TRANSITION TO IFRS A GENERAL OVERVIEW AND ROADMAP

Content Introduction Structure of IFRS Significance of IFRS Benefits of IFRS Transition/Implementation issues Conversion plan & milestones

Introduction On 28 July 2010, the Nigerian Federal Executive Council (FEC) approved January 2012 as the effective date for the convergence of accounting standards in Nigeria (SAS or NGAAP) to International Financial Reporting Standards (IFRS) The FEC also directed the Nigerian Accounting Standards Board (NASB) to take further necessary actions to give effect to the decision On 3 September 2010, NASB announced a staged implementation for significant public interest entities by January 2012; other public interest entities by January 2013 and SMEs by January 2014 IFRS is the collection of financial reporting standards developed by the International Accounting Standards Board (IASB), an independent International Standards setting organisation The aim of IFRS is to provide “a single set of high quality, global accounting standards that require transparent and comparable information in general purpose financial statements

Structure of IFRS IFRS comprise: –IASs (written by the IASC from 1973 to 2000; amended by IASB) = 31 –IFRS (written from 2001 by the IASB) = 9 –Standards Interpretation Committee (SIC)’s interpretations = 11 –IFRIC’s interpretations = 19 IASs, IFRSs, SICs, IFRICs all have full authority There is also a FRAMEWORK document for the preparation and presentation of Financial Statements which describes the principles underlying IFRS. (the framework has no direct authority but is relevant in selecting accounting policies under IAS 8) IFRS are considered a “principle based” set of standards in that they establish broad principles as well as dictate specific treatments

Significance of IFRS The convergence of SAS to IFRS will introduce an almost entirely new basis of reporting for many companies There can be significant differences in reported profits/net assets between NGAAP and IFRS For example, in a recently published financial statement of a Nigerian Bank (a member of an international banking group), the difference are: »IFRSNGAAPN’billion –Net profit –Total assets

Benefits of IFRS Improved comparability of reported financial information by entities Easier access to foreign capital funding and cross-border stock exchange listings More effective management of enterprises and efficient processes since IFRS reporting is performance based More transparent financial information to all stakeholders Optimisation of tax planning

Transition to IFRS Transition to IFRS is one of the biggest challenges that the Corporate entities in Nigeria will face in the next 3 to 5 years IFRS is used in over 100 countries. By the end of this year 2011, most countries will either require IFRS or at least permit IFRS The status of implementation by Top Ten global capital markets: USAUS GAAP, adopting IFRS from 2014 JapanConverting to IFRs UKIFRS FranceIFRS CanadaConverting to IFRS Germany Hong Kong IFRS SpainIFRS Switzerland Australia IFRS or US GAAP IFRS

Implementation issues & strategy A successful conversion to IFRS will not happen overnight because the process represent much more than a change in accounting rules The convergence of NGAAP and IFRS will introduce an almost entirely new basis of reporting for many companies. The scope of the changes goes beyond accounting and financial reporting. Yes, IFRs will affect the GL and financial statements, but it will also impact: –Internal policies; –Processes and controls; –IT systems and infrastructure; –Other organisation areas, such as Legal, Risk management, taxation, investors relation, etc it is therefore essential that everybody is involved from the beginning

Implementation issues & strategy ConstituencyInvolvement BoardAllocate budget and understand business impact ManagementSponsor IFRS conversion and secure resources Realign performance measures to IFRS Investor relationsEducate analysts and investors; manage external stakeholders communications FinanceModify accounting policies, financial statements and reporting packages to conform to IFRS Conduct training and support information gathering and consolidation Business operationsProvide data to meet new accounting and disclosure requirements Understand IFRS impact on transaction structure ITPlan and implement ”quick fixes” and required system modifications to enable IFRS reporting on a sustainable basis SubsidiariesImplement process changes to enable IFRS reporting

Implementation issues & strategy The first step in the conversion process involves planning and assigning responsibilities to manage potential problems Other steps to follow are: –Gap analysis –Map NGAAP to IFRS and establish areas of significant difference in reporting/disclosure requirements –Establishment of external and internal reporting requirements –Create accounting manual (or modify existing manual) –Adapt IT systems and software –Evaluation of contractual agreements –Budgets and forecasts prepared under IFRS requirements –Project team and work plan

Conversion plan and milestones In view of the complexity of conversion/first-time-adoption, an early start is recommended to allow for a smooth transition To overcome the challenges of comparative figures, it is advisable that entities begin preparatory work from 2010 financial year end. Nigerian SAS fin stmt Historical data for IFRS financial reporting IFRS financial statements

Conversion plan and milestones Phase 1 Mobilise core team Perform gap analysis Impact assessments Identify training needs Plan conversion path Project budget Present results to management Phase 2 Mobilise finance functions and It IFRS training Build tools (policies, fin. Stmts, reporting packages) Convert systems First trials Phase 3 Mobilise business Convert budget Dry run Opening balance sheet Comparatives Manage business on IFRS basis Cutover to IFRS The strategy to achieve a seamless transition to IFRS is a phased approach to implementation

Conversion plan and milestones The first phase is critical. The objective is to scope the main impact areas and plan the conversion path. The key questions to address are:  What are the key accounting and disclosure differences between NGAAP and IFRS?  What is the estimated impact on the bottom-line results, if reported under IFRS?  What is the impact on systems and processes?  Who is impacted by the conversion and what are their communication and training needs?  What is the likely impact of conversion on resources?

Work plan and conversion milestones We suggest: Work Streams Phase 1 (Assess) Phase 2 (Design) Phase 3 (Implementation & Parallel Run) Q1/2011Q2/2011Q3/2011Q4/2011Q1/2012 Acconting & reporting Systems & processes Buiness impacts IFRS chart of acct finalised Impact on systems assesment/prop osed functional design IFRS conversion plan & resource budget presentation Full dry run (B/S, PL, disclosures) for Y/E 2010 & 11 1 st IFRS financial published Conversion plan/budget approved by Board Practical IFRS training completed

Key success factors Obtain clear sponsorship of the project by the Management Board Follow a systematic methodology and minimise impact on day-to-day operations Define and agree on clear project responsibilities and deadlines Make necessary management decisions promptly (with the help of position papers) Communicate potential business impacts to investors or other stakeholders as soon as possible Deploy efficient tools and templates for data gathering Liaise with external advisors early and set up joint project team Involve professionals with the right experiences relating to IFRS, NGAAP, Processes, etc

Pitfalls to avoid !!! Jump starting the process without a structured gap analysis, impact assessment and clear conversion plan Underestimation of time and number of resources needed to complete the project Thinking that “accounting rules are similar” – IFRS is a different ball- game Impact of IFRS conversion not addressed upfront with stakeholders Lack of sufficient and early communication with auditors and regulators No project team leader/manager