Guessing the Costs of IFRS Conversion - Accounting - CFO.com

Guessing the Costs of IFRS Conversion - Accounting - CFO.com

Guessing the Costs of IFRS Conversion
U.S. companies believe they will spend more than European ones did to adopt the global rules, according to an Accenture survey.
Sarah Johnson - CFO.com US
March 30, 2009


Excerpts:

U.S. executives expect to pay more than their European counterparts did to convert to International Financial Reporting Standards. Depending on company size, they estimate they'll spend between 0.1% and 0.7% of annual revenue to move from U.S. GAAP to the global rules, an endeavor publicly traded companies in Europe undertook four years ago at an average cost of 0.05% of revenue.

The predictions are in a report to be released tomorrow by consultancy Accenture, which in December surveyed 208 executives at U.S. companies with revenues above $1 billion (more than three-fourths of respondents have finance-related titles and work at companies with more than $5 billion in revenue). Not only do they expect to pay more than the Europeans did, but many believe they will be on the hook for substantially more than the 0.125% to 0.13% of revenue that the Securities and Exchange Commission has pegged as the average for U.S. companies.

Smaller companies likely will have a disproportionately higher cost to begin the conversion process, if regulators mandate that they, as well as their larger counterparts, move to IFRS. Companies with revenue between $1 billion and $4.9 billion — the lowest category in the Accenture survey — predict they would spend 0.731 percent of their revenue on the change. Compare that to the companies with revenue over $50 billion that expect to spend only 0.103% of their revenue.

Publicly, accounting firms and service providers are not giving out such specific numbers, preferring to rely on the Europeans' experience for guidance and warning that every company's facts and circumstances will differ. And although Accenture shares average cost predictions made by respondents to its survey, Troy Barton, senior executive for the firm's finance and performance management business, cautions that the ranges the surveyed executives provide should be used only as a starting point for gauging how much conversion will actually cost. "It is important for executives to avoid relying on simple averages when budgeting for the conversion and instead consider their specific circumstances," the report advises.

Costs will depend on a company's industry, size, complexity, staffing abilities, and accounting policies, says Accenture. In particular, the firm found that cost predictions vary within size groups; among companies with $50 billion or more in revenue, 43 percent said they'll probably spend less than $25 million, but 30 percent believe they'll spend more than $100 million.


Accenture didn't ask the respondents how they came up with their estimates. However, Barton says companies should expect, on average, that half of the work involved will require external sources. He added that 40% to 50% of IFRS work involves technology; 30% to 40% processes; and about 20% is technical accounting work, related to working through the differences between the two standards.


Read full article: http://www.cfo.com/article.cfm/13399306/2/c_2984368
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This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.