Financial Results

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• Technology for Compliance, January 2005
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Bigger systems from global vendors, such as SAP or PeopleSoft, are likely to face a far less steep upgrade path than those designed only for local accounting standards. “It’s very rare when a requirement comes up in accounting that hasn’t been done before somewhere else, maybe in Thailand or somewhere,” says PeopleSoft’s Sinclair. “When we build global systems, we get a very good articulation of what the basic process is and then externalise variables. Then when there’s a change – such as IFRS – you just change some parameters. You might have to feed in some additional information as well, but the work required will be nowhere near as big as with a local package.”

Nick Jarman, head of financial management solutions with Atos Consulting, says that even though making small changes to some of the infrastructure may be sufficient in many cases to achieve compliancy, this approach lacks a long-term view. “If you want to do the minimum to comply with standards, you can take that tactical approach. It will require a lot of manual change and some fairly straightforward changes to applications, and you won’t have a very automated solution. You’ll also get an increase in manual staff doing reconciliation and adjustment.” A more strategic approach is to take advantage of the opportunity IFRS presents to invest in underlying infrastructure and systems and go above the minimum required in IT change to meet IFRS and to create a more automated and controlled environment closer to best practice. “It may require moving into things like middleware, but you’ll have a better control environment, with lower costs. The accountants will spend less time doing manual work and can spend time looking at the numbers, seeing what they mean and making financial decisions based on them.”

Jarman’s advice is influenced in part by the volatility of IFRS over the last year. PeopleSoft’s Sinclair estimates that approximately 50% or more have changed in the past year. This has mainly been the result of political wrangling and in particular strong lobbying by French banks and German companies for which IFRS is far more of a shock than their UK counterparts. Most observers agree that the interpretation of the standards and potential “refinements” that might occur this year is likely to affect how companies interpret their accounting practices and in turn the following year’s reports. Any hard-coding of processes and data flows this year might well need rewriting again the following year.

So a more flexible infrastructure that can respond quickly to changes might well be a greater investment now that will make savings in the long run. “Whatever you do in IT systems,” says Jarman, “building something scalable and flexible is desirable. Any solution in place now has to address the fact that the business environment may change, as might the regulatory environment.”

IFRS presents both an opportunity and a challenge to companies. UK companies are fortunate that the work they will have to do to comply with IFRS is far less than most of their European counterparts’. Nevertheless, the work needed to be done is real. Strategic investment in an agile infrastructure will not only ensure compliancy with IFRS, it will ensure any further changes in standards or regulatory regime will be far easier to manage than if the minimum amount of work is done now.

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