Thursday, October 16, 2008

Calling all IFRS Veterans

With the conversion date rapidly approaching can we turn to IFRS veterans for help?

Back in April there were two sessions that were of interest.

At the April 2008 CICA Conference on IFRS there was a presentation by Peter Day. Mr Day is an Australian Accountant who presented his experiences of IFRS conversion at AMCOR in 2005/6 while he was the CFO. The PowerPoint presentation can be downloaded here.

The presentation raises many points that should be considered in your IFRS implementation project. It included an Appendix dealing with the experiences of seven Australian companies in their IFRS conversion projects. There were interesting snippets of information in the presentation on how AMCOR dealt with some critical accounting issues in the change to IFRS.

In another presentation on Preparing for International Financial Reporting Standards in the Deloitte Directors Series on April 10, 2008 Philip Ryan, Executive Vice President and Chief Financial Officer, Power Corporation, formerly the CFO of Credit Suisse presented his thoughts on managing the IFRS conversion Process. It was interesting, and based on his experiences at Credit Suisse. It is interesting that Mr. Ryan will be doing an IFRS conversion for the second time. You can find the Deloitte Centre for Corporate Governance here. You will have to register to get access to archived material and future sessions.

Some information on prior IFRS conversion experiences can be obtained at some of the websites of accounting firms. The CICA publication “20 Questions that Directors and Audit Committees should ask about IFRS conversions” also has a section setting out some information about IFRS conversions in Europe. Please bear in mind that the publication was issued earlier this year and some references may be out of date. The publication can be downloaded for free. The publication is part of a “20 questions” series that provides good governance guidance.

If you have been following this blog and reading up on the IFRS issue the information may not be new. However, it might be useful to review the material to gain different perspectives.

Experiences in Europe differed depending on the state of financial reporting regulations and pronouncements in each country. In many countries there were substantial changes. In places, like the UK, there were fewer changes. Therefore, the implementation experience differed from country to country. As well in some places IFRS was adopted only at the consolidated level and taxes are paid based on local GAAP at the individual company level. One should take care in interpolating the European experience into the Canadian IFRS conversion. It will be different since we are coming from a different set of accounting principles and indeed there have been efforts in recent years to conform certain parts of Canadian GAAP with IFRS.

There have been a number of advertisements lately for help with IFRS conversions seeking veterans. They are looking for people with IFRS experience and preferably conversion experience. The theory is that a conversion may be smoother if one hires a person who has been there and done that. While in some cases this assumption may be true it does need further examination.

Here are some considerations that may be appropriate in hiring IFRS veterans.

1) Time frames for at least some of the European conversions were reported to be shorter and there was evidence of procrastination. There were reports of a lot of work being done in the year before the conversion. This approach would likely have led to pragmatism in the choice of accounting principles and system choices (e.g. the use of Excel worksheets). If you want to have a more strategic approach to conversion will individuals who did implementations on a "crash basis" have the right “mindset”?

2) As noted previously the conversion in many countries was done at the consolidated level only.

3) At what level was the individual involved in applying IFRS. Was he/she involved in evaluating accounting policy choices? Was he/she a doer rather than a thinker?

4) What is the individual’s knowledge of accounting theory and practice in general? How up to date is the person’s knowledge of IFRS?

5) Is IFRS conversion knowledge transferable from one industry to another industry? If you have worked in the banking industry can your knowledge and experience be transferred to a mining company?

6) Not all IFRS reporting countries are the same. Please take a look at the list prepared by Deloitte. Some countries have adopted IFRS (as we are going to do in Canada) some countries are converging. The dates of implementation will be different and choices are different. Some have argued that International conformity is a myth. (However, in future, there is likely to be a closer convergence). Please take a look at the choices under IFRS1 for first time adoption they can lead to very different results.

In Europe and Australia companies started with a clean sheet and there was an extreme scarcity of IFRS experts prior to 2005. The accountants in those countries had to step up to the challenge. Surely we can do the same in Canada? Foreign accountants, if they have not been working in Canada for long, are not very familiar with Canadian GAAP or accounting. Perhaps an ideal might be to find an accountant or auditor who has been involved with a subsidiary of an IFRS reporting company. This may be the best of both Worlds.

There are likely not enough accountants with the right combination of IFRS experience and knowledge of the Canadian environment. We need to learn it ourselves. Unless you plan to retire soon you will have to knuckle down and learn it in some detail in order to apply to your specific situation. There is no reason why high energy, skilled accountants cannot get the job done. It is a major mission critical challenge. We should be able to transfer our skills and knowledge of the workings of accounting theory and practice in working on our own conversions.

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