I have heard many comments that Canadian companies must be in a state of denial about the complexities and effort involved in the transition to IFRS. I don’t think denial has anything to do with it, but I do believe that many companies are resisting getting serious about the core element of the transition – resolving the underlying accounting issues.
After the confirmation of the 2011 changeover date last February, the interest in all things IFRS grew very quickly through 2008. But thus far in 2009, it seems that many Canadian companies have not undertaken much serious activity related to the coming transition.
There are a few obvious reasons for this decrease in activity:
- That time of year
Calendar year-end companies have been busy enough with their regular annual and first-quarter reporting.
- Economic conditions
It can be a significant challenge for CFOs to convince other executives (and possibly themselves) of the need for expenditures on activities that don’t produce revenues.·
- Rumours of delays
Rumours of a delay in the Canadian IFRS changeover date seemed to persist until the release in May of an AcSB Bulletin that confirmed the 2011 date. A delay has never been likely, but the fact that some were hoping for one is understandable. The release of the May bulletin, however, should put to rest any further rumours of a delay in the changeover date.
The less obvious explanation, but the one I believe to be more fundamental for many, is what I call “residual SOX resentment.”
Residual SOX Resentment
Many finance professionals feel they paid dearly with time, money, and significant distraction for something they (rightly or wrongly) perceive added very little value to their organizations. To put it more bluntly, they feel ripped off.
Many objected that the process to become ”SOX compliant” (or the Canadian version) was made unnecessarily complex, and therefore unnecessarily expensive. To make matters worse, this was quickly followed by changes to standards related to financial instruments, which by their very nature are complex. CFOs were understandably wondering when they could get back to focusing their resources on the basics of running the business.
Then came IFRS, along with many dire warnings of the significant effort and complexities involved in the transition. There are many good seminars and publications that help one to understand specific issues associated with an IFRS transition, but there seem to be many more that cause anxiety and confusion by either being ambiguous or over-complicating the issue. Many presentations of “transition methodologies” have been so complex that they seem better suited to redesigning the space station rather than dealing with a change in accounting standards.
This is not to say that the scope of an IFRS transition is not significant, but it is important to remember that:
- There is no right or wrong way to approach the transition to IFRS. Effective transitions will look very different for different organizations, and be primarily dependent on each organization’s size, complexity and culture. The key is to develop your own practical approach that can be used to effectively identify and resolve the relevant issues.
- The sky is not falling. While the scope of the transition is large, the core elements remain straightforward: (i) researching, analyzing, and interpreting accounting standards, (ii) determining the appropriate accounting policy, and (iii) managing any resulting change. We have all done this before, albeit not quite on the same scale.
While a complex transition process is necessary for very large, complex organizations, the majority of Canadian companies have relatively straightforward internal structures and issues. A lack of specific and practical advice about what is involved in an IFRS transition is preventing many of these companies from taking definitive action on the next steps.
We have been told many, many times that the transition to IFRS is “not just an accounting exercise.” But if we weren’t talking about changes to accounting standards, there would be no discussion; therefore, it really is an accounting exercise. True, it’s a relatively large undertaking that requires project management, and it will result in changes to accounting processes and financial statements that will need to be communicated. However, project management and communication of changes have always been important components of what finance professionals do on a regular basis, whether it be quarter-end reporting, a one-off change to an accounting standard, SOX, or a system implementation.
It’s easy to make something complex, but – to quote Leonardo da Vinci – “simplicity is the ultimate sophistication.” There are effective ways to cut through the complexities and make a transition to IFRS practical and manageable: follow your instincts, experience and training to find what is best for your organization, and then get on with the exercise.
Gordon Heard (gheard@financegroup.ca) is the Principal Advisor of The Finance Group which is helping Canadian companies with their IFRS transitions. The Finance Group also publishes the IFRS in Canada eNewsletter and website. (http://www.IFRSinCanada.com)
