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Complex IT issues from new accounting standards

Complex IT issues from new accounting standards

Wellington, 5 April 2005 - Companies need to take a holistic approach to their International Financial Reporting Standards (IFRS) convergence projects, yet many lack an adequate understanding of the significant IT issues involved, according to a KPMG report released today.

New Zealand’s law requires the adoption of the new standards by 2007, but many of our largest companies are adopting earlier because of their links to Australia or Europe, and are therefore in the middle of significant projects to convert their accounting systems.

“For long-term sustainability, IFRS IT convergence projects require an organisation to be able to manage the transition from short-term compliance to more robust longer-term solutions,” says KPMG’s New Zealand head of Information Risk Management, Graeme Sinclair.

The KPMG report, ‘The information systems impacts of IFRS: complexity behind the numbers’ provides insight into some of the more likely areas of complexity with IFRS and IT.

“The reality for many early-adopters is that they are putting in place short-term work-arounds and off-line calculations to deal with some areas. This might be a pragmatic solution, but it’s not sustainable in the medium term for large organisations to run their core financial systems in this way.”

Typically, the main impact IFRS will have on information systems will be the need for new data, changed calculations or changes in reporting.

“One of the core impacts of IFRS is more disclosure of information. The complexity of the IT changes will depend on the accounting issues affecting the company,” said KPMG Partner Matt Prichard.

“Areas where existing IT systems often don’t capture the data they need to comply with the new accounting standards include hedging, impairment testing, employee leave provisions and tax,” he added.

“No matter when you adopt IFRS, the mechanics of the transition mean that you will have one financial year where you are required to keep two sets of numbers – one under the old rules and one under IFRS. This will be a significant one-off challenge for the IT and accounting teams in many organisations,” Mr Prichard warned.

“The findings of the report suggest significant IT risk for some entities from the transition to IFRS,” concluded Mr Sinclair.

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