You know the IFRS conversion is coming, but has it really been a top of mind concern for your organization? It might be time to move this priority to the front burner. Whether you’ll be leading the conversion, or an accounting professional who will supporting the conversion, it’s time to start planning. 
 
Is the SEC’s timeline realistic?
Going into 2009, the plan for the Commission was to decide in 2011 whether U.S. public companies will be required to use IFRS starting in 2014 based on this evaluation. However; regarding the move to IFRS, new SEC Chairwoman Mary Schapiro said in her confirmation hearing, "I will take a big deep breath and look at the entire area again carefully and will not necessarily feel bound by the existing roadmap that's out for comment." She said she has concerns about the timeline, the independence of the IASB and the quality of the standards.
 
Under the current proposed timeline, companies will be required to begin reporting under IFRS beginning in 2014 and provide comparative data from 2012. If the final decision on a mandatory adoption date is not made until 2011, this may not allow enough time to be ready with the balance sheet on January 1, 2012.
 
Arnold Hanish, Vice President of Finance and Chief Accounting Officer of Eli Lilly and Company, would concur. In a public letter to the IFRS Secretary Elizabeth Murphy he said, “While we agree with the assertion that progress on the milestones should be considered in 2011, we believe the SEC should make a decision concerning a mandatory adoption date well before 2011. Given the complexities of the conversion, companies will need at least two years to prepare for a global conversion. We do not believe it is possible to withhold a final decision on the adoption date until 2011 and expect companies to adopt starting in 2014 while providing comparative data from 2012. An effective date of 2014 would imply a January 1, 2102 opening balance sheet, only months after a final decision assumed in the current Roadmap.”
 
When does your company plan to begin reporting under the new standards?
Companies aren’t likely to move too quickly. Without a definite date, the number of companies opting for early use of IFRS is likely to be limited. There is a possibility, pending the SEC’s final decision on IFRS that early adopters may have to convert back to U.S. GAAP. This could act as a significant disincentive to those who otherwise might opt for early use if the uncertainty were eliminated.
 
This is why early planning is going to be critical. In a report issued by KPMG in March 2009, 50 percent of preparers who responded to their survey indicated they are confident that their organization would be able to make the conversion in 3-5 years without any major problems.  
 
William Kowals, partner and chairman of the J.H. Cohn IFRS Committee, in his comment letter to the Securities and Exchange Commission concerning the proposed roadmap for U.S. issuers to adopt IFRS stated, “An orderly transition to IFRS will require modifications to accounting policies, information technology systems and business processes. As such, issuers are urged to begin their transition planning early.” 
 
However, 52 percent of preparers said that their organizations do not have assessment plans in place to gauge the impact of IFRS, or they are unaware of these plans. Companies that have converted to IFRS in Europe and elsewhere have found that a comprehensive and detailed gap analysis is helpful to the conversion process. 
 
What will this cost your company?
A large part of your careful planning will be to budget for the costs of the conversion. This conversion could cost companies millions of dollars, even the tens of millions. According to Mr. Hanish, “our internal estimate of our conversion cost is a range of $20-$30 million. This number does not capture the opportunity cost of having high quality internal resources committed to an IFRS conversion compared to other value added activities.”
 
Whenever the conversion happens, what many companies may not have considered is how they will get the skilled professionals to support this conversion at a time when every other multinational company and others will be competing for those same resources.  Training your current staff will be necessary, but as mentioned above, this will take them away from other value added activities. As the change to the IFRS reporting standards draws closer, companies will be looking for outside resources to help.  
 
If you will be leading the conversion, talk with your staffing partner(s) early about your expected needs. Here at Partner, we have already begun to identify passive candidates and contract resources that have the necessary skills to help our customers when the time is right. If you will be supporting the conversion, start building the awareness and skill set that employers will need. Either way, early planning is the key component to a successful transition.
 
 

By Rob Hullinger
Account Manager - Accounting & Finance