management buy-in was one of the biggest initial challenges
• Do not underestimate the amount of work involved
• Definitely not just a technical exercise
• Changes the way performance is measured and basis of incentive schemes
• Interaction with internal controls and systems is key
• Increasing complexity of IFRS and speed of change is requiring more technical resources
• Has increased the volatility of results
• Important to align internal and external reporting
• Consider the impact on investor relations – timing and nature of communication
• Focus on education, resource and training – use experts, actuaries and valuer’s
• Start early
IFRS conversion: Not just an accounting exercise—Comments from a CFO
Page 18
Domains – Business Areas Covered
An Illustrative Example
Value chain
SupportFunctions
Business impact of IFRS
Business impact of IFRS
Accounting Differences
Hum
an Resources
Transactions
IT
Tax
Risk Management/Compliance
Finance and
Accounting
Performance
Management
Lega
l
Inve
stor
rela
tions
Tre
asur
y
Sal
es /
Mar
ketin
gN
ew P
rodu
ct D
evel
opm
ent
Trading
Customer Relationships
Hedging / Risk Management
Securitization Activity
Asset / Liability M
anagement
Minimal Moderate Significant
IFRS Conversion is not just an accounting
exercise