Internal Costs of Ifrs
admin August 26th, 2009
Michael Dyno asked:
With the buzz over the recent presidential election and the current financial crisis looming over the heads of Americans and American Corporations, the US transition to International Financial Reporting Standards (IFRS) seems to be placed on the back burner for the time being. The old proverb “accounting is always changing” will hold true once again, as the United States and the rest of the world prepare for the seemingly substantial transition. What some corporations may not realize is there may be another financial hurdle staring them in the face from a distance.
Many questions are still left unanswered as to exactly how IFRS will affect the US. However, one thing can be held certain when implementing new accounting standards: costs. Accounting firms are beginning to predict overwhelming internal costs in the areas of employee training, IT conversions, and general ledger software. As of November 17th, 2008, the SEC has reported that the average U.S corporation will spend nearly $32 million in IFRS adoption costs.
Rest assured, prior to convergence, is preparation and training for the transition into new IFRS principles. Fortunately, some training efforts have already begun by the “Big Four” looking not only to train their employees, but also their clients. “What’s underestimated is the educational effort it will require in the heartland, the bread basket of the U.S., including banks and other customers. It will certainly impact them all,” says Bob Dohrer, partner and practice leader of McGladrey & Pullen’s International Assurance Services Group. Companies will also face important trade-offs with training issues due to the increased indirect costs of employees training during regular working hours. If all goes as planned, the “Big Four” will be responsible for a substantial portion of the IFRS training of other US accounting firms and companies. However, plan to expect training efforts from third party companies looking to cash in on the transition. UK companies recorded an average of £625,000 for IFRS convergence training in 2005. “From 20 to 25 percent of finance staff will need the in-depth, full-immersion courses. I’d figure the cost in the neighborhood of $1,000 per day, per participant,” says Doher.
Another escalading cost of IFRS convergence is that of IT conversions. Along with new principles in costing, revenues, and expenses, comes the burdensome cost of updating companies IT software to comply. A recent publication by KPMG states that tax payers and U.S. accounting firms will see increasing costs in tax software, due to the new book methods of IFRS. The author predicts that a fair amount of errors will take place in tax departments because of the implementation of new standards, software, and possible lack of proper training.
Along with IT costs, come the costs of new general ledger software to comply with IFRS. Most software companies are taking a somewhat dual approach to the conversion until they can fully develop software based on IFRS. Several software companies such as SAP, Oracle, and Coda, have stated that they are taking a trial and error approach to IFRS compliance. So far, most software companies are creating general ledger software that can comply with both GAAP and IFRS principles, until they can further evaluate their software based on how U.S corporations take to IFRS. For the time being, software companies are mainly changing U.S. company’s general ledger software through an update process, which has proven to be much more cost friendly toward U.S. corporations. Software companies have stated that as time goes on and IFRS software continues to develop, U.S companies will most definitely see cost increases in the price of software due to IFRS compliance. However, many software companies plan to cut out some costs for U.S companies by providing software training directly to the consumers. This plan will help eliminate extra training costs from third party training companies, which are sure to be very costly.
As the transition to IFRS continues to draw closer and closer, US companies can be sure to expect higher internal costs in upcoming years. IFRS implementations and principles may be vague for the time being, but US companies must certainly begin to prepare for the seemingly costly transition, which is sure to include higher costs in the areas of training and software compliance.
Sources:
http://www.accountancyage.com/accountancyage/news/2034318/bill-mounts-cost-ifrs
http://www.coda.com/Art?AID=1663
http://www.cfo.com/article.cfm/12625195?f=home_featured
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/18/AR2008111804087.html
http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2008/CPA/Oct/Conversion.jsp
http://www.taxgovernanceinstitute.com/documents/TGI/414200894736IFRS%20Tax%20Methods%20T.pdf
Nichole
With the buzz over the recent presidential election and the current financial crisis looming over the heads of Americans and American Corporations, the US transition to International Financial Reporting Standards (IFRS) seems to be placed on the back burner for the time being. The old proverb “accounting is always changing” will hold true once again, as the United States and the rest of the world prepare for the seemingly substantial transition. What some corporations may not realize is there may be another financial hurdle staring them in the face from a distance.
Many questions are still left unanswered as to exactly how IFRS will affect the US. However, one thing can be held certain when implementing new accounting standards: costs. Accounting firms are beginning to predict overwhelming internal costs in the areas of employee training, IT conversions, and general ledger software. As of November 17th, 2008, the SEC has reported that the average U.S corporation will spend nearly $32 million in IFRS adoption costs.
Rest assured, prior to convergence, is preparation and training for the transition into new IFRS principles. Fortunately, some training efforts have already begun by the “Big Four” looking not only to train their employees, but also their clients. “What’s underestimated is the educational effort it will require in the heartland, the bread basket of the U.S., including banks and other customers. It will certainly impact them all,” says Bob Dohrer, partner and practice leader of McGladrey & Pullen’s International Assurance Services Group. Companies will also face important trade-offs with training issues due to the increased indirect costs of employees training during regular working hours. If all goes as planned, the “Big Four” will be responsible for a substantial portion of the IFRS training of other US accounting firms and companies. However, plan to expect training efforts from third party companies looking to cash in on the transition. UK companies recorded an average of £625,000 for IFRS convergence training in 2005. “From 20 to 25 percent of finance staff will need the in-depth, full-immersion courses. I’d figure the cost in the neighborhood of $1,000 per day, per participant,” says Doher.
Another escalading cost of IFRS convergence is that of IT conversions. Along with new principles in costing, revenues, and expenses, comes the burdensome cost of updating companies IT software to comply. A recent publication by KPMG states that tax payers and U.S. accounting firms will see increasing costs in tax software, due to the new book methods of IFRS. The author predicts that a fair amount of errors will take place in tax departments because of the implementation of new standards, software, and possible lack of proper training.
Along with IT costs, come the costs of new general ledger software to comply with IFRS. Most software companies are taking a somewhat dual approach to the conversion until they can fully develop software based on IFRS. Several software companies such as SAP, Oracle, and Coda, have stated that they are taking a trial and error approach to IFRS compliance. So far, most software companies are creating general ledger software that can comply with both GAAP and IFRS principles, until they can further evaluate their software based on how U.S corporations take to IFRS. For the time being, software companies are mainly changing U.S. company’s general ledger software through an update process, which has proven to be much more cost friendly toward U.S. corporations. Software companies have stated that as time goes on and IFRS software continues to develop, U.S companies will most definitely see cost increases in the price of software due to IFRS compliance. However, many software companies plan to cut out some costs for U.S companies by providing software training directly to the consumers. This plan will help eliminate extra training costs from third party training companies, which are sure to be very costly.
As the transition to IFRS continues to draw closer and closer, US companies can be sure to expect higher internal costs in upcoming years. IFRS implementations and principles may be vague for the time being, but US companies must certainly begin to prepare for the seemingly costly transition, which is sure to include higher costs in the areas of training and software compliance.
Sources:
http://www.accountancyage.com/accountancyage/news/2034318/bill-mounts-cost-ifrs
http://www.coda.com/Art?AID=1663
http://www.cfo.com/article.cfm/12625195?f=home_featured
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/18/AR2008111804087.html
http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2008/CPA/Oct/Conversion.jsp
http://www.taxgovernanceinstitute.com/documents/TGI/414200894736IFRS%20Tax%20Methods%20T.pdf
Nichole
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