Breathing Room on IFRS Won’t Last Forever: The Time to Act is Now

While political and economic forces make it even more difficult to know when the SEC will set firm deadlines for implementing the International Financial Reporting Standards (IFRS), some companies are using the extra time to ramp up. They are planning and creating an infrastructure for the eventual conversion. They are gauging how prepared they are, and determining what resources, including new hires, they’ll need for the future. While the task is large, there are some guidelines that can help, from creating a leadership team to assessing internal skills gaps.

Will the planned switch to IFRS be another casualty of the economic crisis? With strapped corporate budgets, a new SEC chair in Washington and a weak national economy, many people are predicting the conversion date will shift even further into the future.
The next big date for IFRS is 2011. That’s when the SEC is expected to vote on whether to set mandatory deadlines. Those deadlines range from 2014 through 2016, based on a company's size, as well as whether they are an accelerated filer or not.

While those still-tentative dates may seem far in the future, veterans of Sarbanes-Oxley and other forward-thinking executives know that there is a lot to be done. Some have begun assessing the situation, making plans and allocating resources. Much of the work is going on behind the scenes as financial woes take center stage.

Despite the hazy timeline and the fact that many companies are preoccupied, there are some general practices that can help smooth the transition.

Conflicting forces reign: Stay focused
Right now, the United States’ implementation of IFRS is being buffeted from all directions. The United States is one of the few major economies where IFRS is not the standard (or will be in the next 1-3 years). IFRS has been adopted in more than 100 countries and many executives see it as a competitive advantage. As a result, some companies, such as those with global operations, may want to accelerate the process.

On the other hand, numerous companies say they simply don’t have the resources to proceed. But the reality is that failing to prepare will only add time, money and aggravation and make the project more prone to errors.

Leadership and the big picture
Leadership is critical. Accounting and finance executives at the highest levels, as well as the company’s CEO, must actively champion a proactive approach. The project’s scope, timeline and resource needs must be fully understood and mapped out. A core group should direct the process and conduct impact analyses to see which parts of the organization will be affected and how deeply.

Finally, management should be prepared to work through a range of related issues, including change management and staffing challenges.

On the ground
Putting a strategy in practice requires substantial on-the-ground assessments and reporting. It’s critical to identify all relevant systems — from tax, earnings and audit to employee benefits and compliance — as well as specific staffing and training needs. Management should designate a group to carry out these assessments and come up with recommendations. In terms of staffing and training, for example, the group’s leaders, with significant help from other functional areas in the company, would identify gaps in skills and knowledge; map out initial training programs; and review options for hiring permanent, temporary or contract workers and consultants.

Some companies, such as those with global operations, may have great in-house resources. Still, others will have virtually no experience. It’s not too early to begin preliminarily sourcing people with key skills. They may be in the general candidate pool; independent contractors with strong accounting, IT and functional-systems backgrounds; or available through specialty staffing companies. Many firms are also looking at colleges and graduate schools where IFRS is part of the curricula, particularly at internationally oriented institutions.

Clearly, the demand for IFRS practitioners and managers is projected to increase, offering choices and job security. There is also a realization among practicing professionals about the importance of IFRS skills. In a March 2009 survey by the American Institute of Certified Public Accountants, 36 percent of CPAs said they want advanced or expert IFRS knowledge, a 6 percentage-point increase in demand since the prior survey six months earlier. And they are seeking out that knowledge. In the most recent survey, just 22 percent said they had “no knowledge” of IFRS, an 8 percentage-point drop from 30 percent in September.

Although the timeline remains uncertain, IFRS preparations are still very much top-of-mind for CFOs, controllers, auditors and many others. Now is the time to enjoy a little bit of breathing room, then take a deep breath and get to work.