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The Source: IFRS Financials in Transactional Systems

Recently IFRS has been coming up a lot in conversations with Finance and IT executives. Regardless of their current system landscape, similar types of questions arise.  

Can’t you just take care of it at Corporate?

The first answer is often a surprise. IFRS can’t be sufficiently addressed at the corporate level alone. While some early adopters treated IFRS as a compliance exercise which could be supported through “topside” adjustments for reporting, this approach added steps to the month-end close and required more effort for analysis and posting in what were at times already stretched finance functions. The approach also made it difficult to reconcile reported results (for example in SAP’s Business Planning and Consolidation module) to the General Ledger. While acceptable as a short term fix, it provides no long term solution.

How about simply adding accounts to the General Ledger?

Adding accounts to the General Ledger sounds fine until you look at how postings are made to those accounts. Once you start to tease that approach apart, you find you have to reconfigure your sub ledgers or SAP ERP Central Component (ECC) modules to post the right entries to the right accounts, and modify the master data (for example Material and Customer Master). The alternative is to post to those accounts manually, with many of the same issues found with “topside” adjustments. Either way there is no simple solution.

So then what’s the answer?

In the longer term we need to return to the basic principles on which SAP is based. Events within the business that result in financial postings should be recorded as close to real time as possible, at source.

Transactional systems—whether they are SAP ECC, legacy or a combination of both—need to include the processing necessary to address IFRS financials. This means modifying those systems, either through customization or upgrades and/or reconfiguration. The system’s user community may also need to be retrained in the new system, policies and procedures. Even if the end-user interface is not impacted, the user community will be, as they need to test the modifications.

And while this does not sound earth shattering, when you start to add up all of the systems and the number of users impacted (for example Sales and Distribution/Revenue Recognition, Fixed Assets) it quickly becomes a large number.

IFRS is complex, and touches a lot of people if it is done right.

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