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Panorama Consulting talks International Financial Reporting Standards and ERP

The International Financial Reporting Standards are coming. What does it really mean for U.S. companies?

The goal of the International Financial Reporting Standards (IFRS) is to "develop, in the public interest, a single set of high-quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles."

A number of countries have already adopted these international standards, and others have set timelines for adoption, according to the IFRS Foundation. The U.S., however, has not set a firm deadline. talked to Tyler Wilson, senior ERP consultant at Panorama Consulting Solutions in Centennial, Colo., about just what IFRS means for ERP vendors and customers.

What are the International Financial Reporting Standards and why are they important in the world of ERP?

Tyler Wilson: IFRS is the international standard for accounting, but the U.S. hasn't completely adopted it yet, although there are myriad conversations going on about when it will be required by U.S. public companies. Currently, U.S. public companies are required to report via U.S. GAAP [Generally Accepted Accounting Principles] procedures. And the transition [for these public companies] will be from GAAP to IFRS. There are a lot of companies that are international companies now that have to report IFRS standards. So it's not entirely new to the ERP industry, but it is new to the U.S. standard.

The deadline for adopting IFRS in the U.S. keeps moving. Why is that?

Wilson: Because there's resistance. It's not going to be an easy transition. As with any software transition or any transition beyond software, the whole organization will have to change to accommodate this. And that's where there's a lot of pushback, because there's obviously a lot of time and money [that will have to be] invested into this. It's an expensive project to undertake.

What do you mean by 'the whole organization will have to change?'

Wilson: Reporting from the top down will have to change from U.S. GAAP to IFRS standards, so it will affect the organizations as a whole, but mostly the financial area. But when an organization undergoes a change of this nature, there's a trickle-down effect that has to be managed throughout the entire organization. An ERP system can be divided into multiple segments and what will be affected most is going to be the general ledger, your fixed assets as well as your other assets -- [which] have to be managed. So if you're coming from an ERP system, it will not only be your ERP system affected; it's a project that's taken on not just by your finance and accounting group, but IT has to oversee it, project management will be involved, HR has to be involved -- it's a companywide initiative.

Does IFRS present an opportunity for companies not currently running ERP systems?

Wilson: I think it's really an opportunity for organizations to adopt an ERP system that don't already have an ERP system in place. You can consolidate all your disparate systems, adapt to the IFRS standards and change the way you operate, which should be more efficient, more effective, and you should be able to scale a lot better.

What do firms within the ERP market have to do to make the transition from GAAP to IFRS?

Wilson: The best way to start is to look at what is required now through U.S. GAAP and then look at what's going to be required for IFRS. The first thing to do is a gap/fit analysis [a study to determine if your current system meets the IFRS requirements], and to determine where your processes may change and what you lack currently that your system needs to have in the future.

Does it make sense for large U.S. public companies to report in GAAP and IFRS in parallel until IFRS standards are adopted in the U.S.?

Wilson: It does, and I think that there will be a requirement [from the U.S. Securities and Exchange Commission] to report in parallel for a while. I don't think it's avoidable. I would recommend to go ahead and start making that change [by reporting in parallel] if you're in a position to do so. However, since the date [of the switch] is unknown, there are a lot of companies pushing it off. The date is not definite until it's set in stone, and right now I would say it is not. I can remember two or three times when it's been pushed out. There was a 2012 date and then a 2014 date, and now the latest date that I've encountered is 2016. But it's still not a firm date. I believe that the economy is having an impact on it, because unless there's some incentive to switch over, there's not really any reason, unless [a company is] required to make the move.

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Does that hold true for small U.S. companies?

Wilson: If they're public companies, it's definitely something to consider. This movement has definitely been targeted to the public-sector companies that have to follow SEC [Securities and Exchange Commission] reporting standards. Now, as for smaller, private companies, it's going to be a judgment call on what direction they want to move. You have to look at their strategies, and if one day they plan on going public, obviously it's a good move. [From] what's being said right now, U.S. private companies won't be required to make this change. But that could change. [Looking at private companies] may be more of a phase two of this.

How long will it take for companies not reporting in parallel to switch from GAAP to IFRS once it's adopted in the U.S.?

Wilson: It's going to vary with the size of the organization. I would suggest that most companies set aside a year [or more] to make sure everything is just right.

How are ERP vendors dealing with these changes in their software?

Wilson: The three big ERP vendors, SAP, Oracle and Microsoft, are global software companies. And they have customers all over the world running on their software that already have to report IFRS standards. It's not something new to them. So they're able to help their U.S. [divisions] overcome this and deal with the changes in the software, because the whole financial structure has to be realigned to comply with IFRS standards.

Are smaller U.S. ERP vendors prepared?

Wilson: We are already seeing the smaller ERP vendors take a move to IFRS standards. The most recent one I've seen headlined is Infor, which is already IFRS certified. I think that's just going to be a trend for the future. It's definitely going to be a competitive advantage for ERP vendors that are IFRS compliant. It's definitely an opportunity.

How can ERP vendors help their customers make the switch to IFRS?

Wilson: The best way they'll be able to help their customers is based off of the experience they've already had in IFRS reporting. We're going to see that the most with the larger companies like SAP and Oracle that have a lot of experience in this already. They'll be able to bring the best practices from their international implementations to the U.S.

What are the advantages of the U.S. adopting IFRS standards?

Wilson: The advantage you have is with globalization and how easy it is to become a global company now. Everybody will be able to compare financial statements on the same level. The benefit will come from an international comparison basis. There's going to be an international standard instead of localized standards.

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