Documentatie 3

Report
IAS Conversion
Project management
and issues to consider
1
Topics
Part 1 - Before you even start;
Part 2 - Project management
Part 3 - Pitfalls and experiences
2
Legend on Risk Assessments:
IAS
Key Risk
Key Risk
Key risk from the point of view of
company. May break a conversion
project.
Key audit risk. May result in
significant errors.
3
Clearing some of the fog…
Listed companies DO NOT change to IAS
due to a guideline from the European
Community.
– IPO Companies seeking to attract international
investors are using IAS now;
– This not just some outside decision or law that
forces companies to do this or that;
Part 1 – Before you even start…
4
Clearing some of the fog…
 Listed companies ARE forced to change because
international users of financial statements demand
an international framework that is comprehensive
and meets reporting and disclosure standards that
result in high quality financial statements.
That implies:
–
–
–
–
Reporting standards and practices
Governance standards and practices (*)
Audit standards and practices (*)
Regulatory requirements and review (*)
(*) outside scope of this presentation
Part 1 – Before you even start…
5
Clearing some of the fog…
We can only conclude that the international
community does not believe current
standards and practices meet the above
expectation. Whether we concur with this is
not highly relevant. Users of financial
statements have already made up their
mind.
Part 1 – Before you even start…
6
The mindset for conversions
 “You can’t solve a problem with the same thinking
that created it in the first place”;
(Albert Einstein)
 As result, it is imperative to:
– think international when converting to international
standards;
– look at international guidance, as it helps to understand
how and why things need to be accounted for so and so;
– allow yourself to forget local practices and local
guidance;
Part 1 – Before you even start…
7
More than an accounting
exercise
Key
performance
indicators
Employee
long-term
incentive
plans
Investor
relations
Systems and
finance
function
efficency
A COMPLEX
PROJECT
Control
environment
Impact on
taxation
planning
Valuation
models
Policies and
procedures
Debt
covenants
8
Structured
financial
products
Part 2 – Project Management
9
Project management
Project management
– Overview of a IAS conversion project
– IAS conversion aspects of key project
management phases.
– While included in the general overview, we
have excluded detailed generic project
management comments such as cost
management etc.
Part 2 – Project Management
10
Project Management applied to an IAS Conversion Project
Definition
Phase
1. Set the concept
(Accept IAS)
2. Set a vision,
mission
statement
Planning
Strategy
Phase
1. Generate
alternative
strategies
2. Analysis of
alternatives
Implementation
Planning
Phase
1. Develop tasks
2. Develop network
diagram
3. Critical path
computations
4. Ressource allocation
5. Spending allocation
6. Bar Charts
7. Does this meet
objectives?
Execute and
Control
Phase
1. Execute
implement. plan
2. Monitor progress
of committees
3. Monitor decision
process
4. Bounce decisions
up to Main IAS
Workgroup
5. Review - approval
Learning
Phase
1. Project analysis
2. Closing project
CEO, CFO, Audit Committee
Main IAS Conversion Workgroup
Project Manager(s)
Sub-groups: routine, non routine, training, systems, disclosure
Key accounting staff
All accounting staff
11
Phase 3: (Partial) Example of
a project
ID
1
2
Task Name
PROJECTPLAN
Duration
307,17 d
Cost
11 264 995 BEF
39 d
99,17 d
2 054 995 BEF
IAS-Rapportering
3
Concept en ontwerp I AS
4
Concept IAS
5
Wor k
209 d
Opbouw MIS op lokaal en groepsniveau
39 d
98,17 d
2 054 995 BEF
0d
1d
0 BEF
50 d
81 d
20 d
40 d
1 100 000 BEF
5d
5d
225 000 BEF
Jun
Jul
Aug
Sep
Oct
Nov
Analyse r appor teringsbehoeften
8
Opmaak en de sign van MI S
15 d
70 d
675 000 BEF
MIS Team
9
Vastleggen pr ocedur es
10 d
20 d
450 000 BEF
MIS Team
0d
1d
0 BEF
13 d
45 d
Informatisering
Technische analyse
4d
8d
220 000 BEF
13
Functionele sp ecificaties
4d
8d
220 000 BEF
14
Pr ojectplan
1d
2d
65 000 BEF
15
Specificaties in lastenboek
3d
6d
155 000 BEF
16
Lastenboek
0d
1d
0 BEF
17
Evaluatie leve ranciers
1d
20 d
65 000 BEF
IAS en MIS rapportering in België
9d
100 d
IT Implementatie door exter ne lever ancier
0d
60 d
0 BEF
20
Pr ojectmanag ement
9d
100 d
485 000 BEF
0d
1d
0 BEF
78 d
174 d
IAS en MIS operationeel in België
22
IAS en MIS rapportering in buitenland
Voor bereidende vr agenlijst
7d
14 d
435 000 BEF
24
Ontvangen en ver zamelen antwoor den
1d
20 d
45 000 BEF
25
Voor bereiding actieplan en oplijsten vra gen 10
perdsite
20 d
510 000 BEF
26
Ter plaatse bi jwer ken actieplan en I T implementatiep
40 d
lan80 d
2 600 000 BEF
27
Pr oject manag ement bij lokale implementatie
20 d
1 060 000 BEF
28
29
Roll-out IAS manueel
Roll- out IAS manueel
30
Einde implementatie
31
Review op conformiteit IAS en consolidatie
32
Review op confor miteit IAS en consolidatie
Jul
Aug
Sep
MIS Team;TS
MIS Team
01/10
WV;I T Team
WV;I T Team
WV
WV;I T Team
29/11
WV
WV;I T Team
17/05
4 650 000 BEF
23
40 d
Jun
485 000 BEF
19
21
May
725 000 BEF
12
18
Apr
25/10
Concept en ontwerp MIS
11
Mar
2 450 000 BEF
7
Concept MIS
2002
Jan Feb
AL;IAS Team
6
10
Dec
10 d
20 d
10 d
20 d
450 000 BEF
0d
0d
0 BEF
10 d
10 d
10 d
10 d
WV;TS;AL;MI S Team
MIS Team
MIS Team;I AS Team;WV
TS;WV
WV;TS;MIS
450 000 BEF
450 000 BEF
450 000 BEF
I AS Team
31/07
12
I AS Tea
Phase 1: Definition phase
Step 1: Set, Accept the Concept
– IAS, as demanded by users of financial statements;
– Ensure that decision makers understand the concept
including the mindset;
– Ensure CEO buys into the concept,
IAS
Key Risk
• CEO is the appropriate level of buy in
• Avoid a headless chicken project.
– Determine members of Conversion Workgroup –
Subgroups to be determined later.
Part 2 – Project Management
Phase 1 – Step 1
13
Phase 1: Definition phase
Step 2: Set a vision, develop a mission
statement (1/2)
– Where are the readers? Continental Europe,
UK, US, Asia?
– Who are the readers? Distribution of
shareholdings with institutional investors, fund
managers (where – which), small investors.
– Best practice disclosures (investor relationship
dept.) vs. barebones compliance (comptroller)
Part 2 – Project Management
Phase 1 – Step 2
14
Phase 1: Definition phase
Step 2: Set a vision, develop a mission
statement (2/2)
– Early adoption approach?
– What do competitors do? Do we follow the
pack or set the standard. Is the latter a different
or higher standard?
– Where do we go from here? Listing in the US
(secondary listing parent). Growth in Asia
(often listing of local sub)?
Part 2 – Project Management
Phase 1 – Step 2
15
Phase 2: Planning strategy
phase
Step 1: Generate alternative project
strategies
– Alternate vision / mission strategies;
• US GAAP and or IAS
• Early adoption
• Options within IAS
– In-house vs. outsourced implementation;
– Centralized or decentralized approach.
Part 2 – Project Management
Phase 2 – Step 1
16
Phase 2: Planning strategy
phase
Step 2: Analysis of alternatives
– Do the alternatives meet performance, cost,
time and scope requirements?
– Are SWOT and risks acceptable?
– Are the consequences OK?
Part 2 – Project Management
Phase 2 - Step 2
17
Phase 3: Planning
implementation phase
 Step 1: Develop tasks to be done – what, who,
how long, resources
 Step 2: Develop network diagram – What can be
done first, what next, what in parallel (*)
 Step 3: Critical path computations – forward pass,
backward pass, (*)
 Step 4: Resource allocation (*)
(*) Outside scope of presentation
Part 2 – Project Management
Phase 3 Overview
18
Phase 3: Planning
implementation phase
Step 5: Spending allocation (*)
Step 6: Bar charts (*)
Step 7: Does the above still meet the
performance, cost, time and scope
requirements? Are risks acceptable?
(*) Outside scope of presentation
Part 2 – Project Management
Phase 3 Overview
19
Develop tasks to be done
Action 1: Understanding the requirements;
Action 2: Understanding the transactions to
be accounted for;
Action 3: Set up subgroups (reporting to
main working committee);
Action 4: Understand how differences can
impact the statements;
Action 5: Set out tasks to be done;
Part 2 – Project Management
Phase 3 - Step 1 - Overview
20
Develop tasks to be done
IAS
 Action 1: Understanding the requirements Key
Risk
– Accounting: all conversion workgroup members need
fair level of IAS knowledge. Some members
(marketing) may need to be trained. Experts
supplement that fair level.
– Reporting:
• Periods; financial statements (2-3 years) vs. MD&A and
regulator reporting (often 5 years)
– Can they still amend certain agreements before opening balance?
• Scrutinize disclosures, understand what is needed and what it
implies.
Part 2 – Project Management
Phase 3 - Step 1 - Action 1
21
Develop tasks to be done:
 Action 2: Understand the transactions (1/3)
– Clients often presume they know the transactions.
Key Risk
• Some transactions are not recent
• People may have left the firm
• People may have moved into other positions, other
departments
– Even when the knowledge is accurate, it is only
accurate in relation to the current accounting treatment.
The client most likely never analyzed IAS decision
criteria in those transactions, as those criteria simply
did not exist or were not relevant at that time.
Part 2 – Project Management
Phase 3 - Step 1 - Action 2
22
Develop tasks to be done:
 Action 2: Understand the transactions (2/3)
– Study the facts; too much time is wasted discussing
accounting treatments of a wrong fact pattern.
– Identify the non-recurring transactions to look at:
Key Risk
• Leases and sale & lease back, joint ventures, Control vs.
significant influence both at inception and subsequent
changes, SPEs, key contract clauses, employment
benefits, business combinations, discontinued operations,
impairments, restructurings, (deferred) taxes, financial
instruments…
Part 2 – Project Management
Phase 3 – Step 1 – Action 2
23
Develop tasks to be done:
 Action 2: Understand the transactions (3/3)
– Identify the recurring processes to look at:
Key Risk
• Estimations, revenue recognition, financial instruments,
LT contracting
24
Develop tasks to be done
Action 3: Set up sub group working
committees
– Working groups to be further detailed in subgroups. Assign tasks to these sub-groups for
execution and control.
• Recurring vs. non-recurring transactions, training,
disclosures, system requirements
• Set reporting structure (timing, scope) into main
working committee.
Part 2 – Project Management
Phase 3 – Step 1 – Action 3
25
Develop tasks to be done
 Action 4: Understand how differences can impact
the statements
– Design tasks so as to understand the accounting and
reporting impacts of the differences
•
•
•
•
•
Key Risk
Push back into opening balances?
Hindsight knowledge issue?
One off impact or multiple periods?
Equity or net income?
Where does it hit the financials? Ratios, covenants,
classification difference with previous statements. Keep track
of key ratios and benchmarks.
Part 2 – Project Management
Phase 3 – Step 1 – Action 4
26
Develop tasks to be done
Action 5: Set out tasks to address the above
understandings (1/2)
IAS – How much wood can a woodchuck chuck?
Key Risk
– Know the other time constraints (closings,
budgeting period, system upgrades…)
Key Risk
– Outside resources?
– How much knowledge is centered around few
people? Surprisingly important!
Part 2 – Project Management
Phase 3 – Step 1 – Action 5
27
Develop tasks to be done
Action 5: Set out tasks to address the above
understandings (2/2)
– Training
– Accounting manual
– System requirements
IAS
Key Risk
• Management reporting system (segment reporting)
or accuracy of cost accounting allocation
• Required to handle two, likely three accounting
frameworks.
Part 2 – Project Management
Phase 3 – Step 1 – Action 5
28
We are now jumping to Phase 4
Execute and Control.
Other phases are more generic
project management and
outside the scope of this seminar
29
Phase 4: Execute and Control
Phase
Progress and decision reporting
– Timing sub-group period meeting
IAS
Key Risk – Bounce up to main working committee for
decisions
– Avoid decision taking at levels of mid
management
Key Risk
– Progress and decision template (next slide)
Part 2 – Project Management
Phase 4
30
Phase 4: Execute and Control
Phase
Current company practice
(method and disclosure)
Accounting regulations
(summary)
Extent of issue
(amount, subsidiaries concerned,
frequency)
Potential application difficulties
(availability of information,
confidentiality, ...)
Expected milestone dates
Event
•Ascertain extent of issue in subsidiaries
•Quantify correctly entry
•Completion of disclosures
31
Date
Part 3: Pitfalls and experiences
IAS
Key Risk
Key Risk
32
Pitfalls, experiences
 Buy in issues
– Valuable time is often wasted when decisions should be
made at the top but are not being submitted to the top
for a variety of reasons;
– Resource constraints require top level priority setting;
– Some decisions (deconsolidation, financial instruments,
business acquisitions) are potentially very significant.
Make sure top management understands what is at
stake, why there could be a change.
Part 3 - Pitfalls and experiences
33
Pitfalls, experiences
 International Practice vs. International Standards:
– International Practice. That concept is not defined.
Term is often used, even more often abused.
– Every conversion has its local interpretation issues.
Often it is just local accounting. Most often outsiders
do not understand the rationale, thus it goes against the
very expectation of an international accounting
framework.
– See mindset discussion
Part 3 - Pitfalls and experiences
34
Pitfalls, experiences
The framework of IAS (IFRS):
– When a client starts to refer to the framework to
support a treatment, expect trouble.
International Guidance:
– Allow yourself to forget local guidance.
– Look at international guidance.
Part 3 - Pitfalls and experiences
35
Pitfalls, experiences
Transactions:
– Presuming things are the same (in local
accounting and IAS) is a recipe for failed
conversion;
– Look at the facts; then look again!
– Accounting is easy, getting to the facts not
– Analyze all the criteria of IAS;
Part 3 - Pitfalls and experiences
36
Pitfalls, experiences
Disclosures:
– Include disclosures requirements in tasks to be
done.
– Analyze disclosures.
– Compare with existing statements.
– Compare with IAS statements of other
companies.
Part 3 - Pitfalls and experiences
37
Pitfalls, experiences
Changes of accounting policies vs. New
policies:
–
–
–
–
Change in accounting policy
Change in estimate
Change in assumption of estimate
Use of hindsight knowledge
38
Results of failed conversion:
“IAS lite”
 The shades of IAS lite:
–
•
Full IAS compliance
Compliance with national standards “that comply
with IAS”
•
Compliance with IAS, with exceptions specified in
accounting policies
•
Compliance with IAS, with exceptions specified in
notes but not in the accounting policies
39
Results of failed conversion:
“IAS lite”:
• The shades of IAS lite:
• Accounting policies “are based on IASs” or “comply with the
principles in IASs”
• Accounting policies are “based on the principles in IASs”, with
specific exceptions
• IAS applied only when there are no equivalent national standards
• IAS used only for selected items
• IAS applied only when there are no equivalent national standards
40
Results of failed conversion:
“IAS lite”
•
The shades of IAS lite:
•
IAS used only for selected items
•
Reconciliation from national GAAP to IAS
•
Summary IAS financial statements that imply
that these financial statements are “IAS
financial statements”
•
Disclosure of policies that do not comply with
IAS, but without any quantification
41
End Part III
42

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