Are Canadian businesses' IT systems actually ready for the IFRS challenge?

    
    Public companies' conversion to International Financial Reporting
    Standards means an overhaul of existing financial IT systems - possibly
    as soon as January, says Grant Thornton LLP
    

TORONTO , Oct. 7 /CNW/ - For publicly-accountable businesses in Canada , January 1st, 2011 will represent much more than the start of a new calendar year-it will be a financial milestone when the venerable Generally Accepted Accounting Principles (GAAP) will be formally replaced by International Financial Reporting Standards (IFRS). However, Grant Thornton LLP cautions these businesses that their IFRS obligations could begin in three months, depending on when their fiscal year-end occurs, and that they should make sure their IT systems are ready for the challenge.

"Even though 2011 is the official starting point for IFRS in Canada , the process requires that each fiscal year be compared to the previous one," explained Doug Steele , a Vancouver-based Partner and Regional IFRS Leader with Grant Thornton LLP, "and that comparison must be made in an IFRS context. So if your 2010 fiscal year matches the calendar year, it means that your involvement in IFRS will actually begin this coming January 1st . Public companies in Canada are aware of what IFRS means for their accounting obligations, but when it comes to making necessary changes to IT systems used for financial data, some will get caught off guard about how quickly it's coming up."

Mr. Steele pointed out that the initial challenge will lie in simultaneously running distinct accounting systems during the 2010 fiscal year. "While the 2010 fiscal year reporting needs to be IFRS compliant as part of 2011's reporting, 2010 is also the final year that companies will be using Canadian GAAP. Businesses in this scenario need to make sure that their IT systems can handle parallel processing. Are the company's IT systems storage and memory capacities up to the job? Will they have the resources to file financial data into two systems? Will the finance staff have access to the type of data they need for the simultaneous filings? A public company that isn't sure of the answers to these questions could be in for an unpleasant surprise after January," he cautioned.

Although Canadian GAAP and IFRS have many consistencies, Mr. Steele explained one of the types of differences that must be accommodated by IT systems, particularly if the business has ample holdings in property, buildings and equipment. "Most businesses require real estate holdings of some type, perhaps for a manufacturing plant, to house administration or to hold for income and or long term capital appreciation. Under existing Canadian GAAP these assets are booked and carried at historical cost and depreciated over time. However, under IFRS, a myriad of fair value options are potentially available to entities for traditional property plant and equipment as well as properties held for gain. While fair value may become the new cost and carrying value for IFRS the relevant tax figures remain linked to historical cost. So that represents a new data stream for the finance department's IT staff. They have to be aware of the requirement for that new information, they have to access to it, be able to enter it, track it and store it in such a way that it doesn't interfere with 2010's GAAP reporting."

Regarding other ways that IFRS will impact public companies' IT systems, Mr. Steele noted, "This also touches on data storage and retention for older data that might not be required for IFRS, but is still necessary for the company's management. There is also the need to consider how everyday transactions will fare under the new system so applications will still meet authorization and security requirements. Also, companies should think about how their other IT operations beyond the financial side might be impacted by the change."

According to Paul Bent , a Grant Thornton LLP Partner and IFRS National Leader, that while different companies will have different requirements for their IFRS conversions, there are some key decisions that each should make. "Do a thorough analysis of the impact that the process will have on your IT systems, and get professional advice to explore angles you might not have considered. Review the software options with a critical eye-simply having 'IFRS Compliant' software might not be enough for your company. Make sure your project managers for the IFRS conversion get the resources and expertise they require, whether that means a new hire or outsourcing. Review the best practices of companies that have already made the conversion-Canadian public companies can leverage the advantage of being able to see what's already been done in other parts of the world."

Mr. Bent concluded, "Even though we're in the final quarter of 2009, we still encounter public companies in Canada that are not yet prepared for the impact that IFRS conversion will have on their IT systems. There is still time to prepare, but time is running out. That said, the only thing worse than not preparing for the conversion is getting it wrong. Whether you're tapping the expertise of your own staff, or getting professional counsel, get it done and get it done right."

The Canadian GAAP traces its origins to 1936, when the Canadian Institute of Chartered Accountants saw the need to have a consistent set of accounting terms, which later spurred the development of guidelines to improve auditing procedures and accountancy in general. While this system was appropriate for the more self-contained national economy of that time, the onset of globalization prompted the industry to move toward common international standards. IFRS was chosen by the industry since it has a reasonable similarity to Canadian GAAP, and is already in use by the European Union. In the United States , the Securities and Exchange Commission is anticipating a full switch to IFRS by 2014.

An article by Doug Steele , The IT implications of IFRS can be downloaded at: www.GrantThornton.ca/insights

Notes to editors:

About Grant Thornton in Canada

Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton has more than 3,100 people in offices across Canada . Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member and correspondent firms operate in over 100 countries worldwide.

For further information: or to arrange an interview please contact: Susi Tarleton, National Marketing Manager (Public Companies, Professional Services), Marketing and Communications, Grant Thornton LLP, T. [phone], [email protected]; or Peter Mumford, Compass Communications Inc., T. [phone] No. 55, C. [phone], [email protected]