Complex IT issues cloud financial reporting ability
Complex IT issues cloud financial reporting ability
While the need exists for companies need to take a holistic approach to their International Financial Reporting Standards (IFRS) convergence projects, many lack an adequate understanding of the significant IT issues involved to be able to do so.
That is according to a new report by KPMG on IFRS, which highlights the paucity of information currently available to businesses on the impact of IFRS.
“Many companies are yet to be aware of the significant post-conversion information systems and business process projects that will be needed," says Egidio Zarella, KPMG’s global and Asia Pacific partner in charge of information risk management. "Also, despite legislative deadlines looming, there remains little publicly available information on the impact of IFRS on information systems, with companies predominantly focusing on the technical implications of transition to international accounting standards."
The report provides insight into the complex relationship between IFRS and IT, and reveals that conversion projects must be designed in the context of an organisation’s overall governance framework, aligned with its business strategy, and with due consideration to the idiosyncratic information systems needs of that organisation.
“Ensuring long-term sustainability, IFRS IT convergence projects require an organisation to be able to manage the transition from short-term compliance to more robust longer-term solutions. It is therefore crucial that IFRS projects realistically reflect the true impact of conversion on the entire organisation," warned Zarella.
Typically, the main impact IFRS will have on information systems will be the need for new data, changed calculations or changes in reporting.
“The more automated the process is to capture, analyse and report new data, the lesser the impact of converting to IFRS will be on daily operations,” recommended Zarrella.
“To further lessen the impact of IFRS convergence, organisations will need to incorporate strict controls for monitoring and reconciling the flow of data between systems.”
However, the report also noted that the degree of change resulting from IFRS conversions will vary significantly between organisations.
“The cost of convergence is expected to be significant, with human resource constraints adding to the difficulties as there is a pronounced lack of skilled programmers and IFRS professionals,” confirmed Zarrella.
Furthermore, the complexity of current international and local regulatory schemes suggests that the inter-relationship of various compliance projects will demand careful project management.
“Companies therefore need to carefully analyse the specific impact of their various convergence projects and look for possible synergies that may facilitate the development of more cost effective and time effective strategies,” said Zarrella.
“IFRS conversion projects are necessary business change initiatives that will contribute significantly in achieving transparency and an increased understanding of financial reporting on a global basis.
“The findings of the report suggest that early consideration of various information systems will impact in the design of IFRS projects, and the subsequent incorporation of complementary IT strategies in the conversion process,” concluded Zarrella.
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