ICAI has announced convergence to IFRS by 2011 and that is not very far away since firms would need to start with an opening IFRS balance sheet as of 1 April 2009. As compared to Canada where 79% of senior management including Audit Committees has formulated a strategic plan to manage IFRS conversions by 2011, India is definitely lagging behind.
The Independent Directors and Audit Committee members should push for clarity on adoption of IFRS of these listed companies. There is the option of getting on to the bus now and figuring the best route. IFRS is principle based vis a vis rule based and hence you can choose principles to your advantage—you need to know what your choices are. India has the benefit of leveraging on global experiences if one wants to be based on which industry you are in. IFRS conversion is not unfortunately just a “switch” or another “MS excel driven” process where overnight you can convert—there are impacts on financials, people and processes and IT systems that need to be considered. It is not another finance project where the CFO and the controllers department can burn midnight oil and produce magic period on period. There are various inputs that would need to be given by operations. The quantum of information processed outside a system has inherent data integrity risks. If you are a CEO or an analyst or investor relations or HR head you need to be able to explain to public and employees, more importantly how numbers stack. You need to address a range of issues from tax structuring to wording your contracts to revisiting your incentives calculation to training people across the company—so this is as much a CEO agenda as a CFO’s.
Here are ten questions/points to attain “IFRS Nirvana”. Determine the scope of companies in your group that would need to converge and assess what you want to achieve by when and agree with the Audit Committee Chair? Do you want to merge your internal reporting and IFRS to avoid multiple financial closures? Considering that this would be a change in primary GAAP, do you want to go down the path of systems based conversion? Identify a team and treat this as a project—evaluate how you would bridge any gap in technical skill sets by training or seeking assistance. Evaluate the relevant principles and arrive at the choices...
after involving the Audit Committee, CEO and CFO. Identify issues that may require large amount of data gathering and evaluate the best method to get it—set separate teams at work on this. Prepare a sample financials for your company and educate the relevant stakeholders on differences. Do an impact assessment not just on financials but also people, processes and IT.
I can hear some of you saying, “This is India and government would take a long time to move any of the IFRS related decisions. We have all the time in the world and I would master this by then—why start now? Many people are laid back expecting convergence to get stuck with regulators or tax authorities or political agencies. If you are taking chances on this it is at your own risk. Canada was in the same complacency boat until it was rocked by the stock exchange announcing a mandatory disclosure on how companies are planning to handle the convergence
Look at this from a cost perspective. If you start late you may find scarcity of technical skill sets and IT implementation partners which would automatically raise your costs on simple law of demand and supply.
The author is COO, KPMG India. These are his personal views...
The Independent Directors and Audit Committee members should push for clarity on adoption of IFRS of these listed companies. There is the option of getting on to the bus now and figuring the best route. IFRS is principle based vis a vis rule based and hence you can choose principles to your advantage—you need to know what your choices are. India has the benefit of leveraging on global experiences if one wants to be based on which industry you are in. IFRS conversion is not unfortunately just a “switch” or another “MS excel driven” process where overnight you can convert—there are impacts on financials, people and processes and IT systems that need to be considered. It is not another finance project where the CFO and the controllers department can burn midnight oil and produce magic period on period. There are various inputs that would need to be given by operations. The quantum of information processed outside a system has inherent data integrity risks. If you are a CEO or an analyst or investor relations or HR head you need to be able to explain to public and employees, more importantly how numbers stack. You need to address a range of issues from tax structuring to wording your contracts to revisiting your incentives calculation to training people across the company—so this is as much a CEO agenda as a CFO’s.
Here are ten questions/points to attain “IFRS Nirvana”. Determine the scope of companies in your group that would need to converge and assess what you want to achieve by when and agree with the Audit Committee Chair? Do you want to merge your internal reporting and IFRS to avoid multiple financial closures? Considering that this would be a change in primary GAAP, do you want to go down the path of systems based conversion? Identify a team and treat this as a project—evaluate how you would bridge any gap in technical skill sets by training or seeking assistance. Evaluate the relevant principles and arrive at the choices...
after involving the Audit Committee, CEO and CFO. Identify issues that may require large amount of data gathering and evaluate the best method to get it—set separate teams at work on this. Prepare a sample financials for your company and educate the relevant stakeholders on differences. Do an impact assessment not just on financials but also people, processes and IT.
I can hear some of you saying, “This is India and government would take a long time to move any of the IFRS related decisions. We have all the time in the world and I would master this by then—why start now? Many people are laid back expecting convergence to get stuck with regulators or tax authorities or political agencies. If you are taking chances on this it is at your own risk. Canada was in the same complacency boat until it was rocked by the stock exchange announcing a mandatory disclosure on how companies are planning to handle the convergence
Look at this from a cost perspective. If you start late you may find scarcity of technical skill sets and IT implementation partners which would automatically raise your costs on simple law of demand and supply.
The author is COO, KPMG India. These are his personal views...
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