Link: Technology impact of IFRS
IFRS1 First-time adoption of IFRS
For first time adopters in the EU, 2004 is a pivotal year, as consolidated accounts must be produced according to both existing accounting norms at year end and subsequently IFRS for the purpose of comparative history. Software must therefore be able to store, produce and reconcile information for both purposes.
IFRS3 Business combinations
Consolidation software should comply with the purchase method of accounting for acquisitions. All assets including goodwill should be associated to cash generating units for the purpose of testing goodwill for impairment.
IFRS5 Non-current assets held for sale and discontinued operations
Software requirements for discontinuing operations apply to relatively large components of a business that will only require additional disclosure under IFRS5 should conditions, sometimes uncertain at the outset of an accounting year, be met.
Information systems must therefore be capable of providing detailed and reliable financial information relating to current and prior periods for all key business areas on an ongoing basis. Consolidation software must be capable of showing the results of the group both before and after the disposal to facilitate restatement of results and thus provide an audit trail.
In order to measure non-current assets or disposal groups at the lower of carrying amount or fair value less costs to sell, software must provide the ability to suspend ongoing depreciation calculation on related assets and support impairment.
IAS 1 Presentation of financial statements
Software must reinforce fundamental accounting principles underlying presentation of financial statements that lend themselves to automation. Reporting tools should be flexible to enable customers to define presentation modes and categories that accurately reflect their economic conditions.
IAS8 Accounting policies, changes in accounting estimates and errors
If the finance software produces final accounts, then it should be able to handle adjustments to prior years – subject to the appropriate security permissions.
IAS12 Income Taxes
Deferred taxes, which are not mandatory in all EU states today, are one of the biggest challenges for early adopters. Accounting software should be able to produce results in accordance with both fiscal and economic rules and capture the temporary differences necessary for calculating deferred tax liabilities and assets.
IAS14 Segment Reporting
There is a need to provide the means to associate primary and secondary segment attributes with all accounting information flows. In an IFRS context, it is highly desirable that software provide features that assist in: ensuring the integrity of segment results; distinguishing between external and intersegment revenues; and reconciling segment results with statement totals.
IAS21 The effects of changes in foreign exchange rates
All foreign currency conversions, revaluations and adjustments should retain a clear audit trail with system level attributes (currencies, amounts, rates, rate types, rate dates) in order to fully explain foreign currency processing, including scenarios where local and translated currencies differ from the group presentation currency.
IAS27 Consolidated and separate financial statements
The system must provide a facility to collect information relating to ownership such that it can determine if the entity is a subsidiary company.
Subsidiary company definition may be defined based on share ownership or effective management control, both methods must be facilitated. Provide facilities to automatically calculate any minority interest in the entity together with facilities to eliminate this on consolidation.
The system must provide that the ownership calculation recognises that the shareholding or effective control may vary over time.
For more detail on the impact of these and other standards go to: www.basda.org
Link: PwC’s dedicated IFRS resource centre