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What resources will you need for an IFRS conversion?

July 31st, 2008 Comments off

When we went through our IFRS implementation in 2005, we did so under the mandated schedule within the European union.  Since our corporate headquarters were based in Grenoble, France, our North American operations became a necessary participant in this effort. Never did we believe at the time that IFRS might one day become the global standard with reporting and that GAAP might play second fiddle. In hindsight, I feel fortunate to be a part of that early effort and to have a strong perspective on the resources it took to implement these new reporting standards.

One of the larger challenges we faced was the need to put these new reporting efforts in place, maintain our current focus on the business, but keep our headcount static.  We were not being given the latitude to hire new position(s) to assist with the effort.  It was huge task. I certainly would not endorse this approach again. I had been through other new reporting implementations but this one topped them all.  There was also the need to coordinate our efforts with our staff in Grenoble and develop global reporting and consolidation templates that would be used by each entity. Although we were not publicly traded in the U.S., we still needed to go through the efforts of comparing our GAAP-based results with proforma results calculated under the pending IFRS guidelines. For our entity, there were numerous considerations to the treatment of our R&D expenses and how those would be capitalized, as well as the overall cost-structures for our product. It also necessitated a review of our tax structure along with corporate policies on royalty and dividend payments.

I cannot include the elements of our timeline and all the other aspects we needed to cover in a summary post, but it was extensive.  We had to review areas such as contracts and other agreements to see if a conversion might trigger any covenants. There was also the issue of implementing certain reporting aspects that were required under IFRS but which we were not currently reporting, which needed to be coordinated with our IT team. We needed to ensure that our North American staff was properly trained & understood what was driving the effort.  We worked with the auditors to plan future engagements and how the scope would change under IFRS.  The list goes on.  The schedule for the U.S. conversion has not been defined as of yet, but when you start considering the forward-looking notifications and proformas that public companies will need to compile, it’s a huge undertaking. Today, the earliest estimation that U.S. companies might begin reporting under an IFRS-based format is 2011.  We’re certainly in for a very interesting period of transition….

Thanks for reading . . . .

When did you last see an IFO?

May 1st, 2008 Comments off

     Depending on the size of the organization you are running, and the number of entities, one of the more important questions you can ask is whether you are running an Integrated Finance Organization.  While there has been some recent press on the topic touting it as something near “revelation”, it should be standard operating procedure.  It doesn’t matter if you’re coordinating multiple entities in just a North American capacity or a combination of entities throughout the globe.  They all need to be on the same page and communicating under the same guidelines.

     So what is an IFO as opposed to any other Finance department?  When you’re looking at the organization you are are managing and asking whether it’s worth of “IFO status”, there are some key considerations to table and determine whether you meet the criteria.  If you don’t, it certainly gives you something to shoot for.

     First, your organization should be using a “global set of standards” in your reporting process/structure.  Let’s not be too literal in the word global, since this can apply to a strictly NAM entity or a true international structure.  Regardless, all entities need to be working under the same set of rules and have a clear understanding of what those rules are.  Second, there needs to be a standardized chart of accounts that are used through all the functional areas.  Where possible, there needs to be consistency in the use of accounts and little variation for “special” accounts, which end up adding up and clouding the reporting structure.  Third, the entire organization needs to be using terminology that is clear and concise to the completion of tasks, defining processes, delegations of authority, etc.  Any ambiguity will ultimately lead to a breakdown and the potential for risk.  Fourth, the entire Finance organization needs to be working on a standardized set of processes that is used by all entities.  Again, it comes back to a defined structure and scheduling that all parties are clear on and accountability can become a common theme in the delivery of information.

     During my time at MGE, in a pre-merger capacity, I was fortunate to be working under a global CFO who was entirely committed to putting this type of structure in place.  Not only was he committed to it, but it was achieved.  In hindsight, the experience that I received working with him and helping to shape and put his policies in place in North America was invaluable.  In the end, this type of process leads to the effective management of the Finance organization, decreases your levels of internal and external risk, and allows you to deliver information of the highest integrity.  In the end, Finance becomes a true value added service within the company.

Categories: CorpFin Cafe, Domestic, International Tags:

Be ready to go International….even if you’re not traveling! Is IFRS on your radar?

April 15th, 2008 Comments off

     Americans have always viewed themselves as the professionals who have always set the standards for financial reporting and have historically taken the role of mentor and leader to the broader global finance community.  However, that role looks to be getting turned on it’s head pretty rapidly with the impending conversion to new emerging global accounting standards, which as a surprise to some, is coming out of Europe.

     For the last two years at my previous company we made the move to an IFRS (International Financial Reporting Standards) reporting format to conform to the requirements of our French-based parent.  This was a lengthy process as there was a very comprehensive rollout to all the international entities for the adoption of this new format, which was then followed up by “training camps” where all the entities converged for a one-week intensive on the new format.  As the reporting structures were further defined and rolled out there was the necessary dual reporting format where we submitted our standard historical formats, along with the new IFRS formats, along with all the appropriate bridges to outline the differences between the two formats.

     Never did I think that the work that we were doing on behalf of our French parent might become the standard for North American reporting.  Our initial view, along with the view of many of my colleagues, was why don’t the Europeans roll out GAAP in Europe since this is already a standardized form of reporting, has numerous boards to address the constant market changes and update reporting, and a format that was respected globally?  Why invest such a huge volume of labor and monetary resources to something that already exists?

     If you’re not already familiarizing yourself with the new international standards that are dominating current discussions it’s probably about time you start.  I’ll spend some more time in the coming weeks discussing this topic in more detail and the differences between GAAP and IFRS, along with the additional changes that are being considered.

Be ready to go International….even if you’re not traveling!

Thanks for reading.

Jeffrey

Categories: CorpFin Cafe, IFRS, International Tags: