It is expected that by 2011, almost every country around the world will use or will be in the process of adopting International Financial Reporting Standards, also known as IFRS. In the United States—where Generally Accepted Accounting Principles, or U.S. GAAP, have been the standard for decades—the Securities and Exchange Commission has proposed that all U.S. public companies adopt IFRS beginning in 2014 and, if another recommendation is finalized, the SEC will allow certain companies to adopt IFRS in 2009.
Although executing the transition from U.S. GAAP to IFRS may not be considered a true transformation, for many organizations it will likely come pretty close. Not only will the IFRS conversion process affect accounting policies and procedures, it will also affect financial systems and reporting processes and potentially the overall structure of the finance function. In fact, when an organization begins to think beyond the technical accounting aspects of IFRS, it will likely have a better understanding of the complexity of a successful IFRS conversion.
This article offers a high-level look at workforce issues associated with IFRS conversions, along with ways I believe an organization should consider assessing its readiness for IFRS conversion.
Evaluating the workforce implications of IFRS adoption
There are four workforce-related areas that are important to a successful IFRS adoption: communications, organizational structures and roles, skills and capabilities; and compensation and rewards. While the organization should consider how these areas are addressed in finance, risk management, corporate audit and information technology, I believe it should not overlook their importance in other functions, including the sales force, engineering and shareholder relations.
1. Using communications channels to engage and informA proactive communications and employee engagement approach is important to a process change as encompassing as an IFRS conversion. The organization’s communications approach should be established at the outset of the conversion and include the following considerations:
• Identify key stakeholders to drive leadership and management alignment. It’s critical to determine who in the organization will deliver messages to make sure they stick.
• Determine appropriate channels to convey the information, according to audience needs. For example, some people will simply need to be aware of the IFRS standards and others may need to have detailed process knowledge.
• Use an IFRS Web site on your corporate intranet. A community of practice can help share knowledge across borders and allow for the distribution of real-time conversion information.
• Communicate proactively with investors, analysts and shareholders as much as possible to promote successes and head off issues before they arise.
2. Adjusting organizational structures and roles
Senior leadership should identify and address the effects of the conversion process on all levels of the organization early on. The organization can pair the results of its initial impact analysis with process-redesign activities to determine the following:
• Does the organization have the right people in the right places doing the right jobs? Moving existing employees into new roles and assuming their jobs will be the same as under U.S. GAAP may be a mistake.
• Do current organizational structures hold in the face of process changes, revised spans of control and reporting relationships, the introduction of IFRS and the redeployment of personnel that supported U.S. GAAP? For example, how will the conversion to IFRS affect U.S. financial controllers based in other countries?
• How will IFRS change existing control structures and governance bodies that serve as stewards and advisors to the IFRS teams across the organization? If the organization faces a multi-year conversion in which U.S. GAAP and IFRS reporting are done in parallel, will the governance structures in place today work in the long term?
• Could the organization benefit from establishing an IFRS center of excellence to support the gathering and sharing of critical technical and process knowledge?
• What will be the roles and responsibilities of core IFRS team members and support personnel?
• How will the IFRS core project team be redeployed into the organization after the conversion to provide for knowledge transfer and talent development?
3. Building skills and capabilities
Even in many multinational companies, IFRS is not a core competency today. The organization can develop the necessary skills and capabilities by:
• Defining requirements for IFRS in terms of skills, capabilities and knowledge. With those in mind the organization can devise a training strategy.• Identifying current and future leaders in the organization who can lead, inspire and develop the IFRS capabilities needed in your workforce.
• Updating existing finance and accounting talent models to match new IFRS processes.
• Identifying how to take advantage of a global IFRS talent pool, identifying where expertise exists within your own organization and supplementing it, where appropriate, with outside expertise.
Also consider implementing role-based IFRS training programs to build technical skills, process knowledge and capabilities associated with the transition from U.S. GAAP to IFRS accounting practices:
• Clearly articulate how employees need to manage interpretation of principles-based IFRS guidelines (versus the rules-based U.S. GAAP).
• Develop learning programs that build the technical and analytical competencies within your workforce.
• Define what long-term support may be needed, including self-paced learning, seminars, access to specialists, and communities of practice that encourage knowledge sharing and skill building.
4. Refining rewards and compensation programsIn theory, an organization’s rewards programs are driven by its desire to attract and retain talent to produce business results, independent of any related accounting treatment. However, in practice, accounting policy changes have had dramatic effects on benefit and compensation program design over the past couple of decades. IFRS adoption may change some of these accounting policies, so the organization should consider reassessing related rewards and compensation practices. For example:
• Variable compensation and rewards programs based on earnings per share, net income or other financial metrics—for example, incentive compensation and profit-sharing plans—should be realigned to reflect the appropriate IFRS financial metrics. You may also consider adapting these programs to motivate and reward behavior consistent with the corporate IFRS transition goals.
• In many industries, the timing of sales-force compensation is related to revenue recognition under U.S. GAAP. IFRS could change the timing of revenue recognition, so the impact on sales-force compensation should be identified, assessed and communicated.
• Many companies with unionized workforces grant periodic pension benefit improvements under bargaining contracts. You should consider the potential changes in accounting under IFRS for these types of benefit improvements and their implications for the next bargaining cycle.
• Accounting for retirement plans under IFRS may create additional volatility. An organization may consider strategies to mitigate these additional risks.
Coordinated program management: A key to managing the conversion
While basic program management organization infrastructure is often necessary for managing a single program or a series of projects, the IFRS conversion demands different treatment. Its inherent complexity, the number of individuals involved and the long-term nature of an IFRS conversion call for a comprehensive program management approach that keeps track of all the moving parts. Table 1 suggests several key program management organization roles and activities.
Table 1. Key program management organization roles and activities
|“Air traffic controller”||• Anticipates and proactively identifies issues and risks; facilitates resolution|
• Structures project plans to account for key dependencies, milestones, barriers and timelines
• Manages portfolio of project work streams and matches skills of team members Project manager
|Project manager||• Tracks project status, monitors individual contributors’ performance and tracks outcomes |
• Prioritizes initiatives and resources to address changing organization needs
• Identifies key resources, ensures effective onboarding of resources and project continuity
|Budget tracker||• Defines investment requirements, part-time and full-time/contractor resources, technology and impact of process realignment|
• Manages day-to-day financial reporting; meets program budgets
|Communications lead||• Proactively manages internal and external stakeholders communications needs |
• Ensures project team is focused on the delivery of thorough and concise information about the project
• Identifies communications needs of various audiences
• Designs, develops and deploys a strategic communications plan
|Change management lead||• Determines organization’s ability for change |
• Evaluates organization’s agility and readiness for change
Invest in the technical accounting process, but don’t forget your people
For your organization, early conversion to IFRS may have appeal. I believe simplified reporting, reduced operating costs, greater transparency and comparability for investors, improved access to capital, and global alignment around the same accounting language and norms can be achieved. All of these are fair targets to have in mind as you set down the path to IFRS conversion. And these are among the reasons why momentum toward IFRS adoption has been steadily building, even before implementation is required by law.
However, the typical conversion will take several years, during which issues affecting people, organizations and governance are likely to emerge. In fact, there are real issues with the human elements of IFRS, including operating structures, decision-making processes and process redesigns. All of these can have a significant impact on people’s jobs and daily responsibilities. If you approach IFRS conversion with these factors in mind, you will likely ease the transition over the months and years ahead.
Remember that the workforce-related decisions you make now may determine, at least in part, the direction and speed of your transition to IFRS. But if you start slowly, plan ahead and convert over time, I believe the organization is more likely to have a smooth road to IFRS adoption.
The information contained in this article is intended to provide useful information on the topic covered but is not a substitute for professional advice or services, nor should it be used as a basis for any decision or action that may affect your business.Copyright © 2009 Deloitte Development LLC. All rights reserved.
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