ifrs ice breaking slide deck

Journey to IFRS

Momentum for a Global GAAP

Global

GAAP

Enhances Transparency and

ComparabilityFacilitates Accounting

and Reporting

Reduces Cost of Capital

The economics of IFRS – CFO.com

► Two new studies discuss the optimism about the future of a global standard. A survey by the International Federation of Accountants asked 143 accounting leaders from 91 countries about the significance of converging standards, and 89% said it was very important or important

History

► IASB (International Accounting Standards Board) / IASC (Committee) was formed in the early 1970‘s, about the same time as the FASB

► Early IAS standards allowed many options► Efforts were made to harmonize standards in the early

1990s► Some early adopters came from countries with

multinational companies but few local accounting rules (e.g., Switzerland, Australia)

► IASB was restructured in 2001 and began issuing IFRSs (International Financial Reporting Standards) in 2003

IFRS – A truly global accounting standard

Domestic listed companies Number of countries

IFRS required for all domestic listed companies

77

IFRS permitted for domestic listed companies

24

IFRS required for some domestic listed companies

4

IFRS not permitted for domestic listed companies

32

137

Evolution of IFRS

IASC

2001 to 2005

ACCOUNTING STANDARD SETTERS

INTERNATIONALREGULATORS

IAS – Core Standards Program

2006 to 2007 Future

IASB

FASB

IASB/FASB?Norwalk

Agreement

Memorandumof

Understanding

IOSCO

EU Mandate

European Commission

CESRCESR

Equivalency?

2000 and Prior

IFRS in the world

Source IASB

► IFRS gaining momentum throughout the world as a single, consistent accounting framework

► Move toward IFRS is strong► Europe: 2005 ► Australia ► Brazil: 2010► Canada: 2011

► What is the status of IFRS acceptance in countries relevant for you? ► Statutory reporting requirements► Tax reporting requirements

Global IFRS reporting trends

• IFRS quickly picking up share of Global F500 companies

• More than100 countries have moved to or base their local standards on IFRS

• IFRS will become the predominant GAAP in the near future

IFRSDrivers and Potential Benefits

• Enhances transparency/comparability• Eases flow of capital globally, thus possible reduction in cost of

capital• Facilitates accounting and reporting

0

50

100

150

200

250

2004 2005 2006

US GAAP IFRS Japan China Canada Other

Why IFRS in India?

► One language

► Comparability enhanced► Understanding enhanced► One set of books

► Access to Global capital markets

► Low cost of capital

► Attract foreign investment

► Elimination of multiple reports

Public interest entities – IFRS In India in first wave to cover following entities

► Listed companies

► Banks, insurance companies, and financial institutions

► Turnover in preceding year > Rs 100 crores

► Borrowing in preceding year > Rs 25 crores

► Holding or subsidiary of the above

Calendar for IFRS Conversions

► The Standards for IFRS conversions are fluid and evolving► Dates for converting consolidated Financial Statements to IFRS are set by the local regulatory body► The example below illustrates the relevant dates for companies with a closing year end of March 31 and a

adoption date is April 2011 [to be adapted at local level]

Opening IFRS balance sheet*

01/04/2011 31/03/20121/4/2010

Reporting dateDate of transition to IFRS

IFRS Comparatives

1st IFRS Financial Statements

* For a March year-end, adopting IFRS in 2011 with one year comparative

Diagnostic Review of Financial Reporting

and IT

Assess Employee Skill Set

Costs of Implementation

Regulatory body/Other

Local Statutory Reporting

Analysts/Investors/Competitors

Issuer Considerations Prior to Adopting IFRS

External Drivers Internal Drivers

Conversion to IFRS

What’s Involved ?• The scope and complexity involved in

the conversion to IFRS should not be underestimated.

• The new standards involve changes in presentation, new valuation rules, and additional disclosure requirements.

• A successful conversion must plan and manage change across business processes, technologies, and the organization impacting both the group and business unit levels.

• ERP configurations will likely be impacted across multiple modules.

• Financial system architectures may require substantive modifications.

OrganizationTechnology

Process

Changesin

Presentation

NewValuation

Rules

AdditionalDisclosure

Requirements

IFRSConversion

ERP Environment

Financial Systems Architecture

IFRS conversion dimensions –more than a change in accounting policy

Conversion scope / content

IFRS conversion will impact all levels of accounting in a

business.

IFRS conversions will impact several areas of the business

outside of the accounting function

A top level conversion to IFRS may not be sufficient

Key challenges

Managem

ent

reporting

system

Employeebenefit plans

Tax planning

IFRSbusinessissues In

vest

orre

lati

ons

Fina

ncial

acco

untin

g

and

repo

rting

Cor

pora

te fi

nan

cean

dst

ructu

red

fina

ncia

l pro

duc

ts

Empl

oyee

and

exec

utiv

e

compe

nsatio

n

Performance

indicators

► Impact on financial statements► Performance indicators► Volatility► IT/MIS systems► Contractual obligations

(debt covenant, compensation)► Taxes► Distributable profits► Managing market, investors

and analysts

IFRS conversion approach

Compliance analysis

► Identifying the main accounting differences

► Identifying the major impacts on the information and the organisational systems

► Action plans and macro-planning

Diagnostic

Organisational and financial optimisation

► Defining scenarios and simulations for selecting the accounting andtax options

► Choosing the information system and organisational architecture

► Calculating the project cost and the necessary resources

Preparation

Rollout and first application

► Adapting information system and procedures

► Drawing up the opening balance sheet

► Drawing up the first IFRS financial statements

Implementation

► Updating accounting policy procedures and manuals► Monitoring changes to Standards during conversion period► Updating education and training for personnel► System and data changes for capturing and reporting under IFRS► System and data implications for First Time Adoption and parallel

reporting activities► Changes to processes and systems across the organization, not

solely within accounting areas► Modifications to internal controls► Enhanced internal audit plans► Management reporting updates► Performance management modifications – KPIs and other metrics,

reports, etc.► Audit support – accounting records need to support application of

IFRS

Scope & complexity should not be underestimated…

17

• Not just a Corporate-level exercise

• Management buy-in was one of the biggest initial challenges

• Do not underestimate the amount of work involved

• Definitely not just a technical exercise

• Changes the way performance is measured and basis of incentive schemes

• Interaction with internal controls and systems is key

• Increasing complexity of IFRS and speed of change is requiring more technical resources

• Has increased the volatility of results

• Important to align internal and external reporting

• Consider the impact on investor relations – timing and nature of communication

• Focus on education, resource and training – use experts, actuaries and valuer’s

• Start early

IFRS conversion: Not just an accounting exercise—Comments from a CFO

Domains – Business Areas Covered

An Illustrative Example

Value chain

SupportFunctions

Business impact of IFRS

Business impact of IFRS

Accounting Differences

Hum

an Resources

Transactions

IT

Tax

Risk Management/Compliance

Finance and

Accounting

Performance

Management

Lega

l

Inve

stor

rela

tions

Tre

asur

y

Sal

es /

Mar

ketin

gN

ew P

rodu

ct D

evel

opm

ent

Trading

Customer Relationships

Hedging / Risk Management

Securitization Activity

Asset / Liability M

anagement

Minimal Moderate Significant

IFRS Conversion is not just an accounting

exercise