IT managers across Canada need to ensure their systems are ready to handle the impending arrival of a new global financial reporting requirement, according to accounting and IT industry consultants.
The International Financial Reporting Standards (IFRS) will come into effect in Canada by the year 2011, a move which will force companies away from the Canadian Generally Accepted Accounting Principles (GAAP) they’ve been using for years. And while the switch to IFRS will have a tremendous impact on financial and treasury departments, IT organizations will also have to cope with some major changes.
Terry McKay, IFRS methodology leader at Toronto-based Ernst and Young Canada, said that the introduction of IFRS will likely increase the amount of data collection required by IT systems. He said while companies should have already begun planning for IFRS, organizations still have time to get on-board.
“The message we’re giving companies is that it’s not too late to get ready for this, but they definitely need to start now,” McKay said. “2011 is going to come very quickly and that’s really the timeframe you need to be ready for from a reporting perspective as well as a systems perspective.” In addition to collecting and tracking more required financial data, he said, Canadian companies will need to ensure their systems can handle multiple reporting assignments too.
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“IT managers needs to assess whether their systems they use have the ability to do multiple reporting, because there is going to be a period of time in Canada where companies will have to report Canadian GAAP results, as well as IFRS results,” McKay said. “In addition to that, companies in some industries may also need to report results for regulatory purposes that would differ from their IFRS reports.”
Depending on the type of ERP or other IT system you are using, McKay advised to start preparing by speaking with your software and hardware vendors.
“So if its SAP or Oracle, it’s starting by sitting down with them and talking about the capabilities of the system and ensuring it can handle the type of reporting required,” he said.
Recent statistics – including those from an Ernst and Young Canada co-produced report on Canadian IFRS readiness – have shown that while half of all senior finance executives have started to evaluate the impact of IFRS, almost three quarters of those executives don’t have a dedicated team in place to execute the changes. And with financial departments still lagging behind the curve, it’s not surprising how far behind some IT departments are on IFRS.
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“In our experience, most Canadian companies’ IT departments have low to non-existent knowledge of IFRS standards,” said Karen Higgins, partner and national director of accounting services at Toronto-based consultancy Deloitte. “Since conversion projects of this type are generally led by the finance department, one key success factor in the planning process is to ensure IT’s involvement and input from day one.”
But a recent Deloitte survey echoed the findings from Ernst and Young Canada, showing that 90 per cent of financial professionals surveyed ranked their knowledge of IFRS as either low or moderate, with only one per cent of respondents indicating an “excellent” knowledge level.
The most positive development, according to Higgins, is that many companies have begun forming IFRS teams over the last few months, which include representatives from IT, tax, legal and other functional departments. She said that companies who begin working together throughout all departments will be able to alleviate any potential issues with IFRS.
“Start planning now for some of the unique data management issues which will arise in the year prior to IFRS adoption,” she said. “Plan to automate new data requirements and new processes. This will ensure the implementation of IFRS is as seamless as possible on the organization and its people.”
IFRS standards have been in practice throughout Europe for the last few years, but due to long lead times in planning and developing system changes, many European companies did not start preparing early enough and encountered problems. Higgins said better timing would have enabled them to fully automate the system changes required for the transition to IFRS.