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BASDA to test software for IFRS compliance

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25th Dec 2005
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Dennis Keeling
BASDA, the UK business software trade body, is preparing to launch an accreditation scheme for software that can cope with International Financial Reporting Standards (IFRS).

Due to kick into action in April, after the next tranche of IFRSs is released, the scheme should be handing out accreditation by the time the international reporting regime becomes mandatory for listed European companies in January 2005.

According to BASDA chief executive Dennis Keeling (pictured right), assessing IFRS compliance is the first step in developing a three-prong financial software accreditation scheme that will encompass accounting standards, tax reporting and corporate governance.

With the help of Deloitte's Aaron Anderson, BASDA has been combing through existing international standards to assess their implications for accounting software systems. The results have been published in a white paper.

Some of the basic software requirements identified so far include:

  • The need for systems to be able to apply different accounting rules to the same economic event, for example in the fiscal and economic treatments applied to assets
  • Storing statutory, fiscal and consolidated books separately and ensuring the integrity of each set of books
  • The ability to reconcile differences between the separate accounting treatments; and
  • Generating reports for each accounting purpose
  • Changes to the way Inventory is valued and reported
  • Cashflow reporting - the need to produce cash flow statements either by direct or indirect methods, or extracting a file of cashflow data to an external reporting tool.
  • Segmental reporting of financial results both by geography and a secondary level covering significant lines of business.

    The BASDA white paper is still in draft form and will be updated following the release of the next wave of IFRSs during March.

    Referred to by Anderson as "the Big Five", these standards are likely to expand the requirements on software systems to cope with financial instruments and valuing staff share options and pension schemes, incorporating fluctuations in each of these areas into the financial statements.

    "These are heavy standards, the difficult ones," Anderson said at the public launch of the BASDA white paper last week. Most of us would have trouble coping with one of the new standards in one year, let alone five."

    Other issues highlighted by BASDA were segmental reporting and the implications for fixed asset management systems.

    "The income statement, which we take for granted, is going to change," said John Sinclair of Geac, the chairman of BASDA's IFRS working party. "Going to a functional presentation will mean major organisational changes."

    Drawing on a BASDA survey of 600 accountants that found 41% in SMEs felt the requirements of introducing IFRS fell on their auditors, Keeling added, "It's nothing to do with your auditors. It's to do with the company and how it organises its business and presents its information to the auditors."

    Turning to fixed assets, Keeling commented that the IFRS set out very sophisticated requirements that were beyond the reach of many existing software systems. "Many supliers will no longer supply fixed asset systmems."

    He also did not know of any current systems that were designed to produce cashflow statements. "Most people usually output figures to do this and there are issues the vendors will have to consider," he said.

    Software commentator Dennis Howlett urged companies to look beyond the raw technical detail. "It's not exclusively about the general ledger or reporting - it affects operations and transactions. This is a business process issues," he said.

    "FDs should not be asking how to interpret the standards, but where they are in the business processes. Where am I in the process? What values can be imputed and do they represent fair value? Can the values be tracked and how transparent is the information?" Barclays example

    Systems Union product manager Nigel Rayner has already noted the impact of the IFRS transition in the marketplace, and thinks that this will intensify as the 2005 deadline approaches.

    He commented: "IFRS are largely about analytics and performance reporing; you've got to be able to analyse transactional data to the IFRS level of detail and from the corporate governance point of view. It's not just accounting, the whole point is to increase visibility. Now is a good time to look at your systems."

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