OPERATING IN A GLOBAL ENVIRONMENT

CIO CONSIDERATIONS

Technology Executive Roundtable

Feb 2012, Burbank, CA

Facilitator: Barry M. Cole

American executives should assess switching financial

reporting to IFRS. For many enterprises, especially those within

the SME space, moving to IFRS may be a right answer.

GAAP to IFRS

U.S. Technology Discussion

Overview: What is IFRS • International Financial Reporting Standards (IFRS)

are principles-based standards, interpretations and the

framework (1989) adopted by the International

Accounting Standards Board (IASB).

• A major difference between US GAAP and IFRS is the fact that

three fundamentally different concepts of capital and capital

maintenance are authorized in IFRS while US GAAP only

authorize two capital and capital maintenance concepts during

low inflation and deflation.

• The relevant boards, FASB and IASB have committed to

converging IFRS and U.S. GAAP and have made significant

strides toward that goal.

• The SEC has also explored giving U.S. issuers the option to file

their financial statements in accordance with IFRS.

The American Environment & IFRS

If you operate within the SME space: Ask your senior financial manager

about IFRS and you will most likely get one of two responses: “Why

would we want to consider IFRS?” or “I have not paid attention to IFRS.”

These are legitimate responses with a fairly simple reply:

• In an increasingly smaller global economy, countries worldwide have

adopted or are adopting IFRS. If you have overseas subsidiaries or

business entities, or you do business with firms outside the U.S., Life is

easier if you are on the same page as trading partners and even

competitors (remember market analysts as well as governments and

money sources like common reporting standards and recognition).

• Jim Turley, CEO of Ernst & Young, has said, “Imagine the Soccer World

Cup being played in South Africa this year and teams played by

different rules.” That is a concern in a world economy where the U.S.

continued using GAAP and attempting to engage in business where

everyone else has adopted or is close to adopting IFRS.

Why Would A CIO Care About IFRS In many organizations business process change, systems of record decisions, and project management are all ultimately within the charter of the CIO. • In the U.S. all publically traded companies are required to comply

their financials to GAAP. As GAAP and IFRS converge occurs or if pure IFRS is needed for non-US operations – IT maintained systems of record or report must support this accommodation.

• A multitude of exempt enterprises including Startups, SMEs, and even NFPs have adopted GAAP compliance for a multitude of reasons. Among these: • Investors often require early stage companies to recognize revenues

based on GAAP standards.

• Middle market companies are commonly required by line-of-credit/lockbox providers to maintain records conformed to GAPP.

Privately held startups may want to consider IFRS. Unlike GAAP; IFRS has a dedicated standard “IFRS for Small and Medium Entities” standard providing the full set of accounting rules to comply when preparing financial statements.

American IT Impacts

• Over the next few years IFRS convergence can be

expected have a significant impact on IT systems of many

organizations and related enterprise budgets.

• As global organizations move toward convergence of

financial standards, changes to IT systems will require

astute planning and potentially extensive capital

investments to address reporting, calculations and a range

of new data requirements.

• IT systems issues arising from IFRS convergence should

to be addressed within the near team in order to have the

necessary programming and systems in place to meet the

requirements of the standards.

Some IT Considerations - GAAP to IFSR

Systems Level • Will you move to new systems of record (ERP or stand-alone)?

• How will you address your historic data?

• How will you prevent data input errors during the transitioning?

• Do you a have a knowledgeable Partner for the conversion?

• How will you address calculating incremental depreciation expense for your opening balance sheet assets?

• Does your existing system limit the total number of fixed-asset records?

Business Process • If you have multiple financial or fixed-asset systems, how do

you conform them at a process level (consider existing staff)?

• Will fixed asset componentization affect your companies repairs and maintenance policies, reports, contracts… ?

Experiences & Discussion