Guessing the Costs of IFRS Conversion

U.S. companies believe they will spend more than European ones did to adopt the global rules, according to an Accenture survey.

CFOs with all but the shortest memories will remember that not too long ago the SEC made an estimate for a mandated enterprise-wide project that ended up costing companies millions of dollars in auditing fees. That project — the internal-control provision of the Sarbanes-Oxley Act — was initially estimated to cost companies $91,000.

In the Accenture study, 36% of the respondents said the total cost and complexity of converting to IFRS is their main obstacle to making the change even though nearly 80% have plans to adopt the global standards within two years. Anecdotally, others have expressed similar concerns to the SEC through comment letters. For example, James Barlow, corporate controller for Allergan, told the SEC that the health-care company would likely spend at least four times what it did on Sarbanes-Oxley compliance.

He said audit firms have told him they estimate that a GAAP-to-IFRS switch will cost between 0.5 percent and 1 percent of a company’s annual revenue in addition to two to three years of hard work.

Publicly, accounting firms and service providers are not giving out such specific numbers, preferring to rely on the Europeans’ experience for guidance and warning that every company’s facts and circumstances will differ. And although Accenture shares average cost predictions made by respondents to its survey, Troy Barton, senior executive for the firm’s finance and performance management business, cautions that the ranges the surveyed executives provide should be used only as a starting point for gauging how much conversion will actually cost. “It is important for executives to avoid relying on simple averages when budgeting for the conversion and instead consider their specific circumstances,” the report advises.

Costs will depend on a company’s industry, size, complexity, staffing abilities, and accounting policies, says Accenture. In particular, the firm found that cost predictions vary within size groups; among companies with $50 billion or more in revenue, 43 percent said they’ll probably spend less than $25 million, but 30 percent believe they’ll spend more than $100 million.

Accenture didn’t ask the respondents how they came up with their estimates. However, Barton says companies should expect, on average, that half of the work involved will require external sources. He added that 40% to 50% of IFRS work involves technology; 30% to 40% processes; and about 20% is technical accounting work, related to working through the differences between the two standards.

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