Converting to IFRS? Here are 13 tips for best practice

by House of Control | Feb 14, 2022 2:11:00 PM

What is the best practice for converting from national GAAP to IFRS? Converting to IFRS is demanding. We have put together a list of tips to help lighten the burden on your colleagues in the finance department.

Are you planning an IPO? Do you have ambitions to be acquired by a larger investor? There are many motives for converting to IFRS. And there are several obstacles you must overcome. We have talked to many of our IFRS 16 clients about their experiences and - not least - what lessons they wish they knew before they started.

Here is our «Top 13»:

1. Start early - IFRS conversion never works well as an urgent project. When the stress level goes up and the deadlines become shorter, the level of precision is reduced, and more often you opt for solutions that must be corrected later.

2. Gain support - Ensure that employees involved in the IFRS conversion project team understand the purpose and benefits of IFRS reporting. This makes the work more exciting and motivating for those involved.

3. Assess how IFRS conversion affects the company's key figures -This is relevant when it comes to reporting compliance with lending terms (covenants) to financial institutions (banks) and other relevant stakeholders.

4. Identify the biggest tasks that need to be solved - You you can start with these first. This means you must map out areas that are most demanding.

5. Identify differences - Identify which financial statement captions vary the most between the current accounting standard and IFRS in terms of amounts and calculation methods.

6. Document - Be careful to document GAAP differences on an ongoing basis, both with calculations and descriptions. This also simplifies the auditor's review and quality assurance of the IFRS conversion.

7. Create clear (and if possible) automated routines - This applies to accounting reports, including cash flow and note information. By putting extra effort into IFRS conversion, you will be able to save both time and money the next time annual and quarterly reports are prepared.

8. Evaluate the effect of future regulation -  These may not be relevant for the first implementation of IFRS but should be considered. Your auditor often has insight into upcoming rules and guidelines.

9. Check industry-specific areas within IFRS - There is no recipe for conversion to IFRS that is the same for all industries.

10. Set aside time to document assessments made in separate memos. You should prepare special memos for the most relevant standards that are used.

11. Acquisitions - Have you made acquisitions in recent years? There are differences between national GAAP and IFRS associated with the treatment of acquisition costs and amortization of goodwill that are identified via acquisition analyzes (PPA = "Purchase Price Allocation").

12. Choose a solid sparring partner - For example among the large auditor networks. As is well known, they charge you on an hourly basis. The better you follow up on the points above, the better return you will get for money invested in advisors.

13. Get an early overview of leases and  contracts which are covered by IFRS 16. Experience shows that work on IFRS 16 is often the one that starts early, but ends last. A contract management system for handling leases in accordance with IFRS 16 will help a great deal.

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