How the SEC's proposed IFRS will affect your accounting systems

As the SEC looks to replace Generally Accepted Accounting Principles with the International Financial Reporting Standards, CIOs should evaluate the effects on financial data and application architecture now.

It won't be as hard as the Sarbanes-Oxley Act (SOX) and it's probably six years off for most large companies. But

another SEC financial reporting mandate -- a changeover to a new accounting standard called IFRS -- is likely coming down the pike, and CIOs will need to evaluate their accounting systems and financial data to comply with it.

The U.S. Securities and Exchange Commission (SEC) in August announced a proposed roadmap for the conversion to International Financial Reporting Standards (IFRS) in 2014 by U.S. companies that file financial reports with the SEC. Today, U.S. filers use U.S. Generally Accepted Accounting Principles (GAAP). The SEC expects to make a decision in 2011 whether to adopt IFRS. But the commission also proposed rule changes that would give an estimated 110 U.S. companies the option of using IFRS for fiscal years beginning on or after Dec. 15, 2009.

The proposed changeover is now on your CFO's radar screen, according to people tracking the issue -- and a changeover to IFRS will likely mean changes to IT systems.

"CIOs, of all people in the organization, may need to be thinking of this now versus later, because of the timeline of making changes to accounting systems and infrastructure around how transactions are accounted for through the system," said Rebecca Albarelli, global leader of finance operations at Milwaukee-based internal auditing and consulting firm Jefferson Wells International Inc.

CIOs and CFOs should be looking at how IFRS will affect their companies' financial data and its collection, whether applications for budgeting and forecasting need to be changed and how equipped their large ERP systems are to run both GAAP and IFRS standards while the conversion takes place.

CIOs, of all people in the organization, may need to be thinking of this now versus later, because of the timeline of making changes to accounting systems and infrastructure around how transactions are accounted for through the system.
Rebecca Albarelliglobal leader of finance operations, Jefferson Wells International Inc.

Unlike the roller coaster ride to SOX compliance, which was sprung on companies pretty quickly, organization have time to really think about how to plan for IFRS in ways that can yield cost savings and operational efficiencies, Albarelli said. In particular, companies with global operations using disparate systems can use IFRS to get on a standard platform and have shared service operations, she said. Jefferson Wells offers an IFRS calculator for companies to evaluate their readiness and next steps for the changeover.

At the very least, CIOs need to be on the committee that will inevitably form, if there isn't one yet. "CFOs are talking about this now," Albarelli said, unlike even a few months ago when Jefferson Wells staffers got "a lot of stares" when IFRS came up at client roundtables.

"They have been getting a lot more educated, reading white papers, going to seminars and certainly talking about it. And if they are large multinational companies, they are doing IFRS assessments and talking about scoping a plan," she said.

Five questions for CIOs about IFRS, courtesy of PwC

A primer from the folks at New York-based PricewaterhouseCoopers LLP offers five questions CIOs should consider. Here's the short version:

  1. Do you need to make changes to the financial data to ensure the organization can support IFRS? Determine whether you need to add new data sources and/or change existing financial data, metadata and interfaces to support IFRS.
  2. Do you need to make changes within the application architecture to support IFRS reporting? Options to consider include whether to embed the change at the lowest level of detail or the transaction layer, or to take a hybrid approach. The CFO should be in on evaluating each option.
  3. What impact will IFRS changes have on IT projects already planned or under way? This basically means you need to factor IFRS into your portfolio and project management apparatus.
  4. What impact will IFRS have on ongoing operational processes such as compliance with SOX 404?
  5. What are your organization's objectives for the project and its appetite for change?

Let us know what you think about the story; email: Linda Tucci, Senior News Writer

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