1. Implications of IFRS By Dr. Martin Ikpehai Martin. ikpehai@ng. ey
Implications of IFRS By Dr. Martin Ikpehai

2. Agenda What is IFRS? Benefits of IFRS Conversion
IFRS Adoption Roadmap in Nigeria
IFRS Conversion Methodology
Impact of the IFRS Conversion on the Business
IT Implications of IFRS Conversion
IFRS Compliant Software Solutions
IFRS Conversion Project Management
Lessons Learned from EU IFRS Conversion Experience
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3. What is IFRS?
International Financial Reporting Standards (IFRS) are a set of accounting principles that is rapidly gaining acceptance on a worldwide basis. These standards are:
Published by the London-based International Accounting Standards Board (IASB)
More focused on objectives and principles and less reliant on detailed rules than US GAAP
Today, more than 100 countries require/permit the use of International Financial Reporting Standards (IFRS), or are converging with the IASB’s standards

4. Top 10 Global Capital Markets
IFRS reporting trends
Every major non-US capital market is moving to IFRS
Adoption of IFRS in the EU in 2005 (8,000 companies)
Over 100 countries around the world require or permit IFRS
IFRS quickly picking up share of Global Fortune 500 companies
IFRS is becoming the predominant accounting framework outside the US
Top 10 Global Capital Markets US
US GAAP – moving towards IFRS
Japan
Convergence to IFRS UK
IFRS
France
Canada
Germany
Hong Kong
HKFRS (equivalent to IFRS)
Spain
Switzerland
IFRS or US GAAP
Australia
AIFRS (equivalent to IFRS)
The world is converting to IFRS.
There is a desire to move to a single global accounting platform and all SEC comments have agreed with this position.
Here’s a brief summary of what happening or has happened in other markets (discuss slides).
IFRS has quickly become the predominant accounting framework outside the US.
Statutory reporting complexities when client operations have international operations reporting in IFRS.

5. New Accounting Regulations - IFRS?
International Financial Reporting Standards (IFRS) are a global set of standards for financial accounting and reporting
At a high level, the biggest difference between IFRS and some GAAP (e.g. US GAAP) is that IFRS uses a more principles based approach and US GAAP is more prescriptive
The International Accounting Standards Board has generally avoided issuing interpretations of its standards, leaving more of the implementation of the standards to preparers and auditors

6. Why Convert to IFRS
According to the IFRS Primer for Audit Committees, considerations for filing of IFRS financial statements include:
Multinational companies may benefit from the use of common financial reporting systems
IFRS may ease financial statement comparability among companies
I FRS is intended to facilitate cross-border investments and access to global capital markets

7. Why Convert to IFRS Other key benefits include:
opportunities to improve/streamline business functions and processes,
globally integrate the financial IT systems, and achieve consolidation/reporting efficiency.

8. Benefits of IFRS
Improved quality of reporting Improved transparency and investor confidence Reduced accounting complexity Potential process and cost efficiencies Process and Technology optimization

9. IFRS adoption roadmap in Nigeria
Phase 1 : January 1, 2012
Public listed entities
Significant public interest entities
- Government business entities
- Financial and other credit institutions
- Insurance companies
Phase 2: January 1, 2013
Other entities which are of significant public interest because of their natures of business, size, or number of employees or their corporate status.
Not for profit entities
Pension funds
Other publicly owned entities
Phase 3: January 1, 2014
Small and medium-sized entities.

10. IFRS conversion activities

11. IFRS Conversion Methodology

12. IFRS conversion key activities
Today
First year of reporting
Education
and awareness
Diagnostic
(Impact Assessment)
Design and planning
Solution development
Implementation
Post
implementation
review
Determine key accounting differences
Validate conversion recommendations
Model IFRS accounts and chart of accounts (IFRS)
Implement solutions
Debrief
Accounting and reporting
Tax planning and compliance
Business processes and systems
Regulatory compliance
Evaluate potential impact on the business
Evaluate solution alternatives
Develop accounting policy manual
Test and remediate
Identify opportunities for improvement
Prioritize conversion activities and make recommendations
Determine future state
Develop process and system change requirements
Parallel reporting under IFRS
Implement improvements
Change management, communication and training
Project management

13. IFRS impact assessment

14. Scope of IFRS impact assessment Accounting and reporting work stream
Accounting and reporting objectives
Identify the critical GAAP to IFRS conversion accounting, reporting and disclosure differences
Build a strong IFRS knowledge base within the IFRS core team
Gain greater visibility into unique historical regulatory accounting, and other industry specific issues.
Inventory regulatory reporting requirements and identify IFRS conversion impacts
Key performance indicators
Number of critical GAAP to IFRS accounting and reporting differences
Number of regulatory reports impacted
Number of IFRS proficient internal resources
Resource assumptions
Core team
Identify key accounting differences and potential options
Attend training and develop own skills
Coordinate and attend key meetings with the relevant corporate and operating unit resources
Others
Assist with the identification of where the accounts are located (corporate, operating companies, etc.)
Provide the existing applicable accounting policies
Identify regulatory reports
Impact assessment activities
Conduct initial review of consolidated financial statements and develop consolidated accounting differences “heat map"
Validate significant differences through a detailed review of each IFRS standard versus US GAAP at the consolidated level
Provide training related to the top differences to team
Identify where the applicable accounts reside within corporate and (or) operating units
Inventory regulatory reporting requirements and identify IFRS conversion impacts, including trends and activities of the regulating bodies
Identify disclosure requirements and differences between IFRS and US GAAP
Identify historical regulatory accounting and its applicability under IFRS, including dual reporting considerations
Determine the potential options and IFRS 1 considerations through:
Review of IFRS standards
Analysis of peers and other IFRS filer information
Consider impact of options both currently and in the future
Evaluate convergence activities between the FASB and IASB and the directional impact on accounting policy options
Develop a convergence monitoring process to update the Impact Assessment

15. Some Industries Where IFRS Will Mean Significant Accounting Changes
Banking
Telecommunications
Utilities
Manufacturing
Real Estate
Oil and Gas

16. Accounting and Reporting: Top Ten IFRS Issues in the Banking Industry
1. Financial Instruments - Classification, Measurement, Recognition and De-recognition 2. Financial Instruments – Impairment 3. Hedge Accounting 4. Definition of Debt vs Equity 5. Consolidation and Special Purpose Entities (SPEs) 6. Presentation of Financial Statements and Disclosures of Financial Instruments 7. Leases 8. Insurance Contracts 9. Post-Employment Benefits 10. IFRS 1 – First Time Adoption

17. Accounting and Reporting: Top Ten IFRS Issues in the Telecomms Industry
1. Revenue Recognition 2. Capacity Transactions 3. Intangible Assets 4. Property, Plant and Equipment 5. Impairment of Non-Financial Assets 6. Leases 7. Financial Instruments 8. Provisions and Contingencies 9. IFRS 1 – First-time Adoption 10. Presentation of financial Statements

18. Accounting and Reporting: Top Ten IFRS Issues in the Real Estate Industry
1. Investment Properties 2. Property, Plant and Equipment 3. Impairment 4. Leases 5. Sale of Real Estate 6. Sale and Lease-Back 7. Joint Ventures 8. Taxes 9. IFRS 1 – First-time Adoption 10. Presentation of Financial Statements

19. Impact assessment activities
Scope of IFRS impact assessment Tax work stream
Impact assessment activities
Identify and analyze the accounting implications of potential differences between current income tax accounting policies and IFRS required and (or) allowable policies used for financial statements purposes
Coordinate with accounting and reporting and business process and systems work streams to identify impact to internal controls (e.g., 404 processes), major tax disclosure data gaps, etc.
Evaluate the effect of IFRS on tax resources (e.g., assess challenges involved in identifying and implementing recommendations, i.e., resource needs and timing)
Determine the tax accounting effects of non-income tax IFRS accounting adoption changes
Identify potential recommendations for potential conversion effects, including:
Formal or informal ruling requests (e.g., in relation to change in tax accounting methods)
IFRS accounting policy elections
Determine the tax planning, compliance and controversy effects of non-income tax IFRS accounting adoption changes
Tax objectives
Understand the potential impact of IFRS on your company’s effective tax rate, deferred tax assets/liabilities, tax planning and compliance and treatment by federal, state and local taxing authorities, and tax related processes
Identify the tax impact of critical US GAAP to IFRS conversion accounting differences
Build tax-specific IFRS knowledge base within the company’s tax department
Key performance indicators
Involvement of tax personnel in IFRS conversion
Resource assumptions
Core team
Be represented on project team
Attend training
Inventory FIN 48 positions
Identify US GAAP and Tax reporting differences
Coordinate and attend key meetings with the relevant SBU and operating unit resources
Others
Assess impacts on systems used for tax reporting

20. Impact Assessment activities
Scope of IFRS impact assessment Business process and systems work stream
Impact Assessment activities
For accounts analyzed in the accounting and reporting work stream:
Assess the impact on processes and systems required for the additional disclosures under IFRS
Key business and system owners should develop observations regarding potential impacts of converting to IFRS
Where appropriate and relevant, conduct facilitated sessions to develop deeper understanding of issues relating to people, process and systems
Assess the impact and synergies of an IFRS conversion on business transformation (if applicable), for example:
Project management
Change management
Data
Business requirement definition
Business process design
For high impact systems, determine the nature of potential changes relating to systems data, configuration and (or) reporting
Assess the impact and synergies of an IFRS conversion on business transformation processes
In connection with process and systems review, provide observations related to the impact on internal controls over financial reporting (SOX 404)
Business process and systems objectives
Identify key business processes and (or) functions affected by an IFRS conversion
Develop an efficient approach to integrate IFRS considerations into any potential Business Transformation initiatives
Understand the impact of IFRS to systems data, configuration requirements and (or) reporting
Determine whether IFRS can be further leveraged to support the organization’s strategic initiatives
Key performance indicators
Participation by the appropriate process and systems personnel during interview/facilitated sessions
Number of potential discrete synergies and impacts of an IFRS conversion to any business transformation initiatives
Resource assumptions
Core team
Be represented on project team
Validate and provide feedback relative to the work being performed by A&R work stream
Provide feedback relative to the scope and approach of business transformation (if applicable)
Coordinate and attend meetings with relevant project resources
Others
Participate in process and systems-oriented interview/facilitated sessions

21. Impact of IFRS Conversion on IT
Current systems may not have the functionality to handle IFRS requirements, so changes in financial information requirements due to IFRS should be identified and the impact of these requirements on the existing data models should be assessed. Changes in accounting policies and financial reporting processes can also have a significant impact on a company’s financial systems and reporting infrastructure. These changes may require some adjustments to financial reporting systems, existing interfaces, and underlying databases to incorporate specific data to support IFRS reporting. Executives will need to collaborate with their IT counterparts to review systems implications of IFRS. Key considerations include:

22. Impact of IFRS Conversion on IT
Will a change from local GAAP to IFRS result in additional reporting requirements? How do you ensure systems are capable of addressing the changes? How do you assess the impact of IFRS on existing data models? What changes will impact the consolidated entities, mapping structures and financial statement reporting formats? Will the resulting systems be sufficient to enable tax compliance needs? Will the systems need to support preparation of accounting records under both IFRS and or local GAAP prior to the date of conversion?

23. Impact of IFRS Conversion on IT
The conversion to IFRS can also result in changes to the number of consolidated entities, mapping structures and financial statement reporting formats, all of which will require adjustments to the consolidation system.

24. Evaluating the Potential Technology Impact of IFRS Conversion
The extent that systems will need to change depends upon multiple factors and choices:
the size and complexity of the business,
the strategy for responding to IFRS,
characteristics of the current infrastructure
and capabilities and number of applications that are involved in the collection of financial data and
the generation of financial statements.
To explain where potential IFRS requirements could drive changes in your IT platform, consider the impact across five dimensions:

25. Illustrative Systems Architecture
General Ledger
Chart of Accounts
Ledgers / Books
Reporting
Data Warehouse
Planning and
Calculation Engines
Transformation Layer / Interfaces
Output / Distribution AP AR
Assets
Inventory
Purchasing
Projects
Upstream
Systems
Financial
Management
Regulatory
Business Unit
Tax
Local GAAP
Downstream
Reports
And Systems

26. Evaluating the Potential Technology Impact of IFRS Conversion
Upstream Systems: Financial subledgers (transactional systems), financial instrument/investment valuation systems, product specific systems and interfaces that post financial transactions. General Ledger: Chart of accounts and policies and procedures related to these. Reporting Data Warehouses/Data Marts: Consolidation and/or allocation tools and engines. Downstream: Reporting solutions outside of IFRS reporting, including compliance solutions and statutory reporting systems. Infrastructure: Support applications such as rules engines, allocation engines, middleware, and operational data stores that affect or transact financial information.

27. Areas to Investigate in the Technology Arena
Upstream Systems:
Identify and document all internal and external data sources that must be updated.
Identify missing data due to differences in accounting treatment.
Assess required enhancements to legacy systems.

28. Areas to Investigate in the Technology Arena
General Ledger:
Assess high-level changes to charts of accounts based upon differences between IFRS and local GAAP.
Analyze the reconciliation process between sub-ledgers and the general ledger.
Assess accounting, reporting, close consolidation, and reconciliation processes.
Assess journal entry methods and templates.
Assess existing expense allocation methods and engines to determine whether rules need to be adjusted.

29. Areas to Investigate in the Technology Arena
Reporting Data Warehouses:
Identify changes in financial information requirements due to IFRS transition and assess current financial reporting capabilities.
Assess impacts of these requirements on existing information management systems.
Assess readiness of data governance functions and metadata repositories to be updated to reflect new data definitions.

30. Areas to Investigate in the Technology Arena
Downstream Reporting:
Evaluate external reporting templates to identify changes required to support increased/different disclosures.
Identify information sets that would be needed to meet IFRS reporting and disclosure requirements.
Assess the business intelligence environment’s readiness for identified IFRS changes.

31. Areas to Investigate in the Technology Arena
Infrastructure:
Assess impacts to middleware, rules and allocation engines, including capacity to maintain additional transaction detail.
Another very important factor in considering change would be to understand how technology outsourcing arrangements and systems will be impacted.

32. IFRS Compliant Software Solutions

33. IFRS Compliant Software Solutions
Some corporate IT Systems are not IFRS Compliant
What do you do?
System Maintenance / upgrade
Intermediate Solutions
Some IFRS Compliant software solutions were implemented based on the local GAAP
Re-implement
Every software manufacturer is now upgrading their software to be IFRS compliant

34. IFRS Project Management

35. Example project management team
Planning assumptions
PMO
Upstream impacts: consider key leads
Downstream impacts at divisional level; consider key Divisional team leads
Steering committee
Tax work stream
Regulatory compliance work stream
Accounting and reporting work stream
Business processes
work stream
Information technology
Reporting packages
Human resources
Accounting policies
Debt agreements
Financial close process
Financial planning and analysis
Other finance process
Other business processes
Change management and training

36. Scope of IFRS impact assessment Project management work stream
Project management objectives
Meet the project plan objectives on time and on budget
Develop an efficient approach to integrate the IFRS conversion into any business transformation initiatives
Develop a preliminary conversion roadmap
Key performance indicators
Progress on IFRS Impact Assessment vs. agreed-to timeline
Resource assumptions
Core team
Validate and provide feedback relative to the work being performed by individual impact assessment work streams
Coordinate and attend meetings with the relevant executives
Impact assessment activities
Identify core team members with competency to lead, manage and execute all work streams
Develop communication protocols for effective communication across work streams
Analyze the output from the various work streams and assess where they need to be factored into any business transformation initiatives and conversion roadmap
Complete the conversion roadmap and prepare initial Phase 2 plan
Validate preliminary results with other work streams, IFRS core team and key stakeholders (i.e., CIO, CFO, controller)
Develop the overall strategy for communication and presentation to executive management

37. Change management/communication and training
Project management objectives
Meet the project plan objectives on time and on budget
Clarify roles and responsibilities
Key performance indicators
Organization becomes knowledgeable of IFRS
IFRS accounting becomes embedded in daily processes
Resource assumptions
Core team
Conducting workshops and training
Build on foundation of US GAAP knowledge
Impact assessment activities
Raise awareness of the IFRS issues within the company and give momentum to the IFRS conversion project
Understand the company’s organizational structure and knowledge management approach
Develop and execute communication protocols
Recommend an overall training roadmap to embed IFRS knowledge in the organization

38. Lessons Learned from European IFRS Conversion
In July 2002, the European Parliament passed legislation requiring listed companies to convert to IFRS by The short timeframe and extensive reach of the directive had many companies scrambling to comply. Anecdotal reports suggest that the conversion placed significant resource pressure – human and financial – on finance teams and their companies at large. A more tangible measurement of the effort can be found by comparing the length of European companies’ 2004 (local GAAP) and 2005 (IFRS) financial statements. The latter averaged more than 50 percent longer than the former; in some instances, reports doubled in length. Much of the increase can be attributed to an increased level of disclosure in the financial statements in areas such as judgments made and assumptions used.

39. Lessons Learned from European IFRS Conversion
Certain accounting issues proved especially vexing during the transition, including asset impairments, financial instruments, and lease accounting.
Among the lessons learned from the European experience were the following:
The effort was often underestimated. The original misconception that conversion was solely an accounting issue was replaced with a growing realization that the initiative was larger and more complex.
Projects often lacked a holistic approach. Because of the limited view cited above, companies frequently did not take the collateral effects into consideration, such as the impacts on IT, HR, and tax.
A late start often resulted in escalation of costs. Those few companies that anticipated conversion and took steps to prepare for it were in much better shape than those that did not. Companies that delayed their response paid a price for it, in terms of higher costs and greater diversion of resources.

40. Lessons Learned from European IFRS Conversion
Many companies did not achieve “business as usual” state for IFRS reporting. The highest quality financial data is obtained when companies fully integrate IFRS into their systems and processes. The compressed timeframes often precluded this possibility; instead, first-year financials were often produced using extraordinary, labor-intensive, and unsustainable measures.
Several companies are only now starting to explore benefits from IFRS implementation. Due to multiple constraints, the first-year effort in the EU was focused more on “getting it done.” Potential benefits in terms of reducing complexity, increasing efficiency, decreasing costs, and improving transparency had to be deferred.

41. Questions?
Dr. Martin O. Ikpehai Tel: