The challenges of global financial reporting

Hosted by Ernst & Young's Global IFRS Services

The global financial reporting landscape is changing. Over the last 12 months, the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) have continued with convergence efforts to jointly develop a single set of high-quality global accounting standards.

As the development of accounting standards moves towards implementation, globally consistent interpretation by preparers, auditors and regulators is critical. However, regulation remains largely national. How do we address these challenges?

Join James Luke, a member of Ernst & Young's Global IFRS Services team, and our panel of experienced Ernst & Young professionals as they take a look at the global landscape and consider what the global interpretation and regulation challenges mean for the future of financial reporting.

The online panel includes:

James S. Turley Chairman and CEO
Ernst & Young

Ruth Picker Leader, Global IFRS Services
Ernst & Young Global Limited

Danita Ostling Americas IFRS Technical Leader
Ernst & Young LLP

These webcasts are designed for CEOs, CFOs and audit committee members to help understand the direction that financial reporting is taking now and in the long term.

Ernst & Young is offering this global webcast on three occasions to account for public holidays and global time zones. Please see below for details and register for the webcast that best fits your scheduling needs.

" The challenges of global financial reporting "
Hosted by Ernst & Young's Global IFRS Services

Tuesday, 23 November 2010
16:00-17:00 London; 17:00-18:00 Paris;
11:00 a.m.-12:00 p.m. New York

Register online at: webcast.ey.com/thoughtcenter

Ernst & Young : Περισσότερες εταιρίες στρέφονται στον εσωτερικό έλεγχο

cfoagenda.gr

Ο διευρυμένος ρόλος του εσωτερικού ελέγχου αυξάνει την ανάγκη για προσωπικό με εξειδικευμένες ικανότητες.

Καθώς όλο και περισσότερες εταιρείες στρέφονται στον εσωτερικό έλεγχο για τη βελτίωση της επιχειρηματικής τους δραστηριότητας, νέες ευκαιρίες παρουσιάζονται για τους εσωτερικούς Ελεγκτές. Παράλληλα αυξάνονται οι απαιτούμενες δεξιότητές τους, καθώς οι διοικήσεις απευθύνονται σ' αυτούς ολοένα και περισσότερο, προκειμένου να τους παρέχουν συστάσεις για τη βελτίωση των επιχειρήσεών τους και ευρύτερη κάλυψη όσον αφορά στους στρατηγικούς και λειτουργικούς κινδύνους. Αυτά είναι τα πορίσματα της έρευνας Global Internal Audit Survey της Ernst & Young για το 2008.

«Οι δύσκολες οικονομικές συνθήκες που επικρατούν και οι αυξημένες προσδοκίες των επενδυτών ασκούν πιέσεις στην εκτελεστική διοίκηση και τις επιτροπές ελέγχου προκειμένου να βελτιώσουν το Σύστημα Εσωτερικού Ελέγχου και να οδηγήσουν σε αποδόσεις μεγαλύτερης αξίας», δηλώνει ο Γιώργος Παπαδημητρίου, υπεύθυνος των συμβουλευτικών υπηρεσιών της Ernst & Young στην Ελλάδα.

«Κατά συνέπεια, είναι σαφές ότι ο ρόλος του εσωτερικού ελέγχου εξελίσσεται και γίνεται περισσότερο συμβουλευτικός». Η συμμόρφωση με τους κανονισμούς εξακολουθεί να είναι σημαντική, ωστόσο η διοίκηση πλέον αναμένει συστάσεις για τη βελτίωση της απόδοσης και διορατικές αναλύσεις σχετικά με τους αναδυόμενους κινδύνους, επιπρόσθετα από την κάλυψη ενός πολύ ευρύτερου φάσματος κινδύνων».

Η έρευνα στην οποία συμμετείχαν 348 ανώτερα στελέχη εσωτερικού ελέγχου από 35 χώρες υποδεικνύει την ανάγκη για περαιτέρω εστίαση στους λειτουργικούς κινδύνους τα επόμενα δύο χρόνια, ενώ 75% των ερωτηθέντων προτάσσουν την εστίαση σε θέματα τεχνολογίας πληροφορικής (IT), 53% στα σημαντικά προγράμματα κεφαλαίων, 45% στη βελτίωση της απόδοσης, 44% στην ασφάλεια των πληροφοριών και 39% στην απάτη.

Ωστόσο, μόνο το 69% των ερωτηθέντων καλύπτουν σε ποσοστό 90% ή υψηλότερο τον αριθμό εργαζομένων βάσει του προϋπολογισμού της εταιρείας, ενώ 64% υποδεικνύουν ότι η πρόσληψη και η διατήρηση εξειδικευμένου προσωπικού σε αυτούς τους τομείς αποτελεί πρόκληση.

Διαβάστε περισσότερα στο:
http://cfoagenda.gr/default.asp?pid=9&la=1&cID=1&arId=101

IFRS Risk Planning and Controls Execution

Strategic considerations for financial managers

by Steve Arnold, CPA, steve.arnold@ey.com
Senior Manager, Ernst & Young, Advisory Services Practice
September 2009

Conversion to IFRS will be far more than a technical accounting exercise. Implementing IFRS will impact many, if not all, aspects of your business operations, including information technology. It may bring companywide changes that will spawn new risks.

These include system changes, modifications to processes impacting employees’ day-to-day duties, and new accounting policies.

U.S. GAAP and IFRS share many similarities, but they are also different in many areas. Staff responsible for internal control over financial reporting (ICFR) under Sarbanes-Oxley (SOX) section 404 and operational audits will need to understand how your company plans to apply IFRS so they can take appropriate actions based on both operational risks and the risk of material weakness in ICFR. (See author Steve Arnold, CPA, outline how to leverage your SOX investment for conversion to IFRS in this Steps to Success video.)

While your company may be familiar with the general principles of IFRS, such as a potential need to depreciate components of fixed assets on a detailed level, a thorough review will make clear that there are many rules and requirements in these principles-based standards. Once they have analyzed the standards, companies may realize they do not have much flexibility under IFRS, but ICFR staff can assist with that analysis.

Companies will also need to evaluate the impact these differences may have on their accounting policies, as well as the underlying information technology systems that support the company’s financial reporting structure. Changes to policies and systems on this scale will invariably give rise to additional risks that your organization may need to monitor and control.

PARALLEL REPORTING RISKS

Under the SEC’s proposed road map, companies would need to maintain a parallel reporting environment for approximately three years. In creating a parallel reporting environment, your ICFR and operational audit staff will need to consider the ramifications of modifying your company’s systems and processes. These staff members will need to review the company’s enterprise resource planning (ERP) and consolidation systems’ ability to manage parallel accounting. This can be complicated and expose the organization to additional risk.

ERP and consolidation systems will need to be assessed to determine if they can handle the requirements of dual ledgers and reporting. Although the system may be structured to handle the requirement, consider the volume of data that will pass through the ERP system. Is bandwidth sufficient to process transactions in a timely manner?

For example, your parallel accounting environment may be structured to process a single transaction into two separate accounting streams, which may cause processing lags due to volume. Systems will need to be configured and controls created to avoid cross-pollination of IFRS transactions with U.S. GAAP transactions (and vice versa). Also, for most companies a plan will be needed to maintain statutory reporting ledgers.

Beyond systems, your organization may also need to modify its accounting processes for simultaneous IFRS and U.S. GAAP accounting. The financial statement consolidation of this information, even with systems modifications, will be time-consuming and will more than likely lead to additional resource requirements for the controller. Staff training for the new processes will also need to be developed and implemented.

CONTINUAL MONITORING AND TESTING

As these changes are implemented, your ICFR/operational audit staff will need to continually monitor risks and test controls. These activities are necessary, not optional. The responsibility for determining accounting standards may be shifting to or converging with the International Accounting Standards Board (IASB).

However, U.S. regulatory oversight of financial reporting will likely stay with the SEC. As such, the first set of financial statements published under IFRS may be subject to SOX section 302 and section 906 certification rules.

Controls through the conversion process such as new policy approvals and reviews of conversion calculations will be equally important. Just as it is impractical to assume the conversion to IFRS can happen in a short time, the same is true for internal control testing.

This means documentation and testing will need to move in parallel with the accounting changes and processing your company performs. With the same rigor you apply today, your company will need to prove its internal control over financial reporting is effective and maintain supporting documentation.

Your company’s external auditors will presumably be taking similar actions, as audit opinions will need to cover multiple years of IFRS-based financial statements. Throughout the IFRS conversion phases, it will be critical to get feedback from your external auditor on your project plans and execution.

HOW INTERNALCONTROL/AUDIT STAFF CAN ASSIST IN IDENTIFYING CHANGE?

ICFR and operational audit staff are in a great position to assist your company in evaluating impact areas with the IFRS conversion. Their financial and accounting backgrounds, combined with the knowledge of the underlying processes and systems, will provide in-depth knowledge for conversion planning.

ICFR personnel will be able to assist your company by:

- Inventorying the areas where the company has applied the principles of Accounting Principles Board Opinion 28 (FASB Accounting Standards Codification Topic 270) in estimating costs and expenses during interim periods—IFRS requires each interim period to be discrete and does not recognize the smoothing of costs and expenses between interim periods.

For example, your company’s process for expensing marketing and advertising on an interim basis may be different under IFRS.

Operational audit staff will be able to assist by:

- Documenting the current process for valuing inventory and identifying the system interfaces that may need to be modified under IFRS.

- Interviewing production personnel to determine how the manufacturing of trials/samples is planned and performed and then discussing the results with accounting personnel—U.S. companies often value these items in inventory, but IFRS normally requires these to be expensed as produced. Your ICFR staff will want to work with operational audit/risk management staff to plan your company control structure not only to avoid the development of material weaknesses in ICFR but also to provide for operational risk coverage.

START PLANNING

The IFRS conversion will be a multiyear effort impacting your entire organization, and it is likely not too far away. If you have not started to plan for IFRS, you need to take some initial steps in the near future, especially if your company is subject to the potential 2014 implementation date. (See author Steve Arnold, CPA, outline how to form your IFRS team in this Steps to Success video.)

Risk mitigation and controls play a huge role in the overall conversion plan. It is critical for ICFR and operational audit staff to get involved early to help guide the company in the planning, and to ensure that their portion of the cost estimate is included.

With an increase in risk and testing documentation, the ICFR and operational audit functions will need to assess their employee competencies. More resources may be necessary to cover the parallel risk remediation and control period.

As the SEC continues deliberating the future of IFRS in the U.S., your company will need to maintain the momentum and continue along the path toward conversion. Your ICFR and operational audit staff will need to ensure that they have a seat at the table at the outset to avoid any unwanted surprises.

Strategic IFRS Planning Questions for ICFR (SOX) Management

• How many resources should be assigned to the IFRS conversion project team?
• Do the personnel have adequate accounting training to understand the differences between U.S. GAAP and IFRS?
• Can the current SOX 404 process and systems documentation assist the company in estimating change impacts?
• Does the company have sufficient resources/flexibility to handle the increased controls testing?
• What can ICFR staff do to assist with mitigating the risks of change management in this significant conversion process?
• Is there IT knowledge within the department to assist in identifying risks that may arise for system modifications for the parallel accounting period?

EXECUTIVE SUMMARY

Based on the current SEC road map, your company will need to evaluate how to perform U.S. GAAP/IFRS parallel accounting over a multiyear period.

In creating a parallel accounting environment, your internal control and operational audit staff may need to consider the ramifications of modifying your company’s systems and processes.

Internal control and operational audit staff are in a great position to assist your company in evaluating impact areas with the IFRS conversion. Their financial and accounting backgrounds, combined with the knowledge of the underlying processes and systems, will provide in-depth knowledge for conversion planning.

It is critical for internal control and operational audit staff to get involved early to help guide the company in the planning and to ensure that their portion of the overall conversion cost estimate is included.

Disclaimer: The opinions expressed in this article are those of the author and not necessarily those of Ernst & Young LLP.

Steve Arnold, CPA, Author steve.arnold@ey.com
Matthew G. Lamoreaux, Senior Editor mlamoreaux@aicpa.org
Journal of Accountancy: www.journalofaccountancy.com

IFRS Conversion Puts Demand on Technology

www.webcpa.com

Switching to International Financial Reporting Standards could prove to be a costly move for many companies’ IT departments, according to a new report by Ernst & Young. http://www.ey.com/

The report, “Inside IFRS: The Opportunity for IT,” describes the unexpected complexity of converting to IFRS and the high expenses the change can entail. “IFRS conversion requires fundamental change on multiple levels, can take up to several years, and affects virtually every function within an organization,” said the report. It cites a survey by the Institute of Chartered Accountants in England and Wales, in which 75 percent of the respondents reported increased complexity around information technology issues.

The technological challenges are greater for companies with complex or inefficient business processes or IT environments. Companies with multiple enterprise resource planning or financial reporting systems and instances can be especially prone to trouble with implementing IFRS. The conversion effort may expand as IFRS system-related changes and parallel accounting are implemented across separate and dissimilar environments, the report warns.

The proposed SEC roadmap to IFRS envisions having companies make the transition by preparing a three-year comparison of their financials in accordance with both U.S. GAAP and IFRS, which only adds to the complexity.

Some observers are worried that IFRS adoption could also lead to looser accounting practices and heighten the risk of corporate fraud *see: Witness Tells Senate to Crack Down on Accountant Fraud

To support parallel accounting, the Ernst & Young report notes that some companies may decide to maintain multiple ledgers during and after the transition to assist in complying with IFRS. Accounting differences will need to be accommodated in areas such as fixed and intangible assets. ERP modules such as asset management, inventory, projects and purchasing may require configuration modifications, for example in the area of property, plants and equipment. Inventory accounting will change too, as IFRS does not allow last-in-first-out accounting.

In preparing for IFRS conversion, the IT department will need to devote resources to data analysis to identify the affected data components and modify the data structures. However, the report notes that there may be opportunities for companies to combine IFRS adoption with other IT initiatives to minimize the cost and maximize the benefits of the change.

Download the full report at:
http://www.ey.com/Publication/vwLUAssets/Inside_IFRS_opportunity_IT_July09/$FILE/Inside_IFRS_opportunity_IT_July09.pdf

ACCA and SOEL of Greece sign joint agreement

ACCA, the Association of Chartered Certified Accountants (http://www.accaglobal.com/) and SOEL, the Institute of Certified Public Accountants of Greece, (http://www.soel.gr/)
have signed an agreement to offer a joint examinations scheme for trainee auditors and accountants in Greece, during an event in London.

The agreement means that students will register with both ACCA and SOEL, and they will have the opportunity to become members of both professional bodies once qualified.

Mark Gold, ACCA's deputy president, hosted the event and said :
"We place significant emphasis on our partnerships around the world and are delighted to be working with SOEL. It has been a delight to work with the entire SOEL team and in particular Ionnas Christodoulides, a consultant to Ernst & Young, and Nicos Sofianos, a senior partner at Deloitte; their shared vision and passion created the environment for the JES to be developed and we were delighted to work with them."

Harilaos Alamanos, SOEL President, also spoke at the event, adding:
"This is a new and exciting opportunity for young accountants in Greece and one which will be welcomed in the marketplace. It is a model which is based on trust and on good practice and one which SOEL is particularly pleased to be associated with."

This joint examination scheme has the support of the Greek Financial Regulator - ELTE.
http://elte.org.gr/