IFRS: Ernst

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IFRS Ernst Youngs approach to support
conversion
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Leaving Europe in 2007.
IFRS
2,000 pages
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Settling in the U.S.
US GAAP
18,000 pages
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Agenda

• IFRS Diagnostic Overview
• IFRS Diagnostic How Ernst Young Delivers
• IFRS Diagnostic eRoom
• Workstream walk-through
• Approach to Diagnostic

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IFRS Diagnostic Overview
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How do you start exploring IFRS?Ask the right
questions
Key Questions
Key Considerations
1
If allowed by the SEC, should we consider early
voluntary adoption?

• Potential for reporting harmonization with
  reduction in different statutory reports (cost,
  speed, control)
• Certain differences drive changes to financial
  results(earnings, equity)
• Competitors/peers may drive early adoption

Key decision factors
2
Are there tough implementation challenges or
efficiency opportunities that we should identify
and address now before there is a time constraint?
Key indicators of tough challenges or cost
savings opportunities

• Manually intensive accounting, consolidation, and
  financial reporting processes
• Multiple cross-GAAP reconciliation procedures
• Inconsistent global chart of accounts
• Consistency of global accounting policies and
  procedures

3
Are there existing or planned initiatives/
projects that may be significantly affected by
IFRS?
Key initiativesand projects likely to be
significantly affected by IFRS

• Shared service center deployment
• Global ERP implementations
• Trial balance/chart of account redesign
• Global finance transformation
• Process standardization
• Global policy and procedure development/deployment
  
• Tax strategies

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You may already be on IFRS in international
subsidiaries
Standardized global statutory IFRS reporting

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

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IFRS Conversion Approach
Diagnostic
Design and planning
Solutiondevelopment
Implementation
Post implementation

• Accounting and reporting
• Tax
• Business processes and systems
• Regulatory and industry
• Change management, communication and training

Workstreams
Program execution

• Project management

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IFRS Conversion Key Activities
Diagnostic
Design and planning
Solutiondevelopment
Implementation
Post implementation

• Accounting and reporting
• Tax
• Business processes and systems
• Regulatory and industry
• Change management, communication and training

First Time Adoption (FTA) activities
Determine key accounting differences and tax
issues
Launch project, project governance, and project
infrastructure
Determine future state
Implement solutions
Debrief
Identify potential impact on the business
Develop training plans
Identify solutions
Produce opening balance sheet
Address items deferred
Prepare conversion roadmap
Develop communication plan
Develop solutions
Produce dry run accounts
Transition to operational model

• Project management

Project Management, Project Tracking, Status
Reporting, Project Support
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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

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Diagnostic tools and work products
Work Products
Sample tools and enablers

• Diagnostic Report
• Accounting and reporting analysis
• Tax analysis
• Business process and systems analysis
• Regulatory and industry analysis
• IFRS conversion roadmap

Diagnostic

• Accounting and reporting
• Tax
• Business processes and systems
• Regulatory and industry
• Change management, communication and training

Workstreams
Program execution

• Project management

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Key Diagnostic Output

• Diagnostic Report
• Key accounting differences between IFRS and
  Companys 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

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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

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IFRS Diagnostic How Ernst Young Delivers
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Executing the IFRS DiagnosticCollaboration 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

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IFRS Diagnostic eRoomIFRS Conversion home page
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IFRS Diagnostic eRoom Diagnostic home page
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Workstream Walk-Through
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Executing the IFRS DiagnosticBefore we start
each workstream

• On a high-level, the Company and EY should
  identify
• Company's significant accounting areas
• Significant accounting areas that will
  potentially be affected by conversion to IFRS
• Significant business areas (operations and
  support functions) that will potentially be
  affected by conversion to IFRS
• EY created industry-specific charts to help 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
  Companys personnel

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Executing the IFRS Diagnostic Starting point
heat map of key accounting differences
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High
2
6
4
5
3
10
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Financial Statement Impact
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Medium
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7
14
9
12
18
15
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Low
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20
22
16
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High
Medium
Low
Business Impact
High conversion risk
Medium conversion risk
Low conversion risk
(1) A high-level assessment of how the current
gaps between IFRS and US GAAP may impact ABCs
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.
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Executing the IFRS DiagnosticUnderstanding IFRS
through the eyes of the business
Human Resources
Sales / Distribution (Channel Management)
IT
Mergers, Acquisitions Divestiture
Research and Product Development
Business impact of IFRS
Tax
Manufacturing
Business impact of IFRS
KeyAccountingDifferences
Risk Management/Compliance
Value chain
SupportFunctions
Customer Service and After Sales Support
Finance and Accounting
Planning and Resource Allocations
Procurement
Communication and Investor relations
Legal
Marketing
Contract Management
Treasury
Minimal
Moderate
Significant
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Executing the IFRS DiagnosticDetailed workplan
by workstream

• The standard workplan can be modified to meet
  each clients needs
• The workplan contains detailed tasks,
  considerations and links to enablement and
  reference materials

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Accounting and Reporting workstreamas an example
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Accounting and Reporting workstream
Diagnostic
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Example Output - IFRS Project Roadmap
AcceleratedDiagnostic
Post- Implementation
Implementation
SolutionDevelopment
Design and Planning
Diagnostic
Pro Forma IFRS Financial Stmts
Topic 1 Policy
Topic 1 System Changes
Topic 2 Policy
Topic 3 Policy
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
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Change Management
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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
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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

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Questions ?
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Thank You