Ifrs Conversion Template - PowerPoint by wic84436

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									IFRS: Ernst & Young’s approach to
support conversion
Leaving Europe in 2007….




Page 1   IFRS: Ernst & Young’s approach to support conversion
Settling in the U.S…….




         US GAAP
         18,000 pages




Page 2        IFRS: Ernst & Young’s approach to support conversion
Agenda


►   IFRS Diagnostic Overview
►   IFRS Diagnostic – How Ernst & Young Delivers
    ►    IFRS Diagnostic eRoom
    ►    Workstream walk-through
►   Approach to Diagnostic




Page 3        IFRS: Ernst & Young’s approach to support conversion
IFRS Diagnostic Overview
How do you start exploring IFRS?
Ask the right questions…

         Key Questions                                                              Key Considerations
                                                                        ►   Potential for reporting harmonization with reduction in
          If allowed by the SEC, should                                     different statutory reports (cost, speed, control)

  1       we consider early voluntary
          adoption?
                                                     Key decision
                                                     factors
                                                                        ►


                                                                        ►
                                                                            Certain differences drive changes to financial results
                                                                            (earnings, equity)
                                                                            Competitors/peers may drive early adoption



          Are there tough
                                                     Key indicators     ►   Manually intensive accounting, consolidation, and financial
          implementation challenges or
                                                     of tough               reporting processes

  2       efficiency opportunities that we
          should identify and address
          now before there is a time
                                                     challenges or
                                                     cost savings
                                                     opportunities
                                                                        ►
                                                                        ►
                                                                        ►
                                                                            Multiple cross-GAAP reconciliation procedures
                                                                            Inconsistent global chart of accounts
                                                                            Consistency of global accounting policies and procedures
          constraint?


                                                                        ►   Shared service center deployment
                                                     Key initiatives
                                                                        ►   Global ERP implementations
                                                     and projects
          Are there existing or planned                                 ►   Trial balance/chart of account redesign

  3       initiatives/ projects that may be
          significantly affected by IFRS?
                                                     likely to be
                                                     significantly
                                                     affected by
                                                                        ►
                                                                        ►
                                                                        ►
                                                                            Global finance transformation
                                                                            Process standardization
                                                                            Global policy and procedure development/deployment
                                                     IFRS
                                                                        ►   Tax strategies

                                                                        ►   First time application cannot be undone, so inefficiencies
                                                                            may already be built-in to subsidiaries’ IFRS accounts
                                                     Standardized       ►   Possibility that IFRS has been interpreted differently in the

  4       You may already be on IFRS in
          international subsidiaries
                                                     global statutory
                                                     IFRS reporting
                                                                        ►
                                                                            same group by different subsidiaries; needs to be rectified
                                                                            in order to ultimately gain efficiencies
                                                                            Centralized control over subsidiary policy choices to “stop
                                                                            the bleeding”


Page 5                 IFRS: Ernst & Young’s approach to support conversion
IFRS Conversion Approach



                                           Design                     Solution                            Post
                   Diagnostic                                                       Implementation
                                         and planning               development                      implementation



                   ►   Accounting and reporting
     Workstreams




                   ►   Tax
                   ►   Business processes and systems
                   ►   Regulatory and industry
                   ►   Change management, communication and training
execution
 Program




                   ►   Project management




Page 6                       IFRS: Ernst & Young’s approach to support conversion
    IFRS Conversion Key Activities

                                                          Design                    Solution                                          Post
                              Diagnostic                                                                    Implementation
                                                        and planning              development                                    implementation



►   Accounting and
    reporting                                                                          First Time Adoption (FTA) activities


                             Determine key             Launch project,
                               accounting            project governance,         Determine future
                                                                                                          Implement solutions       Debrief
►   Tax                   differences and tax            and project                  state
                                 issues                 infrastructure



                             Identify potential
►   Business                                            Develop training                                     Produce opening       Address items
                               impact on the                                      Identify solutions
    processes and                                           plans                                             balance sheet          deferred
                                 business
    systems




►   Regulatory and           Prepare conversion             Develop                                            Produce dry run      Transition to
                                                                                   Develop solutions
    industry                     roadmap                communication plan                                        accounts        operational model


►   Change
    management,
    communication and
    training


►   Project
                                          Project Management, Project Tracking, Status Reporting, Project Support
    management


    Page 7              IFRS: Ernst & Young’s approach to support conversion
The Value of the Diagnostic

►   Provides a flexible approach to assessment of impact from converting
    to IFRS
►   Allows the organization to understand the scope and size of the
    conversion
►   Highlights key areas of focus during the conversion project
►   Identifies potential inter-dependencies and impacts on current and
    planned transformation initiatives
►   Identifies potential financial reporting harmonization opportunities
    across geographic locations
►   Allows an organization to better plan for conversion through
    ►    Prioritization of conversion activities
    ►    Identification of “must-do” changes to get ready for conversion




Page 8         IFRS: Ernst & Young’s approach to support conversion
Diagnostic tools and work products

                                               Sample tools and enablers                                                                                                                                                          Work Products


                                                                                                                                                                                                                            • Diagnostic Report
                      Diagnostic                                                                                                                                                                                                •Accounting and
                                                                                                                                                                                                                                reporting analysis

                                                                                                                                                                                                                                •Tax analysis
                  ►   Accounting and
                      reporting
                                                                                                                                                                                                                                •Business process and
    Workstreams




                  ►   Tax
                  ►   Business processes                                                                                                                                                                                        systems analysis
                      and systems
                  ►   Regulatory and                                                                                                                                                                                            •Regulatory and industry
                      industry
                  ►   Change                                                                                                                                                                                                    analysis
                      management,
                      communication and
                      training                     Business impact
                                                   Viewing IFRS through the eyes of the
                                                   Level 3 enabler
                                                   business
                                                                                                                                                                                                                            • IFRS conversion roadmap
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                  ►   Project                                                     Minimal impact
                                                                                  Minimal impact                                                Moderate impact
                                                                                                                                                Moderate impact              Significant impact
                                                                                                                                                                             Significant impact




                      management                   XX Month 200X
                                                   XX Month 200X                  Page 59
                                                                                  Page 11                                 Presentation title
                                                                                                                          Presentation title        Team to customize by sector




Page 9                          IFRS: Ernst & Young’s approach to support conversion
Key Diagnostic Output

►   Diagnostic Report
    ►     Key accounting differences between IFRS and Company’s policies
          ►   Key accounting differences, by standard
          ►   Heat map of accounting differences
          ►   Where applicable, potential options available to the Company and action points for future phases
    ►     Key disclosure differences
          ►   Key differences between disclosures required by IFRS and current practice
    ►     Key tax implications
          ►   Understanding of the effect of accounting differences on the calculation of book tax balances
          ►   Impact on tax planning and compliance
          ►   Impact on tax controversy activities
    ►     Key business process and technology implications from conversion
          ►   Evaluation of the effect and considerations on processes, systems, data and reporting
          ►   Preliminary assessment of significance of changes required
          ►   Identification of tough implementation challenges
    ►     Understanding of implications to current and planned transformation activities
    ►     Regulatory and industry analysis
          ►   Inventory of legal entities required to or permitted to report under IFRS for statutory reporting purposes
          ►   Regulatory reporting inventory
►   Conversion Road-Map
    ►     Detailed plan for Phase 2
    ►     High level milestones for overall conversion project



Page 10           IFRS: Ernst & Young’s approach to support conversion
Key Diagnostic Output
What Does It Represent?

►   Diagnostic Report
    ►     Executive summary of key issues and challenges for the company
    ►     Different levels of detail for the report can be provided, based on the
          audiences (e.g. Audit Committee, CFO, etc.)
    ►     Detailed analysis of differences and supporting documentation
►   Conversion Road-Map
    ►     Plan for Phase 2
    ►     Series of projects and initiatives that will be required as part of the
          conversion
          ►   Level of detail is dependent on the level of detail and scope of the Diagnostic
          ►   Estimates of the level of effort and timelines can be included if the analysis
              performed during the Diagnostic is sufficiently detailed
          ►   The Roadmap will be refined and expanded in later phases
    ►     Considerations for interdependencies with existing or planned enterprise-
          wide initiatives



Page 11          IFRS: Ernst & Young’s approach to support conversion
IFRS Diagnostic –
How Ernst & Young Delivers
Executing the IFRS Diagnostic
Collaboration tool – IFRS Diagnostic eRoom

►   IFRS Diagnostic eRoom is a collaboration tool that can be
    used for:
    ►     sharing information between clients and members of the EY team,
    ►     organizing and sharing an engagement workplan and
    ►     A single space for holding and maintaining the related enablers


►   A pre-populated standard IFRS Diagnostic eRoom
    Template is customized for client circumstances
    ►     Before the engagement, the workplan and the enablers loaded into
          the eRoom Template are tailored based on the agreed scope of
          services



Page 13        IFRS: Ernst & Young’s approach to support conversion
IFRS Diagnostic eRoom
IFRS Conversion home page




Page 14   IFRS: Ernst & Young’s approach to support conversion
IFRS Diagnostic eRoom
Diagnostic home page




Page 15   IFRS: Ernst & Young’s approach to support conversion
Workstream Walk-Through
Executing the IFRS Diagnostic
Before we start each workstream
►   On a high-level, the Company and EY should
    identify:




                                                                                                                                                                                                                 Financial Statement Impact
                                                                                                                                                                      P o tential financial      P o tential                                                                                                                    1
                                                                                                                                                                      statement impact        business impact
                                                                                     A cco unting areas                                                    Standard            (1 )                  (2)                                       High                                                                         2
                                                                                                                                                                                                                                                                                                            6
                                                                        1    Revenue reco gnitio n                                                          IA S 18          High                  High                                                                                                             5   4
                                                                                                                                                                                                                                                                                                                                3
                                                                        2    B usiness co mbinatio ns                                                       IFRS 3           High                  High
                                                                        3    Inco me taxes                                                                  IA S 12          High                  High                                                                                    10
                                                                                                                                                                                                                                                                          13
                                                                        4    Impairment o f lo ng-lived assets,                                             IA S 36          High                  High
                                                                                                                                                                                                                                              Medium                                            11              8               7



     ►    Company's significant accounting areas
                                                                             intangibles and go o dwill                                                                                                                                                                        14
                                                                        5    First time ado ptio n electio ns                                               IFRS 1           High                M edium
                                                                                                                                                                                                                                                                                                                9
                                                                                                                                                                                                                                                                                           12
                                                                        6    Financial statement presentatio n and                                           IA S 1          High                M edium
                                                                             disclo sure
                                                                                                                                                                                                                                                                          18
                                                                        7    Equity metho d investments                                                     IA S 28        M edium                 High                                                    17                                           15
                                                                                                                                                                                                                                               Low                              19
                                                                        8    P ro perty, plant and equipment                                                IA S 16        M edium               M edium
                                                                                                                                                                                                                                                                 20 22
                                                                        9    Share-based payments                                                           IFRS 2         M edium               M edium                                                                                                    16
                                                                                                                                                                                                                                                                                21
                                                                        10   Emplo yee benefits                                                             IA S 19        M edium               M edium




     ►    Significant accounting areas that will potentially
                                                                         1
                                                                        1 P ro visio ns and co ntingencies                                                  IA S 37        M edium               M edium                                                                                         Medium                     High
                                                                                                                                                                                                                                                                          Low
                                                                        12   Co nso lidatio n                                                               IA S 27        M edium               M edium
                                                                        13   Financial Instruments                                                         IA S 32,        M edium                 Lo w                                                                           Business Impact
                                                                        14   Segment repo rting                                                             IA391
                                                                                                                                                              S 4          M edium                 Lo w
                                                                        15   Fo reign currency                                                              IA S 21          Lo w                M edium
                                                                                                                                                                                                                                                                                       High conversion risk
                                                                        16   Jo int ventures                                                                IA S 31          Lo w                M edium
                                                                        17   Earnings per share                                                             IA S 33          Lo w                  Lo w
                                                                                                                                                                                                                                                                                       Medium conversion risk




          be affected by conversion to IFRS
                                                                        18   Interim financial repo rting                                                   IA S 34          Lo w                  Lo w
                                                                        19   Leases                                                                         IA S 17          Lo w                  Lo w
                                                                                                                                                                                                                                                                                      Low conversion risk
                                                                        20 Related party disclo sures                                                       IA S 24          Lo w                  Lo w
                                                                        21 Invento ry                                                                       IA S 2           Lo w                  Lo w
                                                                        22 Intangible assets                                                                IA S 38          Lo w                  Lo w




     ►    Significant business areas (operations and




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                                                                                                                                                             Support                       Key
                                                                                                                                                                                         impact
                                                                                                                                                                                                                Value                                                     Customer Service and After
                                                                                                                                                                                        impact
                                                                                                                                                                                       Accounting                                                                                     Sales Support
                                                                                                      e and
                                                                                                Financ ting                                                 Functions                   of IFRS
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                                                                                                                                                                                                                                                                    ent
►   EY created industry-specific charts to help                                                                     Minimal                                                              Moderate                                                      Significant




    teams present the significant focus areas
►   Based on the understanding of significant areas affected by IFRS, the
    Company and EY will determine the scope of the Diagnostic:
    ►     Define initial focus on selected top accounting areas OR assessment of all
          accounting and reporting areas
    ►     Determine extent of work performed at and involvement of business units /
          subsidiaries
    ►     Identify availability and involvement of Company’s personnel
Page 17          IFRS: Ernst & Young’s approach to support conversion
Executing the IFRS Diagnostic
Starting point – heat map of key accounting differences




                                                                                                                     Financial Statement Impact
                                                                P o tential financial         P o tential                                                                                                  1
                                                                statement impact           business impact
                                                       Standard          (1 )                     (2)                                             High                                                 2
             A cco unting areas                                                                                                                                                    6
1    Revenue reco gnitio n                              IA S 18            High                   High                                                                                         5   4
                                                                                                                                                                                                           3
2    B usiness co mbinatio ns                           IFRS 3             High                   High
3    Inco me taxes                                      IA S 12            High                   High                                                                       10
                                                                                                                                                                13
4    Impairment o f lo ng-lived assets,                 IA S 36            High                   High
                                                                                                                                                  Medium                      11           8               7
     intangibles and go o dwill                                                                                                                                      14
                                                                                                                                                                                       9
5    First time ado ptio n electio ns                   IFRS 1             High                 M edium                                                                      12
6    Financial statement presentatio n and               IA S 1            High                 M edium
     disclo sure
                                                                                                                                                                18
7    Equity metho d investments                         IA S 28          M edium                  High                                                     17                      15
                                                                                                                                                   Low                19
8    P ro perty, plant and equipment                    IA S 16          M edium                M edium
                                                                                                                                                            20 22
9    Share-based payments                               IFRS 2           M edium                M edium                                                                             16
                                                                                                                                                                      21
10   Emplo yee benefits                                 IA S 19          M edium                M edium
 1
1 P ro visio ns and co ntingencies                      IA S 37          M edium                M edium
                                                                                                                                                                Low               Medium               High
12   Co nso lidatio n                                   IA S 27          M edium                M edium
13   Financial Instruments                              IA S 32,         M edium                  Lo w                                                                    Business Impact
14   Segment repo rting                                  IA391
                                                           S 4           M edium                  Lo w
15   Fo reign currency                                  IA S 21            Lo w                 M edium
                                                                                                                                                                           High conversion risk
16   Jo int ventures                                    IA S 31            Lo w                 M edium
17   Earnings per share                                 IA S 33            Lo w                   Lo w
                                                                                                                                                                           Medium conversion risk
18   Interim financial repo rting                       IA S 34            Lo w                   Lo w
19   Leases                                             IA S 17            Lo w                   Lo w
                                                                                                                                                                           Low conversion risk
20 Related party disclo sures                           IA S 24            Lo w                   Lo w
21 Invento ry                                            IA S 2            Lo w                   Lo w
22 Intangible assets                                    IA S 38            Lo w                   Lo w



      (1) A high-level assessment of how the current gaps between IFRS and US GAAP may impact ABC’s financial statements
      (2) A high-level assessment of the impact through the eyes of the business. As part of our considerations we took into account how business processes, functional and operational areas may be
      affected. For example a “high” would likely impact a number of functional and operational areas and/or require significant effort in developing a new process or IT modifications to comply with IFRS.




Page 18                             IFRS: Ernst & Young’s approach to support conversion
Executing the IFRS Diagnostic
Understanding IFRS through the “eyes of the business”




                                                 Business
                                                 Business
                                                     Key
                            Support                impact
                                                                 Value        Customer Service and After

                           Functions              impact
                                                 Accounting
                                                                 chain                    Sales Support
                                                  of IFRS
                                                  of IFRS
                                                 Differences




           Minimal                                Moderate               Significant


Page 19   IFRS: Ernst & Young’s approach to support conversion
Executing the IFRS Diagnostic
Detailed workplan by workstream




►   The standard
    workplan can be
    modified to meet each
    client’s needs
►   The workplan
    contains detailed
    tasks, considerations
    and links to
    enablement and
    reference materials


Page 20         IFRS: Ernst & Young’s approach to support conversion
Accounting and Reporting workstream
as an example
Accounting and Reporting workstream

                                                                  Diagnostic

           Input                                                   Activities                                                      Output
Company Inputs:                  ►   Review financial statements                                                         ► Mapping    of each FS line item
► Financial Statements,                                                                                                    by BU to key applicable IFRS
  Quarterly Reports, Trial       ►   Identify key GAAP accounting differences and provide an assessment of                 literature
  Balance                            where the Company’s current accounting may be affected by IFRS
                                       ► Identify where similar policies may be adopted under IFRS and GAAP              ► Summary    of potential
► IFRS guidance
                                       ► Identify where options exist
                                                                                                                           accounting and disclosure
► Involvement of Accounting
                                                                                                                           differences between the
  Policy personnel
                                                                                                                           Company’s current practices
► Current accounting policies,
                                 ►   Identify major gaps in relation to IFRS disclosure requirements
                                                                                                                           and IFRS requirements
  SOX documentation and                ► Identify new disclosure requirements
                                                                                                                           including high-level
  disclosure methodologies             ► Identify disclosures which move from MD&A to audited FS
                                                                                                                           considerations/ options related
                                       ► Identify disclosures that remain the same
                                                                                                                           to differences
                                       ► Identify disclosures that will no longer be required
EY Inputs:
                                                                                                                         ► Significance   assessment of
► Databases of US GAAP to
                                 ►    Make a preliminary assessment of the extent of financial impact, time frame          identified differences to the
  IFRS comparisons to
                                     to address issues, and the level of difficulty of implementing potential options,     Company
  facilitate data gathering
                                     if applicable
► Subject Matter Resources
                                                                                                                         ► Inputinto other diagnostic
► Templates to accumulate
                                 ►    Assess key standards under both IFRS and US GAAP that are evolving and               workstreams (Tax, Business
  data                               factor into gap analysis                                                              Processes and Systems,
                                                                                                                           Regulatory and Industry,
                                 ►   Present transition requirements and elections                                         Project Management)




Page 22                 IFRS: Ernst & Young’s approach to support conversion
   Example Output - IFRS Project Roadmap
Accelerated          Design                                     Solution                                  Implementation                         Post-
Diagnostic         and Planning                               Development                                                                   Implementation


        Q3                      Q4                  Q1                    Q2                Q3             Q4              Q1              Q1         IFRS
                                                                                                                                                      LIVE



    Diagnostic
                 Pro Forma
               IFRS Financial
                   Stmts
                                      Topic #1
                                       Policy                                                                                   Parallel
                                       Topic #1                                                                                   U.S.
                                       System                                                                                   GAAP
                                       Changes                                                                                    and
                                                                                                                                 IFRS
                                            Topic #2 Policy                                                                       Run
                                                                                                                                                 IFRS
                                                                                                                                                Environ
                                                  Topic #3 Policy                                                                                -ment

                                             Ongoing Project A
              Comprehensive
              Implementation
                   Plan
                                     Establish IFRS Accounting Policies

                                                       Sub-Ledger System Changes

                                                         General Ledger Consolidation System Changes

                                                                 Identify Data and Systems Requirements

                                                                 Training and Communication

                                                                 Interdependencies



   Page 23                        IFRS: Ernst & Young’s approach to support conversion
Change Management
What is change management?


►   A structured approach to transitioning individuals, teams
    and organizations from a current state to a desired state.
►   Characterized by a shift in behaviors and attitudes in
    people to adopt and embrace the future state.
►   Overall objectives:
    ►     Maximize benefits and minimize risk
    ►     Focus on program success
►   Not the practice of managing changes to technical or
    project specifications in a rigorous way to prevent scope
    creep.
                                                  “IFRS is nothing more than another
                                                  change management deal.”
                                                  Eaton Co.’s (OH based Power Company) CFO


Page 25        IFRS: Ernst & Young’s approach to support conversion
Change management concerns raised
recently by clients
►   Board/audit committee communications
    ►     Where are we
    ►     What are the challenges
►   Global consistency
    ►     How to achieve
►   Training
    ►     How much
    ►     When
►   Metrics for management
    ►     Realistic assessment
    ►     Supports mitigation of other concerns
►   Investor relationships/communications
    ►     Preparing for questions
    ►     Understanding investor point of view


Page 26         IFRS: Ernst & Young’s approach to support conversion
Questions ?
Thank You

								
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