Effective communication is always vital to obtaining and disseminating criteria, decisions, progress, and results of a project. This is evidently true of IFRS: from guidelines established by top management, to status reports and the deliverables.
Communication of task force policies and directions help to guide everybody’s efforts, and it is generally viewed as a key ingredient of success. Therefore, a key role of the task force is to:
● Keep all levels of management informed about IFRS issues, and
● Guide operational decision-making close to the realities being confronted, thereafter appropriately informing all stakeholders.
One of the major problems I have found with projects as significant, from an organizational perspective, as the implementation of IFRS is that quite often the needed business and technology guidance is missing. To close this gap, the task force should employ a variety of methods, including:
● Periodic presentations to all department heads, on business/technology issues, by the chairperson and secretary on task force activities and IFRS project progress.
● Department head presentations and discussion sessions with their man- agement teams, on this same wavelength.
● Mailing meeting summaries on task force activities and IFRS project programs to all department heads, and offering more detailed descriptions, as required.
Other effective strategies are use of normal information memos for progress update, videotape interviews and education sessions on vital issues for distribu- tion throughout the organization, and ad hoc managers and professionals meet- ings as the need arises. In my experience, the best way to inform in these management and professional meetings is through case studies.
For example, an interesting case study is that of IFRS implementation in a small credit institution, which included IFRS impact assessment as part of a com- pany’s preparation for the 2005 deadline. In a specific case I have in mind, the project team consisted of a small group of people, including financial and accounting specialists who assisted in conducting impact assessment. The sub- projects were outsourced to a consultancy:
● Training the entity’s specialists in IFRS
● Help in setting up hedge accounting procedures, and
● Controlling financial statement conversion according to IFRS standards.
In the general case, very interesting case studies can be developed by visiting firms that are ahead of the curve in IFRS implementation, learning from them both good news and bad news – like adverse reactions, bottlenecks, inconsisten- cies, cultural problems, and cases of obstructionism. In a case study, bad news is more important than good news.
Prior to taking a more sophisticated example, which looks into the IFRS conver- sion project of a multinational conglomerate with many subsidiaries around the globe, it is advisable to clear up some terms. The Basel Committee defines finan- cial conglomerates as entities conducting within one financial institution or group at least two of the three traditionally distinct activities of banking, securi- ties, and insurance. But BCBS also notes that this general definition could lead to different legal definitions depending on jurisdiction.
For example, a new EU Directive on financial conglomerates requires the pres- ence of insurance to qualify a conglomerate, since the capital regulation for banks and securities firms is already laid down under a single framework by the second Capital Adequacy Directive (CAD 2). By contrast, in the United States the notion of financial conglomerates, adopted by the Gramm–Leach–Bliley Act of 1999, is that of a financial holding company which can but is not bound to offer the full range of financial services.
In the case of the entity which is the subject of the present case study, all afore- mentioned three lines of business were present. The IFRS project was organized at corporate level and involved a steering committee with representatives from the three main divisions. Many other people were involved, including:
● Project manager
● Sub-project managers (by country)
● Lots of company personnel, and
● Some 30 consultants (too many).
At headquarters the project manager had overall responsibility, with IFRS con- version teams established through a matrix organization at country and main division level, supported by their local accountants and auditors. This matrix organization did not work particularly well.
Milestones in this project have been IFRS, and most particularly IAS 39 impact assessment at both corporate and subsidiary level; revision of accounting poli- cies and procedures; extensive personnel training; consolidation procedures;
tests for IFRS compliance; and roll-out of headquarters and subsidiary reporting packages. The project required:
● Plenty of technical advice
● A new accounting policies and procedures manual
● New software for financial reporting at headquarters and subsidiaries
● The resolution of logistical problems throughout the IFRS project, among other issues.
Particularly challenging has been IAS 39 conversion, as the conglomerate was required to produce IAS 39-compliant accounts for two recent acquisitions, in host countries. Adoption of IAS 39 called for significant systems changes in both new entities. It also had business impact; particularly affected was the risk man- agement system.
One of the political hurdles in this project was establishment of the steering com- mittee, obtaining consensus for its membership throughout the conglomerate, and elaborating the nature of staff support necessary to research and analyse the complex issues to which reference has been made, on a global scale of opera- tions. Political conflicts were (and usually are) particularly taxing.
With the CEO taking a hands-off attitude, several steering committee members pointed out that given their regular job they do not have time to research differ- ent IFRS implementation issues in depth. But they also pointed out that thor- ough complete analysis is vital to reaching appropriate decisions. Given the nature of cross-country operations, the CEO decided to establish by country issue-oriented sub-committees responsible for specific subjects such as:
● Project management structure, milestone plan, communication processes
● Consolidation of risk management, in order to develop a new corporate- wide system for control of exposure, and
● Fair value studies and IAS 39 review involving about 300 topics, from strategic considerations to implementation and documentation.
The policy chosen by the board and CEO was that the sub-committees should give priority to strategic issues, and develop recommendations for the steering committee. The chairperson of each sub-committee was responsible for access- ing needed in-house and external resources. However, as far as consultancies were concerned, their confirmation required compliance with the firm’s normal approval and procurement processes – a fairly lengthy process.
While further details cannot be revealed, from what has been stated so far the inference is that this has been a costly, slow, and not so successful project. But as has been already emphasized, when it comes to case studies bad news is bet- ter than good news – because it points out to the reader the steps and approaches which should be avoided.