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IFRS Adoption In Consolidated Statements – Part 2

This first series of four blogs is dedicated to handling IFRS adoption for consolidated statements. They provide an overview of a new SAP “How-to guide” called IFRS Adoption in Consolidated Statements using SAP® BusinessObjectsTM Financial Consolidation, starter kit for IFRS. The objective is to bring practical guidance to end-users in order to manage successfully all the issues raised by the adoption of IFRSs and to get the maximum benefit from SAP® BusinessObjectsTM Financial Consolidation. The blogs will cover:


In IFRS Adoption In Consolidated Statements – Part 1, we explained that IFRS adoption can be achieved through either a transition approach or a convergence approach. Whatever approach is chosen, we will focus in this second blog on the issues raised by the application of the retrospective method in the financial reporting systems.

To find out more about Starter Kits & Innovations materials, go to the Starter kit for SAP BusinessObjects solutions Wiki

Operating issues to deal with in financial reporting systems

Different data structures

Financial and non-financial indicators

The indicator is a key entry point in a financial reporting system. Indicators are grouped together into a chart of accounts and reflect all of the financial and non-financial information to be published for legal or management purposes.

When comparing local GAAP and IFRS, the following questions are critical:

  • How similar are the reporting frameworks?
  • To what extent do the standards differ?

Local GAAP and IFRS requirements can cause much critical mapping work, following situations may occur:

  • indicators common to all reporting standards with same accounting values
  • indicators common to all reporting standards with different accounting values
  • indicators specific to each reporting standard

This can be illustrated in the chart below:


After having performed the analysis, we have to choose between the following solutions:

  • Charts of accounts are quite similar, which results in a unified chart of accounts.
  • Charts of accounts are extremely different, which requires separate charts of accounts.

Consolidated financial statements

The financial reporting system must enable the entity to publish:

  • Local GAAP financial statements
  • IFRS financial statements

When applying IFRS1, it is mandatory to publish financial statements according to IAS 1 “Presentation of financial statements”. The main requirements are as follows:

  • a statement of financial position (balance sheet) at the end of the period with a current and non-current presentation for assets and liabilities
  • a statement of comprehensive income for the period (or an income statement and a statement of other comprehensive income)
  • a statement of changes in equity for the period
  • a statement of cash flows for the period
  • notes

Local GAAP financial statements may differ from IFRS requirements, both on data indicators and on publication format.

Parallel Data

Consolidation scope

The consolidation scope groups together all entities that must be included in the consolidated financial statements. This consolidation scope can change depending on the consistency of the previous-GAAP requirements to those in IAS 27 “Consolidated and Separate Financial Statements”. The financial reporting system must enable the entity to manage at least two versions of the consolidation scope for the transition period in order to produce sets of consolidated financial statements for the local GAAP and the IFRS.


When applying IFRS 1, lots of adjustments are required to move from local GAAP to IFRS with four mandatory exceptions and sixteen optional exemptions. These adjustments should be recognized directly in retained earnings or, if appropriate, in another category of equity at the date of transition to IFRS.

The types of adjustments required by IFRS 1 are:

  • Recognize all IFRS-required assets and liabilities, for example pension liabilities, deferred tax assets and liabilities, and derivative financial instruments.
  • Derecognize assets and liabilities not permitted by IFRS, for example general reserves as liabilities, treasury shares as assets, and intangible assets not meeting criteria.
  • Reclassify previous GAAP opening balance sheet items into the appropriate IFRS classification, such as financial assets, financial liability or equity.
  • Apply IFRS when measuring all recognized assets and liabilities, such as financial instruments, fair value or amortized cost, pension liabilities, and provisions.

Support of local GAAP and IFRS consolidation data

The entity will have to maintain consolidated data during the transition period of one or more years according to the different standards.

To produce two sets of consolidated data on a same period, two main approaches can be envisaged:

  • A parallel approach: a model based on a separate management of the amounts for each reporting


  • A combined approach: a model based on an interdependent management of the amounts for each reporting.


The amount is entered for “Standard 1” and then “Standard 2 adjustment” is posted. The sum of the two amounts produces the “Standard 2 value”.

Using two reporting frameworks at the same time creates timing issues:

  • What is the timetable for producing the accounts for each standard?
  • Will we have to collect data for each standard simultaneously or successively?

Reconcilable Results

In order to comply with IFRS 1, the financial reporting system must enable comparison between each reporting standard during the dual reporting period and propose audit trails to improve the understanding of the changes.An entity shall explain how the transition from GAAP to IFRS affected its reported financial position, financial performance and cash flows (IFRS 1 §23).

Switch from dual reporting to IFRS

Managing an IFRS transition in the financial reporting system implies being able to move from the local GAAP to IFRS at one date. As we have seen in the Blog 1 examples, at the end of the year 2010 the entity will have to manage and publish a local GAAP set of consolidated data. At the end of the year 2011, the entity will have to manage and publish an IFRS set of consolidated data with 2010 IFRS comparative data.

The financial reporting system must be able to manage this change safely. IFRS adoption will involve the whole organization at both corporate and subsidiary levels (financial accounting, management accounting, tax, IT, and auditors) and can require software and hardware upgrades. This is a huge project for the entity. Implementing a new financial reporting system enabling clients a smooth transition to IFRS at the lowest cost is key.

The Next Blog

Subsequent IFRS Adoption In Consolidated Statements – Part 3 will explain how SAP solutions can ease the IFRS transition.

Acknowledgements to Fabienne Rojo, Patricia Meteil-Dutartre and Laetitia Lamoureux from the EPM SK&I team for their high contribution to the “How-to guide” paper.

Your comments about the contents are very welcome. Let us know what you wish to write about.
International Financial Reporting Standards (IFRS)



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      Author's profile photo Gregory Misiorek
      Gregory Misiorek
      is "Indicator" the same as FS Item, ie mapping back to multiple GL accounts?
      Author's profile photo Former Member
      Former Member
      Blog Post Author
      Hi Greg,

      Indicator means "account"(financial or not non financial)
      Sorry, but I don't see the meaning of "FS item"???

      Author's profile photo Gregory Misiorek
      Gregory Misiorek

      here's the definition of FS Item, but it doesn't really mean an account as you can have non-currency statistic in certain ranges. it takes the meaning of an account for consolidation tasks like eliminations, currency translations, equity and investment changes, and a few other metrics.

      Author's profile photo Former Member
      Former Member
      Blog Post Author
      Ok Greg I see your point.
      In BOFC, there is a dimension called "account" where you can create accounts (financial) and also other metrics (headcounts, etc...). In the document I used the word "indicator" to be more generic and not to confuse the reader.
      To conclude, indicator = account (BOFC language)= in other words, financial account or other metrics
      Hope it helps
      Author's profile photo Former Member
      Former Member


      I am working in BOFC , i have a query regarding this ,

      In BOFC , where all the data uploded will be stored, where we can see the uploded data,

      and is it posiible to show data in grapgical representation through BOFC?

      Please help me in finding this