Companies that are due to begin their IFRS conversion projects over the next couple of years could be underestimating the full extent of what this entails, says KPMG. In the worst case scenario, this could lead to financial results being restated and, with the world’s financial markets currently so delicately poised, such a flurry of activity could prove damaging.
Manfred Hannich, partner in KPMG’s German firm and head of Accounting Advisory Services within KPMG’s Advisory practice, but also a veteran of numerous accounting standards programs, has some very real concerns over the apparent lack of readiness in the next swathe of countries preparing for International Financial Reporting Standards conversion.
“Imagine how the markets, in their current state, would react if a company were forced to restate their results because of failings in their IFRS conversion projects. At a time when faith in the financial system has been shaken, this would be the last thing we need. Sadly, I believe that there is a very real likelihood of this happening as some companies seem unaware of just how big a job this is. They only get one shot at this so they must get it right.”
Batch of countries
Hannich’s concerns revolve around a batch of countries which are due to convert to IFRS between 2009 and 2012. These include the massive growth markets of India and China as well as other key regional markets such as Canada, Korea and Brazil.
Companies in these markets will have firm deadlines to complete their conversion yet many may only now be considering this for the first time. The problem with IFRS is that, as a one-off project, experience of handling the conversion is thin on the ground. So, unless companies have been farsighted enough to recruit people with the necessary skills, many may find themselves lacking in some of the requisite competencies.
According to the KPMG partner, many companies approach IFRS conversion “simply as a project-management issue or consider it to be something which can just be left to their auditors. They are wrong. This is not the sort of project which comes along every day. It involves in-depth knowledge of the standards and an ability to consider how adoption of IFRS can affect the business’s own reporting processes in the future.
“Frustratingly, the conversion timetable has been well known for some time yet too many businesses apparently perceive this to be a much less onerous task than it actually is. My advice would be to immediately take a good, long, hard look at the experiences of those countries which have gone down this route already.”
