The Reader

Getting to IFRS: Those Who Have Been There Have Plenty of Advice
IFRS.com | December 2009

When asked for their advice on how companies should be preparing for
the possibility of mandated IFRS adoption in the U.S., three
international financial executives kept returning to a few common
themes. "Start now, treat it as an opportunity, and make sure your
entire organization is invested in the change," suggested Margaret M.
Smyth, Vice President, Controller of United Technologies Corporation
(UTC), a $53 billion manufacturer of everything from elevators to
helicopters.

The three executives, all of whom have experience in moving large
companies toward IFRS, made their remarks at the "Preparers'
Perspectives" panel at last month's AICPA/IASC Foundation Conference
on International Financial Reporting Standards held at the Millennium
Hotel in New York City.

Smyth, who is responsible for the extensive efforts UTC is making to
prepare for IFRS, stressed the importance of getting the company's
board of directors and senior leadership in your corner at the very
outset. "Before we uttered the four letters 'IFRS' to any of our
business units, we had many discussions with top management to get
them on board with our proposed implementation project," said Smyth,
who is also a member of IFRIC, the interpretive body of the
International Accounting Standards Board (IASB). "So we knew our CEO,
president, and board of directors were all behind us. That was very
important to our success."

Participation Throughout the Organization

The panel also emphasized that once you have the support of top
management, you will need the engagement of an army of people from
every function, not just financial. "It's important to get every
constituency engaged," said Peter Day, who served as CFO of the global
packaging company, Amcor, when it transitioned from Australian GAAP to
IFRS. Day, who now serves as a director of a number of Australian and
U.S. listed companies with international operations, is also the
former Chairman of the Australian Accounting Standards Board. "We set
up a simple scorecard to measure how each business unit was doing in
their IFRS efforts, and published it globally," he explained. "It
sparked competitive pressure, but also pride among the different
groups."

"I've had Asian colleagues ask me, 'should we just do it (keep the
expertise) at the top level?' and I tell them to be afraid, be very
afraid of that kind of thinking," Day continued. "Do you want all the
knowledge at the top, or imbedded throughout the organization?"

Day says that at Amcor, "We made a mistake by initially designating
one person in each area as IFRS champions. We re-designated them on
different topics and then created coalitions across the businesses.
That made our central people reach out throughout the entire
organization, which worked much better."

"You need a core project team that really is leading the charge, but
you also need people at every level, in all departments," agreed Lewis
Dulitz, Vice President of Accounting Policies and Research for the $10
billion global healthcare products company, Covidien. Dulitz formerly
served as the Senior Director of Corporate Accounting at Royal Ahold,
an owner of supermarket chains worldwide, when it converted from Dutch
GAAP to IFRS.

Know Thyself

All three executives believe that while U.S. companies will certainly
need the help of their accounting firm, the secret to a successful
IFRS implementation is for the company itself to gain an understanding
of the challenges and opportunities that lie ahead. "We didn't want to
go right into assessment and just hand over the keys to a third
party," said Dulitz. "You want your accounting firm involved, but you
have to be tactical and keep up with possible changes in the standards
yourself so you are not paying to do things twice. You don't want to
just involve your auditors at the end." Covidien, for example, decided
not to spend a lot of time on leases because management followed the
activities of the IASB and knew a new standard was forthcoming. "We
were able to decide for ourselves that might not be best way to
allocate our resources," Dulitz explained.

Peter Day had a similar experience at Amcor. "We got help from the Big
Four, but we also wanted to learn on our own so we could have
professional discussions with our auditors," he explained.

More Than New Standards

Smyth noted that a move to IFRS had far reaching implications. "We're
talking about much more than just adopting new accounting standards,"
she said. "This will affect every aspect of business, with huge
ramifications for everything from compensation, to bonuses, to
budgeting."

"Ask yourself if it will change your business model and the way you
interact with your customers," Day suggested.

The panelists all agreed that in their experience, moving toward IFRS
provides opportunities that go well beyond being in sync with the rest
of the world. "If you just look at this as a compliance issue, you're
wasting an opportunity," said Dulitz. "Take this chance to press the
reset button on some of these accounting issues. Adopt and improve,
don't just converge. Take a fresh look at the standards. Don't just
look at the differences; take a good look at the information you will
now be providing."

"How often does one get an opportunity to start with a blank sheet of
paper?" asked Smyth. "IFRS implementation is much more than adopting
new accounting policies; it's a complete corporate transformation."

Smyth also noted that the global changeover offered the opportunity
for large companies to have an impact on the standard setting process.
"We invited FASB members into our office so we could talk to them
about how their proposals would impact our different business units,"
she explained. "We took them onto the manufacturing floor and showed
them how an airplane engine was made, and how an Otis elevator was
tested. We talked them through the process and how the proposal would
impact that part of our company. We had the benefit of educating
FASB, and at the same time got our people engaged and further
strengthened the (IFRS) team."

Complexity Ahead

The three international experts also warned not to underestimate the
challenges ahead. "In talking to some of my European and Asian peers
who have already adopted IFRS, it seems clear that one of the
challenges is the toll it takes on IT systems," said Smyth. "Many
companies do not have the capabilities they will need."

"You're talking sometimes about millions of lines of data," agreed
Dulitz. "You're not going to do that using Excel."

The three panel members also said to anticipate a steep learning
curve. In fact, the complexity of the changeover is one reason UTC
does not plan on taking advantage of early adoption of IFRS as laid
out in the roadmap. "We don't know of any of our peers doing that
either," Smyth explains. "We're all taking a wait and see attitude.
Why should we fully convert to IFRS if there is still a chance that
the SEC will do something different than the roadmap suggests? Even
with all the effort UTC has put in, and we have very thorough
reporting, we couldn't dual report right now. We still have a lot of
work to do."

The panelists also seemed to question the feasibility of IFRS being
one hundred percent identical across all jurisdictions, much less
within one company. "The objective, as much as possible, is one IFRS,
but that's a lofty goal that cannot be achieved," said Dulitz. "Many
jurisdictions will require or provide an option to file IFRS compliant
financial statements before our consolidated IFRS filing with the
SEC." As an example, he noted that IFRS for subsidiaries may differ
from the parent company based on the timing of IFRS 1 elections and
which version of IFRS is adopted (IFRS as issued by the IASB, EU,
local, pre-MoU, etc.). "We refer to that as different flavors of
IFRS," he said.

"Australia relabeled IFRS as AIFRS," Day pointed out. "That was a bad
move. If you adopt it, adopt it, don't rebrand it." Day believes that
otherwise, companies will always be looking at every decision from the
dual perspectives of both IFRS and their county's GAAP.

All three preparers supported the idea of a timeline as the logical
way for U.S. companies to ease their way into IFRS. "We would want to
dual report internally for 2012-14, so by 2014 we could move
exclusively to IFRS with confidence," said Smyth.

Education was also on everyone's minds. "Knowledge of IFRS will have
to be elevated," said Day. "For example, I don't think remuneration
committees really understood share based payments. And the education
available to board members is still lacking."

Start Now

The final piece of advice from the experts was to start preparing for
IFRS immediately. "We recommend getting started now," said Smyth.
"Sure the 2014 deadline could move to the right, but the training and
preparation necessary to do this well will be significant."

"Start early," Day agreed. "Four years becomes two, becomes now very quickly."

The panelists all agreed with FASB Chairman Bob Herz's description of
the challenge of issuing accounting standards for IFRS and U.S. GAAP
simultaneously as "riding two horses."

"We have to make sure we are riding the horse and not being dragged by
it," Dulitz concluded.

--
Regards,
Parthiv Mehta

Go Green

P Please consider the environment before printing this e-mail. 1 ton of
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