NEW YORK; March 31, 2009 – Chief financial officers and other executives of U.S.-listed companies believe the conversion from U.S. Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) will present an opportunity to transform their finance functions and create more value for their companies by mitigating financial reporting risk, increasing financial transparency and creating operational efficiencies, according to an Accenture (NYSE: ACN) study released today.
The study, which involved a survey of more than 200 CFOs and other executives of U.S.-listed companies with a minimum of $1 billion* in annual revenues, was undertaken following the U.S. Securities and Exchange Commission’s proposal to potentially require U.S.-listed companies to report financial results in accordance with IFRS rather than U.S. GAAP as early as 2014.
While many executives surveyed expect the conversion to be a complex and expensive process, more than three-quarters (83 percent) said they believe that the financial-reporting conversion will present an opportunity to make significant improvements within their finance functions, particularly in performance management. Consequently, they said they will invest in technology, process improvements and finance workforce training associated with planning, budgeting and forecasting, management reporting and metrics, and statutory reporting.
Providing an indication of how adopting IFRS will affect U.S. companies beyond their finance departments, more than half (52 percent) of the executives surveyed said that adopting IFRS will affect all major areas of their business, including information technology (identified by 71 percent of respondents), business operations (67 percent), external stakeholder relations (62 percent) and human resources (52 percent). More than half (53 percent) of the executives said the conversion will also affect customers.
To maximize the return on investment when they adopt IFRS, 41 percent of the respondents said that they will make a “high level” of investment in performance-management capabilities, which management uses to drive corporate performance against business objectives. Similarly, half (51 percent) of the executives who said they recognize the value of optimizing their IFRS strategy said they will integrate the conversion process with other interdependent initiatives to realize synergies and create additional value.
“Although the conversion to IFRS is significant and complex, those companies that view the conversion as an opportunity to upgrade their performance management capabilities, addressing compliance and risk management, as well as increasing operational efficiencies, are better positioned to drive value from the conversion process,” said Dan London, managing director of Accenture’s Finance & Performance Management practice. “Companies that prepare now and examine their specific requirements will be able to make more comprehensive, strategic decisions about how to emerge from this transition stronger and more efficient.”
While recent studies on European IFRS conversions estimated the conversion cost at 0.05 percent of revenues, on average, Accenture’s study found widely varying estimates of what U.S. companies will spend to adopt IFRS. For example, 43 percent of respondents from companies with revenues of at least $50 billion said they expect to spend less than $25 million on IRFS conversion, while 30 percent anticipated spending more than $100 million. By contrast, companies with revenues between $1 billion and $4.9 billion anticipate spending an average of $23.2 million, or 0.731 percent of revenues, while companies with revenues of at least $50 billion estimated that they will spend 0.103 percent of revenues to convert to IFRS.
“While the European experience and survey responses provide general expectations regarding the potential cost to U.S.-listed companies of conversion to IFRS, specific circumstances — such as a company’s approach to IFRS, its operating model, existing finance capabilities and industry sector — will ultimately determine the cost of a company’s conversion,” said Troy Barton, a senior executive in Accenture’s Finance & Performance Management practice. “Given the indications that the journey to IFRS from U.S. GAAP may be significantly more complex and costly than the European experience, U.S. companies need to align and integrate their IFRS efforts with programs that generate transformational benefits and offset the cost of adoption — a process that leading companies either have or are undertaking.”
Among the study’s other findings:
• The factors identified most often by respondents as key to a successful IFRS conversion were technology capabilities (selected by 57 percent of respondents), talent (49 percent) and change management (31 percent).
• When asked to identify the areas in which the conversion to IFRS might add “significant” complexity, respondents cited mergers and acquisitions (selected by 58 percent of respondents); ERP implementations, consolidations or upgrades (50 percent); implementation or enhancement of shared-services functions (49 percent); new or enhanced outsourcing of finance or other functions (47 percent); expansion into new geographic markets (45 percent); and implementation or upgrading of other technology solutions (44 percent).
• The main benefits of adopting IFRS that respondents cited most often were reducing the risk of inconsistent financial reporting (selected by 42 percent of respondents); helping ensure compliance (40 percent); providing better integration with global operations (40 percent); improving reporting and transparency (38 percent); and contributing to greater efficiency and cost reductions in finance (37 percent).
* All figures are in U.S. dollars.
About the Study
To understand how companies view the IFRS adoption journey, Accenture commissioned a survey of 208 executives at U.S.-listed companies with a minimum of US$1 billion in annual revenues. Executives represented all major industries, and 75 percent of respondents were from companies with greater than US$5 billion in revenue. The Internet-based survey was conducted in December 2008.
Accenture is a global management consulting, technology services and outsourcing company. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. With more than 181,000 people serving clients in over 120 countries, the company generated net revenues of US$23.39 billion for the fiscal year ended Aug. 31, 2008. Its home page is www.accenture.com.
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