Skip to Content

The IFRS compliance and implementation process is currently riding on the hype curve.  At every nook and corner of the organization, IFRS has become a talking point amongst the finance and IT fraternity. Interestingly, IFRS conversion is inevitable, yet not fully unleashed. The phenomenon is almost similar to Y2K suspense, where people, despite taking every possible measure, were all anxiously and eagerly waiting for the midnight to strike, thinking that there would be a big bang and their IT system will go bizarre.

The point to be noted is that, there are already 100 odd countries who have already adopted IFRS. The question is, why it is now, when rest of the world like Europe, Asia & Australia, India, Japan and US are going to adopt, there is so much of hype and action. The implementation experts in every forum, seminars and interactions, are only taking about ‘big change’ in accounting system, business process and IT system.

 Let’s analyze the fundamentals of IFRS implementation on first principal basis as recommended by IASB [International Accounting Standard Board]

  • Clear and understandable reported data
  • Alignment of reported data with information used to manage business
  • Key business drivers
  • Sustainability of revenue and income growth.

This to ensure a balancing between the ‘independence ‘and ‘accountability’. The essence of adoption and implementation is combination of three things: people, process and systems.

The approach of most of the successful organization is clear planning and timeline adherence in terms IFRS conversion.                                   

 

Successful organization set clear objective in order to address the following issues of IFRS conversion:-

  • No restatement or surprises
  • Manage internal stakeholders effectively
  • Maintain and improve financial controls
  • Support from advisors and experts
  • Constant interaction with auditors

The emphasis is very much on the business process of the organization and its design of ERP system to enable effective and efficient data capture through transaction process. It is imperative that a contemporary ERP application system will only strengthen the process of transition and convergence. Therefore, in order to provide more contemporary version of ERP application solution, SAP has done the version upgrade of core transaction module of i.e.ECC 6.0 by factoring in all possible IFRS requirements. But it is not necessary that an organization currently using lower version of SAP ERP solution are handicapped and hence could not adopt to the IFRS conversions.

The upgrade recommendation from the SAP is more in terms of ‘should have‘ rather than ‘must have’ from IFRS adoption point of view. The solution offerings in the latest version of ECC 6.0 are more pervasive. The salient features of new ECC version from the functionality perspectives are:

  • New GL for doing posting accounting entries at multiple levels of GL a/c (s)
  • Robust profit center reporting for segment reporting
  • SAP Org level period end closing to enable closing of books at multiple periods which may be different in case of local statute compliance requirement
  • Depreciation charge on asset component prospectively for multiple useful life of composite equipment.

In addition to all these, there are certain other considerations in terms of solution functionalities and technology design architecture in the upgraded version of ECC 6.0. The important point to be noted that SAP is also empowering its client to comply with IFRS conversion along with other product features in the upgraded version. The usual party line of any upgrade project is end of standard support by the application product vendor but reality the cost of version upgrade is very insignificant component of the total IT budget of the organization.

Hence, SAP upgrade should not be driven by IFRS conversion. They are independent events of the organization but the occurance these two events in the organization could be coincidental. If, both the project could be rolled out in tandem, the significant effort of workaround and customization can be avoided to drive the Vale Proposition for the business.

To report this post you need to login first.

1 Comment

You must be Logged on to comment or reply to a post.

  1. Gregory Misiorek
    yes, upgrade (mine is in two weeks) and IFRS are two separate events. the first is purely IT driven, the second is supported by legal requirements. in case of the latter, SEC still hasn’t mandated it for the largest capital market (Wall Street). IMHO, everyone should start their IFRS parallel conversion as soon as the dust settles on the upgrade, and this is what will be the recommendation to my current client. if we wait for SEC to finalize the standard, it will be too late and even more expensive for the organizations to implement.
    (0) 

Leave a Reply