TRANSITION TO IFRS
A GENERAL OVERVIEW
AND
ROADMAP
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Content
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Introduction
Structure of IFRS
Significance of IFRS
Benefits of IFRS
Transition/Implementation issues
Conversion plan & milestones
Introduction
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On 28 July 2010, the Nigerian Federal Executive Council (FEC)
approved January 2012 as the effective date for the convergence of
accounting standards in Nigeria (SAS or NGAAP) to International
Financial Reporting Standards (IFRS)
The FEC also directed the Nigerian Accounting Standards Board
(NASB) to take further necessary actions to give effect to the decision
On 3 September 2010, NASB announced a staged implementation for
significant public interest entities by January 2012; other public interest
entities by January 2013 and SMEs by January 2014
IFRS is the collection of financial reporting standards developed by the
International Accounting Standards Board (IASB), an independent
International Standards setting organisation
The aim of IFRS is to provide “a single set of high quality, global
accounting standards that require transparent and comparable
information in general purpose financial statements
Structure of IFRS
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IFRS comprise:
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IASs (written by the IASC from 1973 to 2000; amended by IASB) = 31
IFRS (written from 2001 by the IASB) = 9
Standards Interpretation Committee (SIC)’s interpretations = 11
IFRIC’s interpretations = 19
IASs, IFRSs, SICs, IFRICs all have full authority
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There is also a FRAMEWORK document for the preparation and
presentation of Financial Statements which describes the principles
underlying IFRS. (the framework has no direct authority but is relevant
in selecting accounting policies under IAS 8)
IFRS are considered a “principle based” set of standards in that they
establish broad principles as well as dictate specific treatments
Significance of IFRS
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The convergence of SAS to IFRS will introduce an almost entirely new
basis of reporting for many companies
There can be significant differences in reported profits/net assets
between NGAAP and IFRS
For example, in a recently published financial statement of a Nigerian
Bank (a member of an international banking group), the difference are:
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Net profit
Total assets
» IFRS
N’billion
NGAAP
N’billion
16.9
392.3
14.6
351.2
Benefits of IFRS
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Improved comparability of reported financial information by entities
Easier access to foreign capital funding and cross-border stock
exchange listings
More effective management of enterprises and efficient processes since
IFRS reporting is performance based
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More transparent financial information to all stakeholders
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Optimisation of tax planning
Transition to IFRS
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Transition to IFRS is one of the biggest challenges that the Corporate
entities in Nigeria will face in the next 3 to 5 years
IFRS is used in over 100 countries. By the end of this year 2011, most
countries will either require IFRS or at least permit IFRS
The status of implementation by Top Ten global capital markets:
USA
US GAAP, adopting IFRS from 2014
Japan
Converting to IFRs
UK
IFRS
France
IFRS
Canada
Converting to IFRS
Germany
Hong Kong
IFRS
IFRS
Spain
IFRS
Switzerland
Australia
IFRS or US GAAP
IFRS
Implementation issues & strategy
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A successful conversion to IFRS will not happen overnight because the
process represent much more than a change in accounting rules
The convergence of NGAAP and IFRS will introduce an almost entirely
new basis of reporting for many companies.
The scope of the changes goes beyond accounting and financial
reporting. Yes, IFRs will affect the GL and financial statements, but it
will also impact:
– Internal policies;
– Processes and controls;
– IT systems and infrastructure;
– Other organisation areas, such as Legal, Risk management,
taxation, investors relation, etc
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it is therefore essential that everybody is involved from the beginning
Implementation issues & strategy
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Constituency
Involvement
Board
•Allocate budget and understand business impact
Management
•Sponsor IFRS conversion and secure resources
•Realign performance measures to IFRS
Investor relations
•Educate analysts and investors; manage external stakeholders
communications
Finance
•Modify accounting policies, financial statements and reporting
packages to conform to IFRS
•Conduct training and support information gathering and
consolidation
Business operations
•Provide data to meet new accounting and disclosure
requirements
•Understand IFRS impact on transaction structure
IT
•Plan and implement ”quick fixes” and required system
modifications to enable IFRS reporting on a sustainable basis
Subsidiaries
•Implement process changes to enable IFRS reporting
Implementation issues & strategy
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The first step in the conversion process involves planning and
assigning responsibilities to manage potential problems
Other steps to follow are:
– Gap analysis
– Map NGAAP to IFRS and establish areas of significant difference
in reporting/disclosure requirements
– Establishment of external and internal reporting requirements
– Create accounting manual (or modify existing manual)
– Adapt IT systems and software
– Evaluation of contractual agreements
– Budgets and forecasts prepared under IFRS requirements
– Project team and work plan
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Conversion plan and milestones
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In view of the complexity of conversion/first-time-adoption, an early start
is recommended to allow for a smooth transition
2010
2011
2012
Nigerian SAS fin stmt
Historical data for IFRS
financial reporting
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IFRS financial
statements
IFRS financial
statements
To overcome the challenges of comparative figures, it is advisable that
entities begin preparatory work from 2010 financial year end.
Conversion plan and milestones
The strategy to achieve a seamless transition to IFRS is a
phased approach to implementation
Phase 1
Phase 2
Phase 3
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Mobilise core team
Perform gap analysis
Impact assessments
Identify training needs
Plan conversion path
Project budget
Present results to management
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Mobilise finance functions and It
IFRS training
Build tools (policies, fin. Stmts, reporting packages)
Convert systems
First trials
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Mobilise business
Convert budget
Dry run
Opening balance sheet
Comparatives
Manage business on IFRS basis
Cutover to IFRS
Conversion plan and milestones
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The first phase is critical. The objective is to scope the main impact
areas and plan the conversion path. The key questions to address are:
 What are the key accounting and disclosure differences between NGAAP
and IFRS?
 What is the estimated impact on the bottom-line results, if reported under
IFRS?
 What is the impact on systems and processes?
 Who is impacted by the conversion and what are their communication and
training needs?
 What is the likely impact of conversion on resources?
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Work plan and conversion milestones
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We suggest:
Work
Streams
Acconting
&
reporting
Systems
&
processes
Buiness
impacts
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Phase 1
(Assess)
Phase 2
(Design)
Phase 3 (Implementation &
Parallel Run)
Q1/2011
Q2/2011
Q3/2011
Conversion
plan/budget
approved by
Board
Full dry run
(B/S, PL,
disclosures)
for Y/E
2010 & 11
IFRS
chart of
acct
finalised
Impact on
systems
assesment/prop
osed functional
design
IFRS
conversion
plan &
resource
budget
presentation
Q4/2011
Practical
IFRS
training
completed
Q1/2012
1st IFRS
financial
published
Key success factors
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Obtain clear sponsorship of the project by the Management Board
Follow a systematic methodology and minimise impact on day-to-day
operations
Define and agree on clear project responsibilities and deadlines
Make necessary management decisions promptly (with the help of
position papers)
Communicate potential business impacts to investors or other
stakeholders as soon as possible
Deploy efficient tools and templates for data gathering
Liaise with external advisors early and set up joint project team
Involve professionals with the right experiences relating to IFRS,
NGAAP, Processes, etc
Pitfalls to avoid !!!
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Jump starting the process without a structured gap analysis, impact
assessment and clear conversion plan
Underestimation of time and number of resources needed to complete
the project
Thinking that “accounting rules are similar” – IFRS is a different ballgame
Impact of IFRS conversion not addressed upfront with stakeholders
Lack of sufficient and early communication with auditors and regulators
No project team leader/manager