The deadline has passed. Canadian enterprises must now be prepared to change the way they report financial information – a transition that, like it or not, IT professionals share.
The move from Generally Accepted Accounting Principles (GAAP) to the International Financial Reporting Standard (IFRS) had to be complete by Jan. 1, 2011 in Canada. This change in reporting standards is intended to allow companies greater transparency and the ability to compare their statements with those of firms in other geographies. The result could be greater investment opportunities and greater fluidity in the merger and acquisition process.
The government-mandated IFRS affects “publicly accountable enterprises” which includes both publicly-traded companies as well as those enterprises that hold assets in a fiduciary capacity for broad groups of outsiders. A strategy for private firms and non-profit businesses is still being developed by the Accounting Standards Board of Canada.
For obvious reasons, the Canadian financial services industry has so far been focused on what the move to IFRS means from an accounting perspective. An inevitable next step is looking at how this approach to financial reporting will affect the business processes and flow of financial information through the various systems – ERP, business intelligence and so on – that collect, manage and store the data.
IT departments by their nature serve several departments in a large enterprises, of which finance is only one. In many cases, technology staff would not have a deep understanding of the accounting nuances involved in financial reporting. The most recent recession, meanwhile, has put more pressure than ever on CIOs to reduce their spending on IT across the board. All these factors make the conversion to IFRS a particularly daunting challenge, given the timeframe involved.
We have published several in-depth articles on IFRS and efforts being made by local organizations to meet the 2011 deadline, but we wanted to offer more than anecdotal information about this transition.
All about the upgrades
Even if they aren’t working directly with vendors or consultants on IFRS, most survey respondents acknowledged their work will require increased investments in key elements of their technology portfolio. Among these, database software was the most important, at 30 per cent, followed by business intelligence software, at 25 per cent. Once the reporting standard has been adopted, then, Canadian companies will be focusing on how they sort financial information and how they can analyze it for better business outcomes. This will likely inform IT budget decisions between now and fiscal 2011.
Although it should be expected that a project of this kind would need executive sponsorship in order to be successful, it was striking that so many respondents – nearly 35 per cent – cited “other” among the stakeholders that need to be part of IFRS projects. Clearly IT departments see the move to IFRS as a team effort. This report is intended to help them be among the most valuable players.
Confident But Cautious
Our research shows a Canadian IT industry that believes it is more than capable of rising to the IFRS challenge, with more than half reporting they have either made the necessary changes or are on track to do so. However, KMPG suggests there is a strong possibility that some IFRS work is merely being put off, or that companies are underestimating the requirements.
Canadian companies may be unwilling to hear this, however, at least not from an outside source. Despite the plethora of consulting firms which are specializing in IFRS projects and the vendor information about it, more than half of those surveyed said they are taking an entirely custom, internal approach to their IFRS conversion. Although there is a natural fear of adopting a one-size-fits-all solution to any technology problem, the do-it-yourself philosophy among Canadian firms has its own drawbacks: 32 per cent said they are concerned about testing the changes around IFRS. Even more – 35 per cent – said their staff needs more education on IFRS vs. GAAP.