Utilizing HFM to Handle the Requirements of IFRSRequirements of IFRS

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What is IFRS?

● Stands for International Financial Reporting Standards● A global set of accounting standards developed by the

International Accounting Standards Board (IASB)● An independent accounting standards body, based in London

Intended to be a more principles -based set of standards rather ● Intended to be a more principles -based set of standards rather than the rules-based approach of U.S. GAAP● Principles based : telling your child to be home at a reasonable hour ● Rules based : telling her to be home at 11 p.m. and then providing for the 15

contingencies that might justify a different time

● IFRS and US GAAP differ conceptually on a number of points. ● As companies compete globally, the movement toward IFRS is

rapidly becoming one of the most important issues for companies to address today.

Why IFRS?

• Economic globalization brings increased demand for high quality, internationally comparable financial information.

• Facilitate global capital flows• Bring greater clarity and consistency to financial reporting in the • Bring greater clarity and consistency to financial reporting in the

global marketplace. • Provide greater transparency and comparability of financial

information across countries.

IFRS vs. U.S. GAAP

About 2,000 pagespages of principles versus 2,000 documents documents of rules

Source: Deloitte – Straight Talk Book No. 11

Important / Significant Differences

● The way pre-operating and pre-opening costs are reported.● The fact that IFRS prohibits the use of LIFO for inventory

valuation. ● Borrowing costsBorrowing costs● Fair value● Revenue recognition● Extraordinary items

Source: CAMagazine.com – The Road to IFRS

Putting Principles into Action

Source: Deloitte – Straight Talk Book No. 11

� IFRS Statement No. 1 requires companies to include a number of reconciliations in their first financial statements presented under IFRS, as follows:

� A reconciliation of the company’s equity previously reported under GAAP as of its transition date to its equity restat ed under IFRS at GAAP as of its transition date to its equity restat ed under IFRS at that date;

� A reconciliation of the company’s equity as of the entity’s most recent annual financial statements under GAAP to it s equity restated under IFRS at that date; and

� A reconciliation of its last published US GAAP total comprehensive income with its restated IFRS comprehensive income for the same period.

� For all three of the reconciliations required, companies must distinguish between GAAP differences and correction of errors.

Among Others: IAS/IFRS US GAAP

Fair Market -Revaluation FA & Investments Only certain FI

Cash Flow Indirect (Favored) Direct/Indirect

Consolidation Control 2 models

Joint Ventures Proportional ok Only Equity

Pensions 15 differences

R&D: “Development” Dev. Capitalized Dev. Expensed

Inventory No LIFO LIFO OK

Impairment 1 Step, reversibleInterest rate sensitive

2 Step, no reversal

How are the Statements Changing?

Income StatementStatement of Comprehensive

Income

Balance Sheet Statement of Financial Position

Proposed Changes by FASB & IASB

Balance Sheet Statement of Financial Position

Statement of Retained Earnings

Statement of Changes in Equity

Statement of Cash Flows Statement of Cash Flow

Statement Content and Structure

Sample Format

• Approximately 100 countries already require, allow or are in the process of converging their national accounting standards with IFRS.

• Japan, the United States and Canada have active programs designed to achieve convergence with IFRS. designed to achieve convergence with IFRS.

• China’s Accounting Standards Committee has announced that convergence is a fundamental goal of its standard-setting program.

• The Institute of Chartered Accountants of India has taken up the issue of convergence of Indian accounting standards with IFRS.

• The EU gave global convergence a kick-start when the EU mandated that EU companies with securities listed on an EU exchange prepare their consolidated accounts for all fiscal years beginning on or after Jan. 1, 2005, under IFRS. (>7,000 companies)

If you haven’t started yet…

Dates – U.S.

● The US Securities and Exchange Commission (SEC) recently issued its proposed roadmap for conversion from US GAAP to IFRS.

Source: PWC – Mapping the Change

IFRS. ● Mandatory reporting under IFRS beginning in 2014, 2015 or 2016,

depending on the size of the issuer, and provides for early adoption in 2009 by a small number of very large companies that meet certain criteria.

● With compliance beginning in 2014. The SEC says it will decide in 2011 whether to hold to that schedule.

● One of the biggest lessons learned from European companies that converted to IFRS in 2005 was that they needed more than the two years time they were given.

Early Conversion to IFRS has Appeal

● Simplified reporting● Reduced operating costs● Greater transparency and comparability for investors● Improved access to capital ● Improved access to capital ● Plus some companies see their competitors already

embracing IFRS. That’s why momentum toward IFRS adoption has been steadily building, even before it’s required.

To Adopt or not to Adopt?That is notnot the Question

● IFRS is being driven by the globalization of capital markets. Not just by government policy.

● “Every business will have a different outlook on IFRS, but no matter what your approach, know this: The full transition will matter what your approach, know this: The full transition will take a well planned effort, requiring leadership and vision. For many companies, it will take at least three years.”Deloitte

US

D S

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in M

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RS

Con

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US

D S

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RS

Con

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The amount of estimated spend on IFRS varies widely within each category of company size, with some companies in the same size category expecting to spend far more than their peers.

$131.9M

$160.9M

$120.0

$140.0

$160.0

$180.00.731%

0.500%

0.600%

0.700%

0.800%

20

US

D S

pent

in M

illio

ns o

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RS

Con

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ion

Company RevenuesCompany Revenues

US

D S

pent

in M

illio

ns o

n IF

RS

Con

vers

ion

$23.2M$27.1M

$48.5M

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$1 Billion to

$4.9 Billion US

$5 Billion to

$9.9 Billion US

$10 Billion to

$19.9 Billion US

$20 Billion to

$49.9 Billion US

$50 Billion US

or more

0.200%

0.141%

0.103%

0.298%

0.000%

0.100%

0.200%

0.300%

0.400%

0.500%

$1 Billion to

$4.9 Billion US

$5 Billion to

$9.9 Billion US

$10 Billion to

$19.9 Billion US

$20 Billion to

$49.9 Billion US

$50 Billion US

or more

Source: Accenture 2008 IFRS SurveySource: Accenture 2008 IFRS Survey

Determine impact on accounting in subsystems

Stage 3Record Transactions in both GAAPS

Stage 1Study Impact & Determine Strategy

Perform Preliminary Study

Determine changes to business model

Stage 4Transform Your Business & Win with IFRS

Collect GAAP Financial Results

Stage 2Enable Top End Reports

All Stages: Apply Policy and Control Management

subsystems

Configure accounting rules and set up ledgers

Process and report using dual accounting

Milestone 3Transactions Recorded in Multiple GAAPs

Milestone 1Completed Preliminary Study

Assess Impact

Determine Strategy

Transform operations using IFRS results

Report IFRS results, increase shareholder value

Milestone 4Business Model Optimized

Adjust and Consolidate Under GAAP & IFRS

Report, Reconcile and Audit Results

Milestone 2IFRS Reports Produced

IFRS – The Big Impacts

• Upstream systems• Additional reporting requirements in areas

such as taxes, financial instruments, and fixed assets.

• General ledger • General ledger • Changes to the chart of accounts. During

transition, general ledger reporting will likely need to accommodate ledgers for both U.S. GAAP and IFRS.

• Reporting data warehouse• Changes in data models, such as valuation

systems and actuarial models. • Downstream reporting

• Changes to the number of consolidated entities, mapping structures, and financial statement reporting formats.

Next Steps

• IFRS Gap Analysis - The first step in the journey is to conduct an IFRS diagnostic to assess the impact conversion will have on your business.

• Get clear about how IFRS and U.S. GAAP differ. Determine the level of effort required to address the differences. level of effort required to address the differences.

• Evaluate the impact on accounting policy. Some areas of accounting will require new policies due to clear differences in standards. In other areas, there may or may not be differences, depending on the choices you make.

• Inventory your current IFRS reporting requirements and locations.

• Identify resources within your organization to assist in the IFRS effort.

Next Steps (cont’d)

• Assess the impact of IFRS on your technical infrastructure. Front-end systems, general ledgers, sub-ledgers, and reporting applications may need to be evaluated.

• Identify the impact on current system projects. As new projects • Identify the impact on current system projects. As new projects are planned, take time to align requirements with the likely impact of IFRS

• Identify stakeholder groups affected by IFRS. Assess their current level of understanding of what’s ahead.

• Create a plan to address the training and communication requirements for each stakeholder group. Keep people informed through the entire journey. Take time to celebrate success.

HFM is Well Suited for IFRS

� Centralized data – one version of the truth

� Accessed via the web for global operations

� Supports multiple accounting standards built on single set of inputs

� Provides validations and controls over the process

� Big win for SarbOx!

� Accommodates multiple data sources� Accommodates multiple data sources

� With visibility back to source data

� Journals module and data audit provide full audit trail

� Supports financial and non-financial metrics

� Multiple charts of accounts

� Provides for alternate organizational structures

� Easily handle complex currency translation & consolidation rules

� Flexibility in writing business rules without need for programmers

� Twelve smart dimensions to handle high dimensional requirements

� Segment Reporting

� Cash flow

� Management reporting and statutory

Why HFM to Handle IFRS? (cont’d)

• Out of the box intercompany elimination functionality• Dynamic reporting / Smartview• “Slice and dice” information facilitates the segmental reporting

requirements in IFRS• Robust controls and audit trails that help with Sarbanes-Oxley

compliance• Custom dimensions and flexible reporting facilitate GAAP “bridge”

reporting

IAS/IFRS Compliant Processes

IAS/IFRS Compliant Processes

Bridge Reports

� Multi-GAAP reporting compares results and quantifies the differences.

HFM has been used for multi-

GAAP reporting GAAP reporting for years.

KPI’s can be executed on any

piece of data

Source: Oracle

� Multidimensionality becomes particularly vital when navigating the complexities of segment reporting, as required by IAS 14: Segment Reporting.

Segment Reportings

Source: Oracle

Impact on HFM applications

� Data● Some source data will be reclassified in the ledger, such as

labor components of Cost of Goods● Direct method for cash flow

� Metadata� Metadata● Some accounts will be moved around

� Rules● Reconsider consolidations

� Reports● A bit of work here● Greater focus on footnotes

� Supporting processes● Burden on the close cycles for first year or two● Budgets and forecasts will be impacted too

Application Design Considerations

• Based on your specific IFRS requirements, how will this impact your HFM apps?

• Preferred Approach - Use a custom dimension• Like a data type – start off with GAAP and adjust it to IFRS

• Other options to consider are:• Create a new application

• would include new accounts, new rules, new reports…

• Use a new set of accounts• most of the base would be the same• may need more detailed accounts in some areas• new parent accounts would be required

• Use new entities – depends on consolidation complexity

More System Considerations

• New Financial Reports• New formats plus bridging statements

• Adjust your XBRL reporting – new taxonomies• Disclosure Management product

• Adjust your FDM apps• Know the impact of your decision on your application

• The choice to build this in you customs, accounts or entities may depend more on the application you have.

• Chris Barbieri, Ranzal has some great metrics to help guide your decision.

Dimension Average Volume

Recorded High

Comments

Accounts 2,132 14,409

Entities 1,165 22,882

Currencies 16 233 use only 1 currency 30%

Custom1 388 19,410 use Custom 1 96%

Custom2 153 15,188 use Custom 2 86%

Custom3 61 26,816 use Custom 3 86%

Custom4 39 11,389 use Custom 4 62%

Scenarios 11 78

Entity hierarchies 3 24 the equivalent of Organizations in Hyperion Enterprise

ICP Accounts with Plug 41 1,223 use automated intercompany matching 56%

Accounts with Line Item Detail 36 1,667 16% use this, but only 10% have more than 1 account flagged

Consolidation Rules - - use consolidation rules 28%

Consolidation methods 5 10 use methods 14%

OrgByPeriod use organization by period 9%

ICP Members 86 1,407 track intercompany activity 81%

Entities flagged for Parent Adjs 143 7,698 Allow [Parent Adj] or [Contribution Adj] journals30%

Scenarios using Process Mgmt 5 53 use process management46%

Custom Example for HFM

Closing Remark

� “You’ll need plenty of runway. You’ll have to provide comparative financials during conversion—and deal with all the systems, process, and organizational issues surrounding the transition. It will take time. And it will ultimately require your signature.”

DeloitteDeloitte

Source: Deloitte – Straight Talk Book No. 11

Special Thanks

� Rob Dessureault, CMA� Various web sources

More Information on IFRS

Source On the Web

American Institute of CPAs www.aicpa.org

Financial Accounting Standards Board www.fasb.org

International Accounting Standards Board

www.iasb.org

Board

International Federation of Accountants www.ifac.org

International Financial Reporting Standards Resources

www.ifrs.com

International Organization of Securities Commissions

www.iosco.org

Securities and Exchange Commission www.sec.gov

SEC roadmap www.sec.gov/spotlight/ifrsroadmap.htm

Wikipedia en.wikipedia.org/wiki/IFRS

Presentations

Calculation Manager: The New and Improved Applicati on to Create Hyperion Planning Business Rules – Monday, 11:15 am, Room 102C

Security and Auditing in HFM – Tuesday, 4:30pm, 101B

Best Practices for Using DRM with EPMA – Wednesday, 8:30am, 103A

Getting Started with Calc Manager for HFM – Wednesday, 8:30am, 101B

Advanced Topics in Calc Manager for HFM – Wednesday, 9:45am, 101B

Maximizing the Value of an EPM Investment with ERPi , FDM & EPMA – Wednesday, 11:15am, 101B

Taking your FDM application to the next level with Advanced Scripting – Friday, 8:30am, 101B

IFRS reporting within Hyperion Financial Management – Thursday, 10:30am, 101B