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STREAMLINING YOUR CONVERSION TO IFRS

CHALLENGES, CHOICES, ANDTRANSFORMATIVE TECHNOLOGIES

SAP Thought LeadershipEnterprise Performance Management


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Now is the time to begin treating the IFRS transition as an opportunity rather than justa mandate. With careful planning and thoughtful execution, you can use IFRS adoptionas a chance to review and improve your financial consolidation and reporting systemsand enable rapid legal compliance.


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Overview

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CONTENT

4 Executive Summary

5 The Call for TransparentFinancial Reporting

5 Mapping IFRS Mandates 5 Benefits of International Financial

Reporting Standards 6 Defining Strategies for IFRS

Deployment 6 Comparing IFRS Principles with

GAAP Rules 6 Mandating IFRS in the United

States 7 Understanding IFRS Impact on

Group Financial Reporting

8 Preparation and Planning 8 Identifying Common Difficulties

8 Laying the Groundwork 8 Scope of Impact 9 Personnel 9 Reporting10 Transaction Recording10 Planning for Change

11 Critical Decision Points in IFRSSuccess

11 Parallel Reporting11 Topside Adjustments 11 Change-Enabling Technology11 Disclosures and Commentary

12 Report Writing 12 Integrated Source Systems12 XBRL 13 Automated Internal Control

Processes

14 Solutions from SAP 14 Smoothing the Path to IFRS with

SAP BusinessObjects Software 14 IFRS Features 15 IFRS Starter Kits 15 Compliance Support

15 Source System Integration15 The Experience You Need

16 Unparalleled Opportunity17 Key Provisions of IFRS

About the Author

Philip Mugglestone is director of solution marketing with the Enterprise PerformanceManagement team at SAP, with a primary focus on financial consolidation andreporting. He has 20 years of experience in performance management andenterprise business intelligence, including previous roles in solution marketing,sales consulting, and services. His experience also includes the implementationof financial consolidation and management reporting solutions at several large

organizations.

AuthorPhilip MugglestoneSolution Marketing, SAP


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If you must make the move to IFRS,however, it makes sense to takeadvantage of the opportunitiesthis transition provides. Enterprisescan realize benefits beyond simplecompliance – ranging from reducedclosing times to higher-quality infor-mation to support decision making.“[IFRS] convergence brings a one-time opportunity to comprehensivelyreassess financial reporting, taking aclean-sheet-of-paper approach tofinancial policies and processes and the

technology that supports them,” writes

Andrew Bray, technology director atPricewaterhouseCoopers LLP in the2009 white paper “Complying withInternational Financial ReportingStandards.”1

This paper from SAP describes thechallenges faced by organizations thatadopt IFRS, especially as they affectgroup financial reporting systems.This document also discusses criticaldecision points that you must address,as well as technology solutions that

can help you successfully adopt IFRS.

EXECUTIVE SUMMARY

MAKING THE TRANSITION TO IFRS:SEIZING THE OPPORTUNITY

To meet evolving regulatory mandates, companies aroundthe world are adopting International Financial ReportingStandards (IFRS), a set of methodologies and disclosurerequirements for the preparation and presentation of

financial statements. Yet making the transition to IFRS isnot just a rote accounting exercise. Embracing thesestandards affects the entire company and requires thesupport of personnel throughout the enterprise. What’smore, adopting IFRS requires careful planning andthoughtful execution to overcome the many inherentchallenges of such an extensive and significant change.

1. Bray, Andrew, “Complying with International Financial Reporting Standards,” PricewaterhouseCoopers LLP, 2009,http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-compliance.jhtml.

4 SAP Thought Leadership – Streamlining Your Conversion to IFRS


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In Japan, the IASB and the AccountingStandards Board of Japan (ASBJ)agreed on a process for convergingJapanese GAAP with IFRS that willenable most companies to adopt IFRSin 2011. Korea recently announced a

road map that will make IFRS mandatoryfor most companies by 2011.

The Taiwan Financial SupervisoryCommission is expected to announcea road map to IFRS soon, with thestandards likely to become mandatorybetween 2012 and 2014. Australia andNew Zealand adopted national standardsthat they describe as IFRS equivalents.Hong Kong embraced national standardsthat are identical to IFRS in terms of

recognition and measurement options.

India announced a plan to adopt IFRS,called the Indian Financial ReportingStandards, effective in 2011. In Malaysia,the government plans to bring thecountry’s GAAP into full convergence

with IFRS effective January 2012.

The increasingly global nature of busi-ness practices is driving the need for

international standards like IFRS. Witha proliferation of financial products beingbought and sold around the world, aglobal financial reporting standard canprovide the essential transparencyneeded to build investor confidence andfacilitate financial statement compari-sons. Moreover, adopting IFRS is widely

viewed as an efficient and cost-effective way to gain access to foreign capital

markets, thanks to a lower cost ofcapital that derives from a reduced riskpremium.

These standards are developed usinga consultation process involving indi-

viduals and organizations from aroundthe world. Standards are prepared bythe International Accounting StandardsBoard (IASB), the independent standard-setting body of the International

Accounting Standards CommitteeFoundation.

IFRS financial statements are basedon two assumptions: that accounting

is performed on an accrual (not cash)basis, and that the organization is agoing concern. Required IFRS state-ments include a balance sheet, anincome statement, a statement ofchanges in equity or of recognizedincome or expense, a cash flowstatement, and notes that summarizesignificant accounting policies.

Mapping IFRS Mandates

IFRS is currently required or permitted

in more than 100 jurisdictions – includingthe European Union, Russia, Australia,New Zealand, and China. Many othercountries are planning to embrace IFRSin the next few years. For example,public sector organizations in the UnitedKingdom will begin using IFRS in 2010.Canada will come on board in 2011,

with Mexico joining in 2012.

Leading companies recognize the need to move towardIFRS adoption in advance of any mandate. Recently,

Accenture surveyed senior finance and operations

executives at large global companies in a varietyof industries. When asked when they expect IFRSadoption to become a priority for their organizations,64% of respondents indicated that they are or willbe focused on IFRS within the next 12 months.

THE CALL FOR TRANSPARENT FINANCIAL

REPORTING

UNDERSTANDING THE SCOPE ANDIMPACT OF IFRS

Benefits of InternationalFinancial Reporting Standards

• Standardized and improvedaccounting and financial reportingpolicies

• More efficient use and availabilityof resources

• Improved controls• Better cash management

Source: “International FinancialReporting Standards for U.S. Com-panies,” Deloitte Touche Tohmatsu,2007, available at www.deloitte.com

/dtt/cda/doc/content/us_assurance _international_financial_reporting _std%20_030108%281%29.pdf.

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In China, approximately 150 companiesare listed on the Hong Kong StockExchange. Permitted to use either IFRSor Hong Kong reporting standards,approximately half of these companiesuse IFRS. Singapore adopted IFRS

essentially verbatim.

Defining Strategies for IFRSDeployment

Yet not all organizations adopt IFRS inthe same way. Some countries – suchas Canada and those in Europe – makea transition to the new standards.That is, they choose a date when IFRSreplaces the local GAAP. Typicallyorganizations that transition to the new

standard produce financial reports inboth GAAP and IFRS formats for a yearor more. Companies must use extensivenarrative to explain the differencesbetween the two types of reportssubmitted during this period.

The second approach to IFRS adoptionis convergence, in which companiesprogressively replace local GAAPapproaches with IFRS. Countries suchas Japan, India, and China mandated

a convergence approach to IFRS.Companies that converge on IFRSevolve their reporting methods overa prescribed period of time, which canbe less difficult than making a rapidtransition to the new standard.

Comparing IFRS Principles withGAAP Rules

In North America, IFRS is a work inprocess. Canada mandated the use ofIFRS beginning in 2011. The U.S.Securities and Exchange Commission(SEC) has already begun acceptingIFRS-based filings from foreign issuers,but no decision has been made requiringcompanies to adopt IFRS. Depending

on rulings from the SEC, U.S. adoptionmay begin in 2014, assuming thatcertain milestones are met (see sidebar“Mandating IFRS in the United States”).

Yet leading companies recognize theneed to move toward IFRS adoption inadvance of any mandate. Recently,

Accenture surveyed senior finance andoperations executives at large globalcompanies in a variety of industries.When asked when they expect IFRS

adoption to become a priority for theirorganizations, 64% of respondentsindicated that they are or will befocused on IFRS within the next 12months.2

The timing may depend in part on theprogress made in refining and aligningU.S. GAAP with IFRS. The two financialaccounting systems are based ondiffering philosophies. U.S. GAAP isrules-based, meaning that requirementsare specified explicitly and in greatdetail, creating a standard of more than25,000 pages. Corporate executivesrely on the rules of GAAP to makedecisions and accurately report finan-cial realities.

In contrast, IFRS is based on a clearlystated set of principles; consequently,the IFRS standards comprise only2,500 pages. Yet the rigorous IFRSstandards require careful attention,documentation, and comprehensivefinancial record keeping. In companiesthat adopt IFRS, the controller andauditor are responsible for interpretingand meeting the reporting requirementsbased on these principles.

Mandating IFRS in the UnitedStates

The U.S. Securities and ExchangeCommission identified severalmilestones that will enable a rulingon the deployment of InternationalFinancial Reporting Standards (IFRS)in public companies, as well asthe timing of any mandate. Thesemilestones include:

• Continued improvements in IFRS• Changes in the International Accounting Standards Board

to reinforce accountability andstabilize funding

• Development of an IFRS eXtensibleBusiness Reporting Language(XBRL) that mirrors the existingU.S. GAAP XBRL taxonomy

• Training and education of U.S.users on IFRS

2. IFRS Survey Results, Accenture, January 2009.


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To understand how U.S. GAAP rulesdiffer from IFRS principles, considerthe example of a leased asset. TheU.S. GAAP rule states that “the leaseterm is equal to 75% or more of theestimated economic life.” However, theIFRS guidance says this about leasing:

“The lease is for the major part of theeconomic life of the asset.” With this inmind, a company using IFRS standardscould interpret the lease to be 75%,80%, or 95% of the estimated economiclife of the asset.

Understanding IFRS Impact onGroup Financial Reporting

The broad reach of IFRS touches manycorporate systems, including enterpriseresource planning (ERP) and enterpriseperformance management (EPM)

systems. The impact of the change isoften most significant on financialsystems, especially on group financialreporting practices.

Managing group close and local closeactivities – for corporate subsidiariesas well as individual business entities –can present new challenges duringthe transition to IFRS. Although thesestrategic and technical challenges areoften unrecognized by CFOs, control-

lers, and other financial professionals, you can save your organization time,

energy, and money by addressing themproactively.

Deploying IFRS requires carefulconsideration and planning, especially

when you consider its effect on group

financial reporting activities. By under-standing the potential challenges thatcan complicate IFRS adoption anddeveloping a comprehensive planto overcome these challenges, youcan increase your chances for asuccessful transition or convergence.

7SAP Thought Leadership – Streamlining Your Conversion to IFRS


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PREPARATION AND PLANNING

OVERCOMING IFRS CHALLENGES TO GROUPFINANCIAL REPORTING

Deploying IFRS requires careful consid-eration and planning, especially when

you consider its effect on group financialreporting activities. By understandingthe potential challenges that can com-plicate IFRS adoption and developing a

comprehensive plan to overcome thesechallenges, you can increase yourchances for a successful transition orconvergence.

Identifying Common Difficulties

For many organizations, IFRS requiresmore extensive, detailed disclosure in

year-end reports and accounts thanlocal GAAP reports. Furthermore, the

financial reporting model can be bothmore complex and less understandable.Many reports require companies tocreate an exhaustive narrative thatexplains decisions, findings, and report-

ing choices. Some companies withoutprevious exposure to IFRS reporting lacktrained personnel to produce reportsand narratives.

And when the numbers are crunchedusing IFRS, the results can be surprising.For example, an international manufac-turer might blame losses on expensesrelated to an acquisition in another

country. The parent company mightuse IFRS and report that most of the

value of the subsidiary was wiped outon its balance sheet. The subsidiary,on the other hand, is using U.S. GAAPand reports a different conclusion.

Moreover, the transition from localGAAP reporting to IFRS can be costly.For example, after EU companies weremandated to adopt IFRS in 2005, theInstitute of Chartered Accountants inEngland and Wales estimated the first-

year transition costs as 0.05% of reve-nues for companies earning between€500 million and €5 billion. However,since IFRS is derivative of the account-

ing systems previously used by thesecompanies, their cost may have beenless than those of companies usingother local GAAP rules, such as U.S.GAAP.3

The U.S. SEC predicts that transitioncosts may be substantial for manycompanies. In the first year of thetransition, according to SEC estimates,large companies can expect to spendbetween 0.125% and 0.13% of theirrevenue on the transition to IFRS – apotential cost of US$32 million percompany.4

Laying the Groundwork

Yet these difficulties are not inevitable.With proper preparation and expecta-tions, your company can streamline theIFRS adoption process while delivering

optimum results. Whether transitioningor converging on this standard, deci-sion makers in your organization mustbe prepared to deal with the followingissues.

Scope of ImpactBecause IFRS is a standard for finan-cial reporting, there is a widespreadperception that its impact is limited tocorporate accounting concerns. Thisassumption is incorrect.

The effects of IFRS are pervasive. Adopting this standard affects not just

how you report your results but alsohow you run your business. And thisimpact is felt not just at your headquar-ters location, or wherever financialconsolidation and planning is performed,but also throughout the enterprise. Thechoices you make and actions you takein every part of the business are affectedby IFRS. Let’s consider a few examples.

Asset ValuationHow you value assets differs dramati-cally from U.S. GAAP to IFRS. Understandard IAS 16, for example, you mayneed to track and account for property,plant, and equipment at a more disag-gregated level than under U.S. GAAP.With greater disaggregation, you maydecide to dispose of or retire certainassets earlier than usual when replacingportions of a larger asset group.

“One of the critical technology issues facing today’s companies ishow to best support their financial consolidation and reporting

needs in order to achieve IFRS compliance.”

Andrew Bray, Technology Director, PricewaterhouseCoopers LLP

3. Johnson, Sarah, “IFRS: Another Cost Guessing Game,” CFO.com, November 24, 2008.4. Johnson, Sarah, “Guessing the Costs of IFRS Conversion,” CFO.com, March 30, 2009.



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Inventory CostingThe LIFO inventory costing method isprecluded by standard IAS 2. As aresult, companies using LIFO under U.S.GAAP may experience significantlydifferent operating results as well as

cash flows under IFRS.5

DerivativesIFRS qualifies greater numbers offinancial instruments as derivatives thanU.S. GAAP. For example, IFRS consid-ers option and forward agreements tobuy unlisted equity investments to bederivatives.

Research and DevelopmentUnlike U.S. GAAP, which charges all

R & D costs as expenses when theyare incurred, IFRS is more flexible. Ifspecific criteria are met, companiesfiling under IFRS can declare R & Dcosts as an intangible asset – with theassociated capitalization and amortiza-tion effects.

Personnel Addressing the wide array of issues

involved in adopting IFRS requires across-functional team, beginning withthe support and participation of senior

and executive management. People who should become part of the IFRS

project team include the following:• Management accountants – To

make comparisons between actualand planning valuations, managementaccountants must examine the plan-ning data and processes and adaptthem for IFRS.

• Tax accountants – To address newconfidentiality and tax audit issues,such as who has access to the data,tax accountants are needed to analyzethese concerns and smooth the

transition to IFRS.• External auditors – To help understandthe significant differences betweenexisting practices and those neededto meet IFRS, external auditors canhelp companies understand to whatdegree a specific requirement appliesto them or how the company’s pre-ferred treatment may be assessedunder the new rules.

• IT department – To help make thesystem changes required by IFRSadoption, IT experts must manage

system configuration, identifysources for accounting data, anddetermine how it will be compiledand computed.

ReportingWhen you transition to IFRS, youcannot simply switch off local GAAPreporting at the close of one businessday and turn on IFRS the next. Instead,

you must support a transition periodin which you produce parallel reports –complete financial reporting in both theGAAP and IFRS methods – withoutdoubling the effort and cost of producing

that documentation.

In the United States, the SEC will likelyrequire that companies produce parallelreports for the two years prior to theiradoption of IFRS. For example, if thestandards are mandated for 2014, U.S.companies will need to produce reportsin both IFRS and U.S. GAAP formatsfor 2012 and 2013. Public companies

will also need to provide documentationthat enables easy comparison, recon-ciliation, and explanation of differences

between the GAAP and IFRS reports.This documentation may also requireextensive narratives, disclosures,description of judgments made to sup-port submitted reports, and explanationsof any nonstandard approaches.

5. Bray, Andrew, “Complying with International Financial Reporting Standards,” PricewaterhouseCoopers LLP, 2009, www.pwc.com/us/ifrs/ifrs_sap.pdf.

“The journal entries generated by the rules-based SAP

BusinessObjects application provide an exact audit trail as

we reconcile the data for both Canadian reporting purposes

and IFRS standards. It makes it much easier to show bothauditors and company management exactly what we’ve done.”

Neil Thompson, Manager of Financial Systems, Standard Life



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In the longer term, the need for top-sides will diminish as IFRS requirementsare more fully embedded into yoursupporting transactional systems.However, making the switch to IFRSmay require changes to your transac-tional systems. For example, you may

want to collect additional financial dataneeded to support an IFRS-compliantclosing process without lengthening

your corporate closing cycles or com-promising accuracy. In some cases,meeting the transaction recording

requirements of IFRS may warrantupgrades to the software and hard-

ware that support your transactionalsystems.

Planning for ChangeEffectively addressing these challengesrequires more than just a workingknowledge of IFRS financial rules andrequirements. You must understand allof the issues involved in adopting IFRS,take the time to assess the impact of

related changes, and find solutions that

make the best use of people, processes,and technology.

By taking steps to create an effectivetransition methodology, you can help

your company benefit from the adop-tion of IFRS. “Given the length oftime taken to change an organization’speople, processes, and technology,along with the global adoption gover-nance issues, now is the time toassess the impacts of an IFRS transitionand plan to embed IFRS accordingly

into the day-to-day operations,” saysBray of PricewaterhouseCoopers.6

The next section describes the bestpractices that will help you controlcosts, understand and manage thescope of implementation, and create asmooth transition plan.

Transaction RecordingWhen making the transition to IFRS, you may need to change the way that your systems record business transac-

tions. Extensive disclosure requirements,for example, may require you to captureadditional data or record more detailedinformation in your transactionalsystems, such as the general ledgerand its subsystems.

In the short term, work-arounds maybe necessary to meet tight deadlines.

When European companies preparedfor the 2005 conversion to IFRS, theyfaced a short compliance time framethat drove the widespread use of“topside adjustments.” These manualchanges to the data helped companiesmeet the immediate need for group-levelconsolidation and reporting withoutchanging the lower-level transactionalsystems. You may also want to usetopsides in the early stages ofIFRS adoption to help you meet your

transition goals.

“Given the length of time taken to change

an organization’s people, processes, and

technology, along with the global adoption

governance issues, now is the time to assessthe impacts of an IFRS transition and

plan to embed IFRS accordingly into the

day-to-day operations.”

Andrew Bray, Technology Director, PricewaterhouseCoopers LLP




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CRITICAL DECISION POINTS IN IFRS SUCCESS

USING TECHNOLOGY TO ENHANCE COMPLIANCE AND REDUCE COSTS

As you prepare to adopt IFRS, youshould weigh the following criticaldecision points in your planning. Under-standing how these technology consid-erations can affect your group financialclosing practices will help ensure that

your processes and technologiessupport – rather than obstruct – yourtransition or convergence to IFRS.

Parallel Reporting

In the United States, experts expectthe SEC to require companies toproduce parallel financial reports forthe two years prior to adopting IFRS.That is, if IFRS is mandated for allcompanies in 2014, organizations

will need to produce reports in bothU.S. GAAP and IFRS formats forboth 2012 and 2013.

To streamline gathering the data that will support parallel reporting, you

should store all data in a single location, with little or no duplication across your

enterprise network. Having a singledata source helps enhance data collec-tion efficiency, improves data quality,and provides consistency across yourreports.

To ensure that you can create the levelof detail needed to support IFRSrequirements, you also must be certainthat your systems can meaningfullycategorize this data. Reports will bemore accurate, and you can achievethe desired transparency, if yoursystems can categorize data accordingto dimensionality, hierarchical views,structures, and currencies.

In addition, IFRS requires that you beable to segregate financial assets andliabilities, showing those that are listedand unlisted. You must also be ableto analyze debtors and issuers for allsecurities. Finally, your systems must

be able to identify all derivative instru-ments as well as types of hedging forderivative assets and liabilities.

Topside Adjustments

As you transition to IFRS, you mayneed to make topside adjustments togroup-level reporting. To support thisactivity, you must ensure that yourfinancial systems can perform complexcalculations, execute and store multiple

consolidations, and create reports indifferent formats. You must retain thedata in your local GAAP formats until

you have completed the transition toIFRS.

Your financial systems must also beable to perform topside adjustmentsautomatically. Because many of theseadjustments will be executed in largebatches and will recur on a repeatingbasis, using your financial systems toexecute them automatically will save

you time and effort while you makethe switch to IFRS.

Finally, the systems must be able toprovide a comprehensive audit trail fortopside adjustments, including all IFRSconsolidation adjustments. Being ableto perform a reconciliation between thehistorical (local) GAAP and IFRS duringthe transition period is essential.Ideally, this auditing functionality should

be built into your system, not offeredas an add-on for your financialconsolidation application.

Change-Enabling Technology

To support group financial reportingactivities during the adoption of IFRS,

you must have technology that canreadily adapt to change. For example,

your systems should be able to easilyprocess changes in your group struc-ture, especially those related to acquisi-tion and disposal of business entitiesas well as internal mergers. They shouldalso reflect changes in interests,consolidation rates, and consolidationmethods.

Financial users should be able toconfigure business rules in the system

without relying on help from IT. Havingthis independence will help keepthe system flexible without incurringunnecessary costs.

Keep in mind that new compliancerules require deeper documentation ofconsolidation processes than previouslymandated. To meet these requirements,

you also will need financial systems

that support extensive reporting anddocumentation.

Disclosures and Commentary

A majority of European companies thatconverged on IFRS in 2005 reportedthat the new standards dramaticallyincreased their reporting burden.Organizations required additionaldisclosures, an increased number



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if you can avoid using flat files andperforming manual data entry, yourIFRS transition will progress moresmoothly.

The most efficient integration approach

is to establish direct links between EPMand transactional systems. These links

will help you speed the data-loadingprocess and avoid costly data errors.Software that provides direct linksbetween EPM and ERP systems willalso enable finance users to accessand load information from sourcesystems, and facilitate compliancereporting as well. Look for systemsthat allow business users to map meta-data between source systems and EPM

systems, drill back to the data’s pointof origin, and access a full audit trail.

XBRL

The U.S. SEC recently mandated theuse of the interactive data-tagginglanguage eXtensible Business ReportingLanguage (XBRL) for filing financialresults (see table). Under this mandate,companies must use XBRL to createtheir income and cash flow statementsas well as their balance sheets. XBRL

can help make financial statementseasier to search and compare, makingcorporate information more transparent.

To simplify report writing during thetransition phase, your financial systemsshould be able to honor different namingconventions to meet both IFRS require-ments and local GAAP specifications –in a single account. For example, IFRS

IAS 1 requires different balance-sheetheadings than those used under localGAAP. In IFRS, “Stock” is usedinstead of “Inventories” and “Fixed

Assets” replaces the GAAP heading“Property, Plant, and Equipment.”

Moving forward, your company willbenefit by having flexible and powerfulend-user reporting functionality. Suchfeatures can allow the headquartersconsolidation team to create, modify,

and amend their own reports – withoutIT assistance.

Integrated Source Systems

Integration between your EPM applica-tions and your transactional systems isessential. As you transition your sourcesystems to IFRS, this integration pro-

vides flexibility and the ability to adaptto change.

Depending on your business structure

and supporting IT infrastructure, it maynot be possible to use a single-instanceERP or general ledger system. However,

of data sources, and new manualprocesses to cope with expandedreporting responsibilities.

As you face these disclosure andreporting requirements, take steps to

assess whether your technology sys-tems can support the new demands.Your group financial reporting solutionsshould allow you to add narrativeinformation to financial values and datapoints in your reports. To supportextended narratives or lengthy explana-tions, you also need financial systemsthat let you create secure contextualdocument attachments.

Report Writing

Beyond the need to produce reports inmultiple formats during the transitionphase, you must also create reconcilia-tion reports that explain the differencesbetween your local GAAP and IFRSresults. The formats for IFRS reportingdiffer from those required to meet localGAAP requirements. For example,the section on cash flow statements(IAS 7) does not require you to reconcilenet cash flow to movement in net debt,as U.S. GAAP does. Your financial

systems must recognize such differ-ences automatically and address themaccordingly in each report.



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For example, your current control pro-cesses and system may be effective inthe existing environment. But how well

will they serve the business underIFRS? Will they be robust enough tocomply with the new requirements?Can they provide automated controlsprocesses so that you can optimize

operational efficiency and meet your compliance mandates in a timely,

cost-effective manner?

Automated Internal ControlProcesses

The transition or convergence to IFRS will introduce a host of new processes,

complexities, and reporting require-ments. To prepare for this change, youmust evaluate your current systems and

control processes to determine whetherthey will be able to support yourbusiness while complying with IFRS.

Many experts believe that XBRL willhelp companies simplify their transitionor convergence to IFRS. To enhance

your transition to IFRS, you shouldconsider how XBRL fits into yourreporting processes today. With this

understanding, you can begin to assesshow your current reporting processesmay be affected by the adoption ofIFRS. You can determine what types ofsystem support are required for yourtransition and identify an XBRL solutionthat will support your reporting needsfor the long term.

Timetable for Adoption of XBRL in

Public U.S. Companies

Largest 500 public

companies

June 15, 2009

Large accelerated filers June 15, 2010

All public companies June 15, 2011



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• SAP BusinessObjects Intercompanyapplication – This application helpsbusiness units reconcile intercompanybalances in real time, eliminating extra

work and delays at the corporate anddivisional levels and improving the

speed and accuracy of the closingprocess.

• SAP BusinessObjects ProcessControl application – This applicationhelps ensure compliance by centrallymonitoring internal controls across theenterprise and providing automatedcontrol testing, improved data visibility,continuous monitoring, and fastremediation.

• SAP BusinessObjects XBRLPublishing application by UBmatrix –

This application lets you pull datafrom SAP Business Suite softwareand SAP BusinessObjects EPMapplications into ready-made XBRLdocuments, which you can use forreviewing, analyzing, and preparingfinancial data.

IFRS FeaturesTo help you address the criticaldecision points of IFRS planning,SAP BusinessObjects applicationsprovide:• Parallel reporting features• Support for topside adjustments• A rules-based environment• Features that enable disclosures and

commentary • Flexible and powerful reporting• XBRL publishing functionality

Smoothing the Path to IFRS withSAP BusinessObjects Software

SAP BusinessObjects softwareprovides comprehensive support for yourtransition to IFRS. SAP BusinessObjects

EPM solutions for finance and SAPBusinessObjects governance, risk, andcompliance solutions help integrateenterprise data and processes, deliver-ing insight to align business strategiesbetter and achieve financial excellence.Within this portfolio of solutions,

you may want to consider the followingapplications as part of your IFRSadoption process:• SAP BusinessObjects Planning and

Consolidation application – This

application helps financial usersaccurately assess, measure, andanalyze the impact of various adoptionmethods and understand their impacton the balance sheet and incomestatement. SAP also offers a starterkit for IFRS for this application.

• SAP BusinessObjects FinancialConsolidation application – Thisapplication helps you recover criticaltime in your closing and managementreporting cycles, without sacrificingany of the controls or auditing

needed for today’s global complianceenvironment. SAP also offers astarter kit for IFRS for this application.

• SAP BusinessObjects FinancialInformation Managementapplication – This application providespowerful functionality so financialprofessionals can manage theprocess of accessing, mapping, andloading information from source sys-tems to the SAP BusinessObjectsFinancial Consolidation application.

To cope with the systemic demandsthat IFRS will impose, companies mustprepare their infrastructures for thischange. When choosing software andsolutions to help streamline and simpli-fy your transition to IFRS, look to SAP.

SAP offers a complete IFRS solution,providing a wide range of software andservices that address the entire IFRSadoption process. The software alreadymeets the new requirements – andSAP delivers the tools, training, andconsulting needed to identify risks,threats, and opportunities related tothese regulations, thereby easing theburdens of the transition.

Solutions from SAP can enable a

smooth, phased transition or conver-gence to IFRS. SAP provides a unifiedtechnology approach based on theSAP NetWeaver® technology platform,

which supports all major architectures.In addition, the SAP® ERP Financialssolution supports a broad variety ofconsolidation and business combina-tion methods compatible with IFRS.What’s more, SAP BusinessObjects™EPM solutions cover the full lifecycle offinancial management, putting you incontrol of performance.

SAP has an installed base of custom-ers that are already IFRS compliant.Hundreds of SAP customers worldwideare using the financial consolidationand reporting features of SAPBusinessObjects solutions for IFRSreporting. In addition, thousands ofcustomers have implemented generalledger software, and many of thosehave already transitioned from localGAAP to IFRS.

SOLUTIONS FROM SAP

CHOOSING THE BEST APPROACH



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SAP Business Suite software, theSAP ERP application, and the SAPNetWeaver Business Warehousecomponent are all integrated withSAP BusinessObjects solutions forEPM as well as governance, risk,

and compliance. These integratedsolutions provide you with flexibilityand the ability to adapt to change as

you transition to IFRS.

Yet SAP BusinessObjects applicationsremain heterogeneous, and they canuse data from non-SAP applications.

As a result, you can use legacyfinancial and reporting applicationsto support your IFRS goals within theSAP software environment.

The Experience You NeedSAP BusinessObjects software hashelped hundreds of customers aroundthe world with their adoption of IFRS.For example, our customers havereported reducing reporting time from20 work days to as little as 5 workdays, with consolidation time reducedfrom 12 to 2 days.

“The journal entries generated by therules-based SAP BusinessObjects

application provide an exact audittrail as we reconcile the data for bothCanadian reporting purposes and IFRSstandards,” says Neil Thompson,manager of financial systems atStandard Life in Canada. “It makes itmuch easier to show both auditors andcompany management exactly what

we’ve done.”

rules, controls, and calculations forIFRS and GAAP, the starter kitssupport consolidation activities andprovide data consistency.

Compliance Support

To cope with the changes that IFRSadoption brings, you need a reliable,transparent, and repeatable financialinformation management process.To meet this need, SAP offers SAPBusinessObjects Financial InformationManagement, which can help you maxi-mize productivity, achieve transparency,minimize the cost of compliance, andincrease overall confidence in financialresults.

With this solution, you can enablefinance users to access and loadinformation from source systems soeveryone works with trusted data –

while simultaneously facilitating compli-ance reporting. SAP BusinessObjectssoftware also supports documentationproduction, automated testing, andreporting of internal controls in accor-dance with sections 302 and 404 ofthe Sarbanes-Oxley Act.

Source System Integration

SAP offers EPM applications for financethat can provide a comprehensive solu-tion for IFRS. The applications cover thefull lifecycle of financial management –and put you in control of performance.Comprising best-of-breed functionality,the applications integrate enterprisedata and processes to streamlinetraditional finance processes. You cangain strategic insight for calculateddecision making and confidently rely on

your legal and management reporting.

IFRS Starter KitsSAP offers starter kits for EPM consol-idation solutions that help you streamlinethe installation and exploit the fullpotential of these applications. Forexample, starter kits deliver business

logic that resides on top of the SAPBusinessObjects Planning and Consoli-dation and SAP BusinessObjectsFinancial Consolidation applications,among others. These starter kits help

you reduce software implementationtimes, maximize compliance, and com-prehensively address your company’sbusiness requirements with minimumcost and effort.

Starter kits also provide preconfigured

IFRS-compliant content, which can help you speed and smooth the transitionprocess to IFRS. Starter kits can includeprebuilt input documents, rules, controlreports, and financial statements. Thiscontent can help you get your SAPapplication up and running quickly, withminimal customization effort.

In addition, the starter kits enable rapid,trusted legal compliance. Built by anSAP team of experts with hands-onIFRS adoption experience, the starter

kits incorporate their expertise andsupport best practices. The starterkits also provide detailed process guid-ance for business users, defining thesteps needed to execute data collection,consolidation, and documentationprocesses.

What’s more, starter kits provide com-prehensive support for your specificIFRS financial operations and businessrequirements. Using preconfigured



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If adopting IFRS is in your company’sfuture, your mission is clear. You mustdrive your company’s transition byunderstanding the related issues,assessing the impact of change, andfinding solutions to the challenges that

IFRS adoption presents.

“Don’t underestimate how long all ofthis takes,” says Bray of Pricewater-houseCoopers. “If you want to getit right, this is the time to determinespecifically how IFRS will impact yourcompany and to start planning andexecuting your strategy accordingly.”7

Now is the time to begin treating theIFRS transition as an opportunity rather

than just a mandate. With carefulplanning and thoughtful execution, youcan use IFRS adoption as a chanceto review and improve your financialconsolidation and reporting systemsand enable rapid legal compliance.

For more information on how SAPBusinessObjects EPM solutionscan help you support your transitionto IFRS, contact your local SAPrepresentative or visit us on theWeb at www.sap.com/epm.

UNPARALLELED OPPORTUNITY

GETTING STARTED WITH IFRS


IFRS as a Transformative Initiative

To what extent do you expect the adoption of International Financial Reporting Standards

(IFRS) to significantly impact organizational areas?

Finance function 52%

Information technology 44%

Business operations 48%

External stakeholders 36%

Customers 30%

Human resources 30%

Source: IFRS Survey Results, Accenture, January 2009

Adoption Timing

When do you expect IFRS adoption to become a priority for your organization?

It already is (early adopters) 21%

Within the next 12 months 43%

Between 13 and 23 months 15%

Beyond 24 months 6%

Waiting for more clarity and direction 13%

Other 1%


Critical Success Factors

What do you consider the critical success factors for your IFRS implementation?

Technology in place to support the conversion 57%

Trained people in place 49%

Good change management plan 31%

Sufficient funding 19%

Executive and board support 19%

Professional support with IFRS experience 12%

Other 1%




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Differences between U.S. GAAP and IFRS

Comparison Area U.S. GAAP IFRS

Deferred tax Current or noncurrent asset Noncurrent asset

Extraordinary items Unusual or infrequent items only Prohibited

Control Control over financial interests Ability to control subsidiary

Inventory LIFO permitted LIFO prohibited

R & D Expense fair value immediately Intangible asset, can be

depreciated

Key Provisions of IFRS

Cash Flow StatementsMandatory component of IFRS reporting

Business Combinations and Acquisition Accounting (IFRS 3)• All transactions require identification of an acquirer and full measurement of

fair value• Option to recognize full goodwill and noncontrolling interests

Property, Plant, and Equipment (IAS 16, IAS 23)• All values at cost – overhead can only be included under restricted

circumstances• Revaluation surpluses always treated as equity, and losses as expense

Inventory and Stock (IAS 2) All inventory and stock to be valued at lowest of either cost or net realizable

value, similar to U.S. GAAP lower of cost or market (LOCOM), net of all coststo complete, transport, and sell:• LIFO (last-in, first-out) accounting prohibited• FIFO (first-in, first-out) only in limited circumstances• Costs are to include all costs of purchase, conversion, and transportation,

plus depreciation where applicable



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www.sap.com/contactsap

50 096 279 (09/09)©2009 by SAP AG.All rights reser ved. SAP, R/3, SAP NetWeaver, Duet, PartnerEdge,ByDesign, SAP Business ByDesign, and other SAP products and ser vicesmentioned herein as well as their respective logos are trademarks orregistered trademarks of SAP AG in Germany and other countries.

Business Objects and the Business Objects logo, BusinessObjects,Crystal Reports, Crystal Decisions, Web Intelligence, Xcelsius, and otherBusiness Objects products and services mentioned herein as wellas their respective logos are trademarks or registered trademarks ofBusiness Objects S.A. in the United States and in other countries.Business Objects is an SAP company.

All other product and service names mentioned are the trademarks of theirrespective companies. Data contained in this document serves informationalpurposes only. National product specifications may vary.

These materials are subject to change without notice. These materialsare provided by SAP AG and its affiliated companies (“SAP Group”) fornformational purposes only, without representation or warranty of any kind,and SAP Group shall not be liable for errors or omissions with respect tothe materials. The only warranties for SAP Group products and services arethose that are set forth in the express warranty statements accompanyingsuch products and services, if any. Nothing herein should be construed asconstituting an additional warranty.

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