ACC 626

Rachelle Kou

Need comparatives – typical conversion takes 2-3 years to plan and implement

Avoid cost overruns – IT involvement represents 50% - 70% of overall project cost

European experience – underestimated IT impact - conversion is not simply an accounting issue!

Establish IT Steering Committee and project plan

Tone at the top! ◦ Instill a sense of urgency for the project

Keep Board of Directors and Audit Committee informed of project plan and progress

Key: project management and competent IT personnel

Knowledge transfer between IT and accounting departments

Involve internal auditors ◦ Project risk management

◦ Internal Controls over Financial Reporting (ICFR)

◦ Disclosure controls

◦ Change management

Add data fields for financial reporting systems:◦ IFRS requires more detailed disclosures◦ Accounting policy changes, E.g. % of completion method

Amend key inputs into internal reporting systems:◦ Budgeting & forecasting, performance

management, incentive-based compensation

Reconfigure existing IT systems:◦ Calculate or process data on a different basis◦ E.g. Separate general borrowing costs from those related

to qualifying assets

ACCOUNTING CHANGES IMPACT ON IT SYSTEMS

Revenue recognition:• Must use % of completion

method

• Calculate work progress - Need new data fields to capture

cost incurred to date, overall budgeted costs etc.

PPE:• Different calculation for cost base •Componentization

• Require additional measurement area within the accounting system to record significant asset

components and depreciation

Investment Properties: • Choice of FV methods• Challenges for parallel reporting:

- Local: Amortized cost, separate land and building

- IFRS: FV, measure as one unit

• Need separate approach in ERP system

• Restructure PPE accounts to separate out investment properties

5 dimensions:

Source: “Technology Implications of IFRS adoption for U.S.Companies”, Deloitte Consulting 2008

Asset Management – modify for changes in PPE accounting◦ (a) Need additional depreciation area

◦ (b) Alternative: Duplicate all fixes assets master

records that have measurement differences

(a) (b)

Inventory & Purchases◦ Prohibited LIFO

◦ Lower of cost and NRV

Asset Valuation◦ Impairment testing & reversals of impairment

losses

◦ Cash-generating units

Linkage to upstream systems:◦ Modify GL design and Chart of Accounts◦ Analyze reconciliation process between sub-ledgers

and GL◦ Change calculation engines for revenue recognition

and expense allocation method

Linkage to downstream reporting systems:◦ Change mapping tables for generating F/S◦ Update mappings to internal reporting systems

Multinational companies need to modify GL structure to ensure compliance with multi financial reporting format

Standardize financial data for more extensive disclosure requirements

Create/modify data governance function and metadata repositories to reflect revised data models

Increased need for data storage and retention

Revise external reporting templates

Consolidation systems ◦ Amend extraction process in include missing data

for consolidating entities

Additional CPU and memory requirements ◦ Avoid untimely reporting!

Change existing EDI or web interfaces to 3rd

party IT systems

1. Tweak existing system:

Manual adjustments to change GAAP numbers to IFRS numbers

2. Modify existing system

Common account approach

Duplicate ledger approach

3. Implement whole new financial reporting system

1. Conversion at group level

Top-level adjustments at consolidation stage

2. Conversion at subsidiary level

Adjustments at each subsidiary

3. Conversion at source

Modify source system at each subsidiary

Sustainable solution

Test all proposed system changes

Parallel dry run of processes and controls◦ Involve end users!

Monitor internal controls over financial reporting (ICFR) to ensure compliance with SOX-44 (US) and NI 529-09 (Canada)

General application environment◦ Business process controls and automated

transaction controls

◦ ICFR – verify accuracy and reliability of new data

◦ Review spreadsheets and other end-used applications

◦ Ensure integration with core financing systems

Documentation of internal controls◦ Increased use of judgment and textual description

◦ E.g. Identify asset components, lease classification

Identify required changes to IT systems

Modify or entirely replace systems

Update internal controls

Continuously monitor and test changes

Project management team

PLAN EARLY!