IFRS readiness & conversions

There are many reasons why companies move from their current accounting framework to International Financial Reporting Standards (IFRS). But what is common to all companies is the need to look at the options available, the consequences of those options, and understand how their transition to IFRS will bring economic benefits.

You may be thinking of listing in the UK, in which case IFRS financial statements are mandatory to meet the listing requirements. If you are a multinational corporation you’ll no doubt want to know how you can benefit from subsidiaries applying the same set of accounting rules. And for those companies applying UK GAAP there’s challenging times ahead with new UK GAAP (FRS 102) coming into force from 1 January 2015. Although this is similar to IFRS, some companies will benefit by moving to full IFRS, or from applying the reduced disclosure framework (FRS 101).

Iain Selfridge looks at some of the considerations for companies considering a move from UK GAAP to IFRS.

 

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Use of IFRS in the UK falls into two boxes. It’s either compulsory because you are a group listed on a regulated exchange so you have no choice. Or it’s voluntary, and that’s often because you have a group or one of your subsidiaries that you are intending to list on a stock exchange, and you know that you are going to have to be on IFRS when you do that. But there are disadvantages of voluntarily choosing IFRS and it’s the most complicated accounting we have in the UK and there are onerous disclosures that come with the standards. So one thing to bear in mind is whether the new FRS 101 – that’s the reduced disclosure framework – will be of use for you with your subsidiaries because there you will be able to use the recognition and measurement of IFRS but take some reduced disclosures. It isn’t, unfortunately, available for consolidated groups, so those will always have to be on IFRS. But it’s something to bear in mind particularly if you don’t have an exit mechanism coming round the corner.

Getting started

There are a number of important issues to consider in planning your transition to IFRS. You’ll want to ensure that all decisions taken are the best for the business and that any wider business opportunities are considered at this stage.

  • Understand the changes affecting financial instruments, hedging, pension and tax. How will you be impacted by future changes to IFRS, eg leases, revenue recognition?
  • Think about the impact of reported performance measures. Will your results be more volatile?
  • Ensure you have enough people, with the right skills to complete the transition. How will they embed the changes within your company?
  • Know what additional data you’ll need to collect. Can your systems cope? Do you have adequate controls in place?
  • Assess the tax implications. Will this affect the timing of your conversion?

Getting it right

You’ve made the decision to convert to IFRS. But that’s only the first step. Now you need to think about the operational challenges, knowledge transfer, change management and project planning – as well as getting the numbers right. This is where we can help.

  • Determination of headline figures, calculations of key performance indicators (KPIs), remuneration schemes that are calculated from the new financial information
  • Understanding and prioritising the key accounting changes and options - and their related impacts
  • Training strategy and coaching support for the IFRS project management team
  • Assurance from objective evaluation of project processes, controls and deliverables
  • Empowering tax managers to take control of the tax aspects of the conversion process and assess the tax merits of each option
  • Assurance that you are releasing the right information to the market, at the right time
  • Maximising the business opportunities that result from your conversion, including streamlining of interdependent projects

How can we help?

Our Accounting Advisory team has experience in helping companies successfully complete the transition to new accounting standards. As well as helping you get the numbers right, we can guide you through the operational challenges. Our flexible and scalable methodology focuses on effective knowledge transfer, so you get lasting benefits. We can help you prepare for IFRS with:

  • Project management support
  • Technical and accounting advice and support tools
  • Advice in relation to accounting and reporting in complex areas such as:
    • Financial instruments
    • Employee benefits and share compensation scheme
    • Tax
  • Learning and change management support
  • Business combinations – purchase price allocation
  • Valuation and impairment testing
  • Processes, data and systems