From GAAP to Global Accounting in Seven Months

Pushed by a business imperative to switch to IFRS, a Morgan Stanley unit finds the devil in the non-accounting details.

Handling IFRS disclosures also posed new problems. Before the new information was released into the marketplace, Brougham had to make the investor relations department aware of the new disclosures and to explain what they meant to the business.

What’s more, she had to underscore that the move to IFRS was focused on just one unit of the organization and weren’t applicable to the whole investment bank. A “significant of amount of time” was spent training and communicating changes to the company’s investor-relations staff, as well as to other departments.

Passing off the whole conversion job to Morgan Stanley’s accounting consultant, Ernst & Young, was tempting, noted Brougham. However, while it would have been “very easy to pass the work to someone else, we wouldn’t have kept the conversion [know-how] within the organization.”

The bank farmed out preparation work for the independent audit to E&Y. The firm helped Morgan Stanley’s accounting staff better understand IFRS reporting related to such items as share-based payments, pensions, and other thorny transactions.

Meanwhile, to maintain consistency, Morgan Stanley created a common financial reporting framework across all subsidiaries. To do that, the company designated London as a center of excellence in IFRS reporting and ran any rule interpretations or other questions through that branch, where accountants compared practices against the benchmark accounting frameworks.

Brougham stressed that differences between IFRS and local GAAPs will continue to exist, especially in situations in which local tax rules and laws don’t allow IFRS reporting. Indeed, as the European Union “gets caught up in political struggles,” Brougham expects, her team will have to deal with regional variations of IFRS that will differ from the practices sanctioned by the London unit.

Further, the completion of the IFRS conversion doesn’t mean it’s “business as usual,” at the London unit, noted Brougham, who rolled out the new reports in August of 2007. “It takes a long time to imbed [IFRS] throughout the organization,” she said, “but it helps to take one chunk at a time.”

She does not advocate the unit-by-unit approach over a wholesale shift to IFRS, she said. What’s important, insisted Brougham, is that “you should not make the decision in the weeds when you need to be looking at a global [corporate] perspective.”

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