By: Dr. Berg
Global Reporting Standards and the US
As the world merges into a logical unit (yes it is happening), multinational companies are paying an increasing costs of BI systems that have to submit to local governments different financial standard reports. The same is true for companies listed on several stock exchanges.
In the past, the world relied on the General Accepted Accounting Principles (GAAP) and the Financial Accounting Standards Board (FASB) to decide the 'standard'. The problem, is that what is 'accepted' in one country varies dramatically from what is accepted in another. The need for International Financial Reporting Standards (IFRS) has been obvious.
The first step was to create a new organization known as the International Accounting Standards Board (thankfully, this has been in existence since 1989). The next was to merge the accounting rules and create the first standard. This took effect in January 2009.
The World is already on IFRS
Today 85 countries require IFRS for all their listed companies. Additionally, 29 more countries permit it as regulatory reporting. In the USA, the Security and Exchange Commission (SEC) is working on making this required for listed US firms by 2015 (only three and a half years from now). Currently, the differences between US-GAAP and IFRS are primarily in the accounting for depreciation and asset values. However, this is expected to be settled shortly.
Meanwhile, US based companies have started thinking about how to get this done with as little disruption as
possible while leveraging the solution for their overseas subsidiaries. Since Europe and most Asian countries are already requiring this, a combined effort can save companies from having multiple staggered projects, custom developed bolt-on 'solutions' or manual work-arounds in the interim period.
While technical in nature, the new reporting rules simply states that financial reporting should have six core reports. This include a statement of financial position one for comprehensive income (could include one for only operational income) one for changes in equity, one for cash flow and finally a list of the significant accounting policies used.
How will this Effect Your Company?
When SEC require or permits IFRS, companies will be scrambling to build global BI solutions that can support it. Unfortunately, most of our BI systems are custom developed with hardcoded queries, fixed formatted reports and custom web interfaces. The current systems also have processes for reconciliation, adjustments and special jobs to allocate depreciation, amortization, depletion etc. This is not easy to fix, or even validate in a custom designed or legacy BI system. The need for a solution like SAP - BPC is obvious.
What Can SAP Really Help With?
Today, SAP supports IFRS in several ways. First, via the financial consolidation and planning software that SAP acquired from Outlooksoft in 2007, Business Planning and Consolidation (BPC) is available in its 7.5 release. This tool has an IFRS "starter kit" and EPM installing guidelines to help companies get this off the ground. It would be tedious to mention all features of the tool, but here are a few.
First, the established global standard to electronically transmit financial information is currently the eXtensible Business Reporting Language (XBRL
). This is required by SEC and many other countries for regulatory filings and is included in SAP-BPC. The tool also provides a peer-to-peer inter-company reconciliation application to reconcile intercompany balances in real time.
In addition, BPC tracks comments and documentation why adjustments are made (required under IFRS), as well as who did it. Finally, BPC provides a set of pre-delivered input forms, IFRS compliant rules, as well as pre-defined control reports and formatted IFRS financial statements. In short, everything you need to get started without having to build from scratch...
So Where do You Start?
Financial reporting projects should never be rushed. There are normally timing issues around financial close periods and also constraints on who needs to be involved. The big-4/5 firms have excellent accounting background, but often little available resources for kicking off a project with short notice. Technical skills exist in smaller firms, but they are normally weak on accounting support. The best approach is therefore to plan early.
Get your accounting group and financial reporting group to commit to a date for BPC and create a steering committee to set start and end dates. Then involve a mix of people. reach out to the specialized BI firms that have BPC experience as well as to the big accounting firms where the accounting knowledge exists. Don't forget to involve your internal and external auditors. They will have very detailed requirements for the system.
How Long? - The IFRS/BPC Project
Most large companies will be able to build an IFRS based BPC solution in 12-18 months time, but the largest firms may choose a more gradual approach and plan the implementations over 18-30 months.
Smaller firms with operations in fewer countries should be able to implement BPC in 6-12 months. The major difference in the timing depends on how risk adverse a
company is and how long the old and new system has to be run in parallel..
The Benefits: Cockpits and Dashboards
A major benefit of IFRS is the reduced need for local reports, dashboards, scorecards and cockpits. You can now build enterprise financial dashboards that can be used by everyone in the organization at a much lower costs and with fewer local requirements. As a result, you should either include this into your BPC/IFRS project, or plan for it shortly after go-live. Once you have baked the cake, there is no reason not to place some icing on it :-)
In my next blog, we will look at how to organize and create good BI project teams.....