A company’s enterprise resource planning system may need to be modified to handle differences in the way some accounting measurements — for example, asset retirement obligations — are calculated under IFRS. The same goes for processing logic. For example, unlike Canadian and U.S. GAAP, IFRS allows an asset previously written down for impairments to be written back up if its fair value recovers. Processing logic that takes that possibility into account would need to be built into systems.
There may also be a need for changes to the interface between the general-ledger system and any other system that relies on data from the ledger, such as for internal-management reporting or compliance. “If you’re changing the financial-speak of the company, such as with IFRS, of course you’ll need to change your ledger, but you also need to make sure all the systems that interface with it are IFRS-compliant, too,” says D’Andrea.
Finally, internal controls over financial reporting should be reevaluated to make sure they will still be effective upon the migration to IFRS. That’s a key point of concern for public-company CFOs, who along with CEOs must certify the adequacy of the financial controls.
Meanwhile, a weighty IT issue for highly capitalized companies such as Hydro One relates to the accounting for depreciation of property, plant, and equipment. Under current GAAP, a transmission station, say, may be listed as a single fixed asset with a single useful lifespan. But under IFRS, the station’s components are separated: the original cost is allocated among the buildings, transformers, switches, breakers, and other components, each of which has a different useful life.
Systems thus need to be sufficiently robust to account for the various components. An additional level of complexity springs from the fact that Canadian companies are accounting in both GAAP and IFRS this year (they must present one year’s worth of historical comparative statements with their first IFRS filing in 2011). Some have had to make system changes enabling two sets of fixed-asset subledgers to be run. The largest ERP systems typically support that functionality, but with some systems it’s more difficult to manage, O’Donnell notes.