GAAP is out…IFRS is in. At least that’s the plan according to the SEC. We in the US are all about to get some schooling on how the rest of the world does accounting. The SEC has outlined the roadmap for making the jump in the US to International Financial Reporting Standards (IFRS). While the mandatory transition may seem far into the future with the broad transition to IFRS proposed to begin in 2014, the effects on US companies will begin years earlier. Thank goodness the SEC is giving us some time to get ready for the test. This transition will not only be a major workout for US based corporate accounting departments, but IT departments will get in on the fun as well as they implement the methodology in their systems.
SAP has IFRS Experience that is Second to None
US Companies running SAP will benefit from the mounds of experience SAP has with IFRS. Currently, all of Europe and about 100 other countries are on IFRS, with Europe being a huge market for SAP. Non-accelerated filers with the SEC will have the further advantage of having their accelerated filer brethren making the upgrade 1-2 years before them. By then, SAP and its integration partners should have the implementation process for US companies down cold. There should actually be some best…I mean…leading, or whatever the PC term is today…practices defined by that point.
Also, by 2014 most, if not all, of SAP’s customers will be on ECC6 or later. This does not necessarily mean they will all be on the “New GL” available in ECC6, but at least 4.6 & 4.7 should be aberrations in the customer landscape. That said, what will be the options available to US companies that are converting from GAAP to IFRS?
One of the potential requirements will be to run GAAP and IFRS in parallel for some time period in order to shake down systems and to have a solid basis for the 3 years of comparative reports. These are some of the possibilities for making that happen…if you have actual experience in making the conversion, please tell us about it in the comments.
Converting to IFRS from GAAP in SAP
- Parallel ledgers in ECC6’s New GL. I don’t know the details of how this works, but I hear that it’s possible and potentially the recommended path…right now. Under this method, about 2 years before your IFRS year, you would have a GL for GAAP and a GL for IFRS. This would allow you to report GAAP until you are required to report IFRS and you would be building the 2 historical years of comparative data
- Multiple Company Codes in either the new GL or the “Classic GL” (the one in 4.6 & 4.7 which can also be used in ECC6). Again, I’m not sure how this would work, but you would potentially need to configure you system to double-post transactions, once to a GAAP company code and once to an IFRS CoCode. I don’t even know if this is possible in 4.6.
- New general ledger accounts for IFRS transactions. In this scenario, you would create special GL accounts that would handle transactions requiring different treatment under IFRS. This would allow you to roll up your accounts differently in reporting for GAAP and IFRS purposes. This has the drawback of junking up your GL with accounts that will not be needed after the cutover to IFRS. Additionally, it might be difficult to run both sets of accounting rules in the same ledger. It just doesn’t seem like a very clean or elegant solution, but who knows?
- Consolidations. You may be able to use consolidations to translate from GAAP to IFRS. Many companies may already be familiar with this if they are taking subsidiaries books from an IFRS country and translating them to GAAP.
- BW or reporting. As with consolidations, you might be able to make the translation from GAAP to IFRS through reporting tools. This might be fairly tricky if you’re on LIFO or some of the other quirky GAAP practices.
I hope to keep refining this list as I learn more. That said, I welcome your comments to help me refine the list!