IFRS update October 2005 – Technology

IT and financial reporting
have long been uncomfortable bedfellows. Excel-based spreadsheeting is still de
rigeur for finance functions across even the most IT-savvy enterprises, and
consolidating a global set of accounts is an intensive, manual process.

Link: Access IFRS –
PwC’s IFRS resource centre

So, as these same businesses prepare to release their first ‘live’ set of
IFRS-compliant interims, a cloud will hang over those that have not engaged in
some form of ‘pillow-talk’, and instigated fundamental changes to their systems
to ensure they publish the right figures.

But what should a group finance director of a UK-listed company have done by
now to make sure the technology is in place to handle a new reporting regime?

This is where the arguments begin. Some members of the software community
have called for potential clients to switch providers, or risk not meeting
reporting requirements. Others have argued that ‘switching sides’ would be a
disastrous move.

Tim Harris, a partner in PwC’s global capital markets group, argues that the
biggest challenge facing businesses dealing with IFRS is the thorny issue of
data. ‘It’s not necessarily about calculating balances differently, but
collecting the right data for publication,’ he says. ‘This is still a current
issue as companies prepare for full IFRS accounts at the start of 2006.’

Harris is concerned that companies are still struggling to collate the
relevant information, and the biggest issue involves the flexibility and
robustness of ERP systems. ‘The ease of dealing with the changing data
requirements of IFRSdepend how flexible and robust a company’s underlying
systems are.

‘ERP systems may be able to deal with the changes but it depends on how they
are implemented. It can cost a lot to change systems to meet new data

But rather than make huge swathes of changes to accounting and consolidation
IT, many companies are making smaller changes to systems, ensuring that their
reported numbers are still auditable and reliable.

Companies have decided not to make big changes to systems while so much
regulatory and legislative exchange affects the business community, according to
Sheree Fleming, a solutions architect at enterprise software giant SAP.

‘Even an upgrade is a large project for customers,’ she says. ‘Businesses
will use consultants and advisers to help them make decisions, but a lot of what
they suggest we believe we can do for them.’

But what of the future? If companies are risk averse in terms of their
current IT strategy, are there any other drivers that will revolutionise the way
they deal with future IFRS-style data issues?

Fleming believes the answer lies in a movement of management and statutory
reporting into one mass. Rather than producing management reports, while making
wholesale changes for external reporting, it makes sense to rely on a single set
of information.

One potential solution could be the use of eXtensible Business Reporting
Language (XBRL). The mark-up language enables data to be ‘tagged’, allowing it
to be more easily searched and analysed. It was mooted as being a great tool for
the investment community, but its take-up has been slow, due to difficulties in
mapping accounting information to the relevant tags.

But its stock grew strongly when the US Securities & Exchange Commission
announced a pilot scheme for companies to file using the technology.

Harris believes the XBRL ideology is ‘sound’, and the technology holds a lot
of promise. ‘It is attractive but is more developed in the US at the moment. The
ITholds a lot of promise and companies are starting to look at it.’

But there are still pitfalls. BASDA, the body representing the UK’s biggest
application software companies, vehemently opposes the adoption of XBRL in its
current guise, due to the prohibitive cost and the complexity of creating these

BASDA chairman Eduardo Loigorri says that creating a single standard for
financial reporting is a ‘fantastic principle’, but that it has been ‘hijacked’
by national accounting bodies looking to develop their own taxonomies.

‘The resultant divergence has completely undermined the previous clarity.
XBRL is a huge missed opportunity,’ he says.

In the meantime, companies are working with accountants, consultants and
software companies to deal with financial reporting issues they face today.

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Related reading

Fiona Westwood of Smith and Williamson.