CONVERTING TO IFRS

OUTLINE
NASB Roadmap
Overview of IFRS
Accounting,
Key Accounting Issues Tax & Business
Conversion Approach Reporting
Credentials
Next Steps
IFRS

Systems & People &

Processes Change

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Nigerias IFRS Roadmap

The IFRS Road Map Reporting Date:

Reporting Date: SMEs
Reporting Date:
Other PIEs
(Listed &
Significant public 2014
Transition Date: entities) Transition
Other public Date: SMEs
Interest entities 2013 IFRS reporting by
Transition Date: Other SMEs
(PIEs)
Listed & Audit procedures
Significant Public 2012 IFRS/Quarterly Investor
reporting by PIEs communications
IFRS Entities (SPEs)
Audit procedures Compliance
Competence 2011 IFRS/Quarterly monitoring
PIE Investor
reporting by listed & communications
SPEs
Compliance
2010 Transition Audit procedures monitoring for Listed
adjustments & SPEs
Investor
Awareness Prepare IFRS communications SMEs Prepare
Opening Statement opening SFP &
Assessment of Financial Position PIEs prepare
opening SFP & comparative figs
(SFP)
Legislative changes comparative figs PIE/SME investor
Dry Runs for Listed communications
Training & SPEs Dry Runs for PIEs
Planning/Impact SMEs commerce Dry Runs for SMEs
Prepare comparative
analysis figures transition planning
Transition
adjustments/Opening
BS( listed & SPEs)

Alignment with other initiatives and training for appropriate personnel

Realisation and standardisation of statutory reporting
OVERVIEW OF IFRS
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Overview of IFRS
Key characteristics

strict application: noIFRS lite

(no true and fair override)

prudence
increased principle is
complexity not leading

increased increased use

disclosure of fair values

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Overview of IFRS
IFRS or IAS?
IFRS is a globally-accepted set of accounting standards and interpretations established
by the International Accounting Standards Board (IASB) and its interpretative body the
International Financial Reporting Interpretations Committee (IFRIC).

Framework for the Preparation and Presentation of Financial Statements

IFRS comprise the following:

International Financial Reporting Standards (IFRS) (9 in issue)

International Accounting Standards (IAS) (29 in issue)

Interpretations that originated from the:

Standing Interpretations Committee (SIC) (11 in issue)

International Financial Reporting Interpretations Committee (IFRIC) (15 in issue)

 Overview of IFRS
IFRS vs SAS

There are 64 IFRS Standards and Interpretations in issue compared to

30 Statements of Accounting Standards in Nigeria

No equivalent SAS for

15 IFRICs in issue

11 SICs in issue

IFRS Standards are more detailed than Nigeria Standards

IFRSs are updated regularly and reflect the present business reality

IFRS are not industry specific based standards but principles based
standards
Key Accounting Issues

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Accounting and Reporting Changes and Related Business Implications

Conversion Effort

Impairment
of assets Revenue
(IAS 36) (IAS 18)

Leases PP&E
(IAS 17) (IAS 16)
Complexity

Related Party
Financial Instruments
Disclosures
(IFRS 7&9, IAS 32 & 39)
(IAS 24)
Employee benefits
(IAS 19)

Intangible Assets
(IAS 38)

Magnitude
IFRS Conversion Approach

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SOME POPULAR IFRS CONVERSION MYTHS

Adopting IFRS will We don't need to Our financial

be like any other involve the business too
accounting project
the accounting
department needs to
establish how to
apply the rules and
communicate that
reporting systems are
much...
flexible enough...
they just want to know
what the new rules are making changes for a
new accounting
standard will be
manageable

I do not see
IFRS cannot be the urgency
that different we have
from what we do enough time
now to convert

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REALITY IS THAT IFRS

is more than an accounting issue and can have a major impact

on your whole organisation (not just the finance function)
has a medium-to-high impact on the (financial) performance of
the business in the majority of cases
is a Board-level issue and hence should be sponsored by the
CEO, CFO and CIO of your company

An early start is recommended to allow for a smooth transition to IFRS

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APPROACH THE CONVERSION IN MANAGEABLE PHASES, BASED AROUND FIVE KEY AREAS :

1. Which are the essential 3. What are the impacts of

differences in accounting and the IFRS conversion on
disclosures between current the business models?
GAAP and IFRS?
How do we need to
Accounting, communicate with
Tax & Business
Reporting external stakeholders?

IFRS
4. Who is impacted by the
IFRS Conversion, what
Systems & People & are their training needs?
2. What is the impact on Processes Change
systems, processes and
controls? How do we achieve
business as usual?

5. How will the conversion be managed? What is its likely impact

on cost and resources?
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 ACCOUNTING AND REPORTING KNOWING THE GAPS

Determine new IFRS accounting policies,

consider harmonisation with old ones
Accounting,
Tax & Business Perform a gap analysis between information
Reporting required and what is currently available

Design mock-up IFRS financial

IFRS statements
(with supporting Chart of Account changes)

Systems & People & Consider impact on regulatory/statutory and

tax reporting
Processes Change
Recognise that IFRS will continue to change
substantially in the near future

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 BUSINESS YOU CAN MANAGE WHAT YOU MEASURE

Understand the financial and business

impacts of conversion to IFRS
Accounting,
Tax & Business Determine possible actions to mitigate
Reporting volatility of results under IFRS (within
constraints of current rules)

IFRS New reporting requirements must be

understood by executives and analysts to
avoid misinterpretation
Systems & People &
Need at least one year to budget and
Processes Change manage the business on IFRS basis before
publishing results

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 SYSTEMS AND PROCESSES MAKING IT SUSTAINABLE

Accounting, Assess the system and process impacts on

Tax & Business the financial reporting and consolidation
systems
Reporting
Determine changes required to source
systems to provide the additional data
IFRS
Understand the impact on other strategic
initiatives in the organisation
Systems & People &
Processes Change Design and implement new procedures to
support business as usual IFRS reporting

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 PEOPLE MAKING IT HAPPEN

Senior executive level sponsorship needed

Accounting, Secure buy-in and support from the
Tax & Business business
Reporting
Timely involvement of investor relations

IFRS Establish a broad communication plan

Plan for adequate training and knowledge

Systems & People & transfer
Processes Change Rigorous change management

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IFRS CONVERSION IN THREE MANAGEABLE STEPS THE RECOMMENDED APPROACH

Phase 1 Phase 2 Phase 3

Assess impact and Learn and build Roll out and

plan conversion the tools parallel run

Assess Design Implement

Mobilise core team Mobilise finance Mobilise business
Perform detailed gap functions and IT Conduct training for
analysis Design tailor made local finance staff
Conduct impact IFRS training Arrange awareness
assessments sessions for senior
Conduct training for management
(people, group finance staff
business/financial Convert business
and systems) Build tools plan
Identify training (accounting Dry Run
needs
policies, dummy Opening balance
financial sheet
Plan conversion path
statements,
(through workshops) Comparatives
reporting packages)
Agree project budget Manage business
Present results to Convert systems on IFRS basis
management (incl. new SCOA) Cutover to full IFRS
First trials & testing
This will enable the Company to remain in full control from start till finish
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Project Methodology
Our end-to-end conversion methodology is illustrated in the following diagram and encompasses the critical phases of a conversion process, specifically identifying the key steps of each
phase, including the impact on systems and processes, business, and people.

Phase Step Overview Potential Outputs

Accounting and disclosure impact

Assess accounting Assess impacts analysis
1.0 Understand the Assess data, systems, IFRS impact analysis for other
And reporting on other
company s impacts and identify reporting
processes and controls
impacts reporting requirements
1.1 environment 1.2 gaps 1.3 requirements 1.4 Tax impact analysis
Assess
Systems and processes impact
assessment
Assess people People impact and change
Assess business Plan the readiness assessment
And change
impacts conversion Business impact assessment
impacts
1.5 1.6 1.7 IFRS conversion plan

2.0 Technical accounting papers

Select Evaluate and define Design approach Financial statement
accounting and Draft accounting requirements for And develop
policies systems and implementation disclosures
reporting
Design

plan Draft accounting manual/

2.1 options 2.2 2.3 processes 2.4
guidelines
System change blueprints
Training materials
Implementation plan

3.0 Accounting and reporting

Configure, build, and Deploy approach
Collect and validate conversion
test systems and and conduct
data Adapted systems and
Implement

processes trainings
3.1 3.2 3.3 processes
Training program
Prepare opening Business as usual under
Prepare IFRS
balance sheet and IFRS
financial
comparative financial
reporting
3.4 statements 3.5

4.0 Areas for improvement

Sustain

Establish sustain under new reporting

plan environment
4.1 Sustain plan

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1.0 ASSESS IMPACT AND DEVELOP CONVERSION WORK PLAN
PHASE OVERVIEW
1.1 1.2 1.3 1.4 1.5
Assess Accounting
Understand the Assess Data,
and Reporting Assess Impact on
Companys Systems, Processes Assess People and
Impacts and other Reporting
Environment and Controls Change Impacts
Identify Gaps Requirements
Impacts

1.6 1.7
Assess Business
Impacts Plan the Conversion

PRIMARY OBJECTIVES: POTENTIAL OUTPUTS:

The purpose of the Assess phase is to help Promasidor assess the potential impacts Accounting and disclosure impact analysis
(accounting and reporting, systems and processes, business, and people and change)
due to conversion from local GAAP to IFRS. IFRS impact analysis for other reporting requirements

Tax impact analysis

Systems and processes impact assessment

People impact and change readiness analysis

Business impact assessment

IFRS conversion plan

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IFRS IMPLEMENTATION ITS MORE THAN JUST A FINANCE ISSUE

Constituency Involvement

Board Allocate budget and understand business impacts

Sponsor IFRS conversion and secure resources
Management Realign performance measures to IFRS
Educate analysts and investors; manage external
Investor Relations
communications
Modify accounting policies, financial statements and reporting
Finance packages to conform to IFRS
Conduct training and support information gathering and
consolidation
Provide data to meet new accounting and disclosure
Business requirements
Operations
Understand IFRS impact on transaction structures
Plan and implement quick fixes and major system
IT modifications to enable IFRS reporting on a sustainable basis
Implement process changes to address IFRS reporting
Subsidiaries

it touches on many areas outside the finance function

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Toolkit examples

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 Q1 WHAT ARE THE KEY ACCOUNTING AND DISCLOSURE DIFFERENCES BETWE EN CURRENT GAAP(S)
AND IFRS?

IFRS topics IFRS tools

Major impact topics

(example)
Accounting Matrix
Debt & equity investments IFRS Current GAAP Differences

Consolidation
Transfer of financial assets
SWISS GAAP IAS US GAAP

BASIS OF ACCOUNTING
The historical cost basis is adopted for property (and
The modified historical cost basis may be used to
The historical cost basis is adopted for property (and most other non financial items).
revalue certain assets. Otherwise historical cost is
most other non financial items).
used for non-financial assets and liabilities

Provisions If the company reports in a hyper-inflationary

currency it must make current purchasing power
adjustments

DEBT AND EQUITY INVESTMENTS

If the reporting companys functional currency is
highly inflationary then it must instead use US dollars
as the functional currency.

Business combinations
Debt and equity securities designated for resale and
those which do not constitute trading balances, are
carried at the lower of cost or market value (LOCOM)
and classified as investments. Changes in the
carrying value are recorded through the profit and
loss statement. Any unrealised gain is only recorded
Investments in debt and equity securities are
classified as either:
- Trading, which are valued at fair value with
changes in fair value recorded through current
earnings period;
Investments in debt and equity securities must be
classified as either:
trading, which are valued at fair value with
changes in fair value recorded through current
period earnings;
held to maturity, which are carried at amortised

Share-based compensation
through the profit and loss statement to the extent
- held to maturity, which are carried at amortised cost (debt securities only); or
there were prior unrealised losses recorded.

cost (debt securities only); or
- available-for-sale are carried at fair value. The
company has a choice to either recorded changes in
fair value either through the income statement or,
Gap Analysis
available-for-sale, which are carried at fair value
with changes in fair value recorded in other
comprehensive income, a separate component of
shareholders equity.

Pensions
other than normal foreign exchange through equity.
The policy must be applied consistently to all financial
assets classified as available-for-sale
Premium or discount recorded on HTM securities is Premiums/discount on purchase of debt securities is Premiums and discounts arising from acquisition are
amortized/accreted using the straight-line method. amortised into income using the effective yield amortised to interest income using the effective yield
method. method over the contractual life of the securities.
Gain or loss on the sale of debt and equity securities
1) Accounting Differences
Taxation
is recognised into income at the time of sale.

- Valuation
Loans - Classification

Derivatives Disclosure Matrix

2) Disclosure Differences
Own shares and bonds IFRS Current GAAP Differences

Capitalisation of software SWISS GAAP IAS

BASIS OF ACCOUNTING
US GAAP

The historical cost basis is adopted for property (and

Netting
The modified historical cost basis may be used to
The historical cost basis is adopted for property (and most other non financial items).
revalue certain assets. Otherwise historical cost is
most other non financial items).
used for non-financial assets and liabilities

If the company reports in a hyper-inflationary If the reporting companys functional currency is

currency it must make current purchasing power highly inflationary then it must instead use US dollars
adjustments as the functional currency.

Other topics (example);

Debt and equity securities designated for resale and
those which do not constitute trading balances, are
carried at the lower of cost or market value (LOCOM)
and classified as investments. Changes in the
DEBT AND EQUITY INVESTMENTS
Investments in debt and equity securities are
classified as either:
- Trading, which are valued at fair value with
Investments in debt and equity securities must be
classified as either:
trading, which are valued at fair value with
changes in fair value recorded through current

Fixed assets
carrying value are recorded through the profit and
loss statement. Any unrealised gain is only recorded
through the profit and loss statement to the extent
there were prior unrealised losses recorded.
changes in fair value recorded through current
earnings period;
- held to maturity, which are carried at amortised
cost (debt securities only); or
- available-for-sale are carried at fair value. The
period earnings;
held to maturity, which are carried at amortised
cost (debt securities only); or
available-for-sale, which are carried at fair value
with changes in fair value recorded in other
comprehensive income, a separate component of

Real estate investment

Premium or discount recorded on HTM securities is
amortized/accreted using the straight-line method.
company has a choice to either recorded changes in
shareholders equity.
fair value either through the income statement or,
other than normal foreign exchange through equity.
The policy must be applied consistently to all financial
assets classified as available-for-sale
Premiums/discount on purchase of debt securities is Premiums and discounts arising from acquisition are
amortised into income using the effective yield amortised to interest income using the effective yield

Impairment
method. method over the contractual life of the securities.
Gain or loss on the sale of debt and equity securities
is recognised into income at the time of sale.

Foreign currency
the Accounting and Disclosure Matrices are used to
prepare the gap analyses in the Management Presentations

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 Q2 HOW CAN THE GAP ANALYSIS FOCUS ON THE KEY ACCOUNTING AND DISC LOSURE
DIFFERENCES IN A STRUCTURED FORMAT?

Major IFRS accounting differences (e.g., consolidation)

DESCRIPTION AND ANALYSIS POSSIBLE FUTURE CHANGES

1. Key Accounting Differences
between IFRS and Current GAAP
Under IFRS there is no relief from
consolidation on the basis of being
outside of the core business
Interpretation of rules relating to
exemption of SPEs from consolidation
is stricter under IFRS than Group
Current GAAP and this necessitates
consolidation of more SPEs under IFRS
2. Key Presentation and
Disclosure Differences
Insert text here]
Clarification of IFRS 39 is being sought
with the IFRS 39 Implementation Guidance
Group in relation to securitisations (also
long term Joint Working Group project).
Convergence with SAS on consolidation is
being considered, however the IASB
believes that the current IFRS approach
(including SIC-12) is conceptually correct.

ONGOING IMPACTS

The BS impact from consolidating of SPEs

and not derecognising assets related to
DIRECTIONAL FINANCIAL IMPACT securitisations can potentially be mitigated
(Estimated) by structuring the deals to meet IFRS
P&L Equity Assets consolidation and derecognition criteria,
however this may contradict business
objectives and could result in significant
costs

to highlight the key accounting and disclosure differences identified

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Q2 EXAMPLE GAP ANALYSIS AND IMPACT ASSESSMENT PRESENTATION
(ONE SUMMARY SLIDE PER TOPIC)
1. Impairment of Financial Instruments
DESCRIPTION OF GAP WITH IFRS ACCOUNTING & REPORTING PEOPLE
The general requirement of IFRS is to Measurement of impaired amount of
calculate the impairment based on present financial instruments
value of future estimated cash flows. The Decision on determining the
current practice is to use flat rates on the methodology for classification of on-
exposure based on days overdue. balance and off-balance sheet asset
IFRS also enables portfolio impairment items according to their risk level
approach which is not developed in current
practice, except for retail portfolios.
Items which have to be considered under SYSTEMS & PROCESSES NEXT STEPS
decision process:
Classification of trade receivables Source systems
Estimating future cash flows on Chart of Accounts
receivables Reporting packs
Calculating impairment using the Consolidation tool
incurred loss model
The allowance impairment account is
presented in the Chart of Accounts as
liability but should be recorded as an asset BUSINESS / FINANCIALS
(with credit balance) under IFRS
P&L Equity Assets

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 Q3 What is the impact on systems and processes quick fix or
major overhaul?

Accounting
Matrix & What info
Disclosure Matrix is
required?
Systems
and
Process
Gaps

Current Source What info

Systems and Data is
Collection
Tools available?

the Matrices can then be extended to help determine systems and process
gaps

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Next Steps

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Nigerias IFRS Roadmap

The IFRS Road Map Reporting Date:

Reporting Date: SMEs
Reporting Date:
Other PIEs
(Listed &
Significant public 2014
Transition Date: entities) Transition
Other public Date: SMEs
Interest entities 2013 IFRS reporting by
Transition Date: Other SMEs
(PIEs)
Listed & Audit procedures
Significant Public 2012 IFRS/Quarterly Investor
reporting by PIEs communications
IFRS Entities (SPEs)
Audit procedures Compliance
Competence 2011 IFRS/Quarterly monitoring
PIE Investor
reporting by listed & communications
SPEs
Compliance
2010 Transition Audit procedures monitoring for Listed
adjustments & SPEs
Investor
Awareness Prepare IFRS communications SMEs Prepare
Opening Statement opening SFP &
Assessment of Financial Position PIEs prepare
opening SFP & comparative figs
(SFP)
Legislative changes comparative figs PIE/SME investor
Dry Runs for Listed communications
Training & SPEs Dry Runs for PIEs
Planning/Impact SMEs commerce Dry Runs for SMEs
Prepare comparative
analysis figures transition planning
Transition
adjustments/Opening
BS( listed & SPEs)

Alignment with other initiatives and training for appropriate personnel

Realisation and standardisation of statutory reporting
THANK YOU