The Dream of Unifying IFRS and GAAP is Dead

 

On August 6th Hans Hoogervorst, chairman of the International Accounting Standards Board, reportedly told an audience in Singapore last week that full convergence is no longer an achievable project.*  Always at odds, and large sticking points for both sides where the treatment of impaired bank loans and credit losses among others. Not to mention the SEC’s relationship with accounting standards board in the US was always going to be a roadblock to adoption.

 

In any case, whether you believe the world should be on one accounting standard, for today and the immediate future, multiple accounting standards will be the norm. That brings up the question, are you doing this in the best means possible today? Its a requirement you must adhere to, so you really need to minimize the amount of time it takes to produce the required reports and the impact on your team. Yet you still need to track the right amount of detail and be transparent in any adjustments made to keep your auditors happy. Striking the right balance is the key.

 

Striking the right balance

CPM solutions have long been the place to calculate and produce the reports needed. But all CPM solutions are not alike. There are technical issues to consider when looking at a CPM solution. The first issue to consider is tracking the adjustments made to get from one standard to another. It becomes important to be able to categorize the adjustments in such a way that you can explain the transition or show the movement using a report.  Gone are the days where the “adjustments” are just one big bucket. You need the ability to understand how much impact certain groupings of adjustments had;  think of it as being able to identify adjustments made for different revenue recognition rules, or different rules for accounting for leases etc. In the end you need to be able to see the starting point, the categories of adjustments and a final number. And you want this to be as automated as possible.
 
The other issue to consider is how many times you must store the same data. It is quite common in many older solutions, which were not designed to accommodate multi Gaap reporting, that you must store the “original” source general ledger data multiple times to report on different Gaap standards. Besides being inefficient, you have to be concerned with data synchronization issues, meaning if you update the general ledger during the close you must load it to multiple places, clearly introducing the risk for errors. This is not the case in more modern systems where the source data is only store once, reducing the amount of work to manage the environment and more importantly the risk of not keeping the source data synchronized and reporting incorrect results.

 

Beyond IFRS & GAAP

It is not just about the US and EU with IFRS, but there are other countries with their own standards to consider. As companies expand operations globally they will have to deal with multiple accounting standards typically seen from owning companies in countries with other standards. For global companies dealing with multiple account standards, there are tools available today, like Tagetik, that help simplify the process, audit trail and data synchronization issues typically arise in such situations. 

 

What are your thoughts? Are you striking the right balance of enough detail while minimizing the impact on your team?

 

Tagetik CPM Software

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