Leveraging IFRS Lessons from the EU

US companies that become early adopters of International Financial Reporting Standards (IFRS) can tear a page from the playbook that European companies used—or wish they had used more—in their transition to the rules- based standards over the past several years.
A study conducted by the Institute of Chartered Accountants in England and Wales (ICAEW) concluded that the “IFRS implementation had been challenging but successful” for European companies. Successful implementers tended to start the process early, paid close attention to important accounting issues and emphasized good project and change management.
According to research by the Corporate Executive Board, European companies with more than $5 billion in revenue spent on average $3.3 million to implement IFRS and more than half spent one to two years in the process; 40% spent over two years. Companies surveyed by ICAEW identified procedures that might have significantly lowered their IFRS implementation costs, including improved staff training, starting sooner, making a better initial assessment of the impact, managing the project better, and communicating better with subsidiaries.
Rebecca Albarelli, global practice leader of finance operations, Jefferson Wells, believes that “tone at the top” is a critical factor in IFRS from the get-go. “Any time you have a large project where a lot of change management is involved, it needs to be communicated at the executive level so it gets everyone’s attention. The commitment to the organization that the change will take place needs to happen at the CEO and CFO level because IFRS is more than an accounting and finance exercise and requires major training of operational as well as finance people.
“For example, different data will need to be collected for different aspects of IFRS standards related to assets and liabilities. Inventory valuations may require significant changes for revenue recognition. When things that affect operations are going to be changed, non-financial people need to understand those changes so they don’t get upset by a change in a significant number in the reports they depend upon.”
Well documented policies and procedures will greatly reduce the amount of streamlining and consolidation work involved in implementing IFRS. “Think of it as an opportunity,” says Albarelli. “If your policies and procedures are well documented, and if you’ve done that because of Sarbanes-Oxley, you can leverage quite a bit of that in implementing IFRS. IFRS will allow companies to benefit from the efficiencies of a global finance function.”
Companies need employees with IFRS skills and knowledge in IT systems. “Systems expertise can come from consultants, but global companies may have existing staff in other countries that have these skills that you can leverage, maybe even bringing them over here ” says Albarelli. “And you may not be using your current system to its fullest capability; there may be things you can do differently with it that could help with IFRS,” she says.
The full Jefferson Wells report on the European experience with IFRS can be downloaded for free at www.jeffersonwells.com