The three key variables controlled by design reviews are: timetables, quality/
functionality being delivered, and cost. All must be measured both in absolute values and in relative performance against standards established at start of the project (see section 4). Costs matter, and cutting costs is in no way synonymous to cutting corners. This means that for its IFRS project the entity must have:
● A disciplined and tailored approach to working, but flexible enough so that it can be modified to needs as they develop, and
● A properly studied system of cost control including standard costs, so that there are no overruns of the project’s budget, while quality standards are upheld.
Although at most entities in many cases cost performance relies heavily on the history of cost performance of similar projects, a satisfactory methodology can change that by establishing a new approach to evaluate projects entirely objec- tively. Evaluation of cost versus deliverables should never be omitted at any proj- ect stage, or design review.
In the majority of cases, becoming cost-effective in what one is doing requires a new departure. It also calls for achieving the earliest possible feedback of cost data. Steady test of cost vs deliverables helps to:
● Enlighten decisions, while the project is progressing, and
● Avoids proceeding from one stage to the next in ignorance of the real cost effects of work already done.
An IFRS project can be defined in terms corresponding to its activities.
Subsequently, tests have to be done so as to arrive at estimates with an accuracy proportional to the depth of analysis. A different way of looking at this work is that there must be a cost modelallowing the project manager and his or her assistants to learn as the project advances, thereby improving the cost accuracy.
The board and CEO must appreciate that the answer to the query: ‘How much will the IFRS implementation cost?’ cannot be linear. Much depends on the organization, skill, and technology employed in the IFRS project, as well as on top management’s determination to get commendable results.
An important reason for ensuring that cost data has up-to-the-minute validity is that decisions taken in the earliest project stages have the greatest cost conse- quences. Such early decisions must be illuminated by the best possible informa- tion on costs. The relevance of project stages to cost data is one of key issues underlying the design reviews discussed in section 5. Costs must be associated to every stage of the IFRS project, expressed at different levels:
● At high level, in reference to a summary plan
● More detailed, in connection to a milestone plan
● Very detailed, when costing is associated to task checklists.
Every step in IFRS implementation, as well as every technical or management process, has a cost associated to it. Other component parts of the project, from
status reports to organization, planning and control chores, information system solutions, and so on, also have associated costs. The same is true of training, accounts conversion, impact assessment, tax planning for IFRS disclosures and more.
Particular attention must be paid to the cost of outsourcing part of the IFRS project deliverables, ifa decision is taken to do so. In the general case, to bring costs down, companies tend to outsource some of their duties, but outsourcing may present sur- prises in timetables, quality of deliverables, and cost. Hence the queries:
● Under which conditions should outsourcing take place?
● How far can outsourcing work be kept under control?
● How well can an outsourcing agreement compete with in-house solutions?
A factual and documented answer to these queries requires gaining a broader perspective of what could, could not or should not be outsourced. It is short-sighted to examine this issue only from the narrower angle of ‘costs’ – if for no other reason than because cost savings may be an illusion. The goods and services we require must be considered from the broader viewpoint of procurement:
● No matter where they may come from
● No matter where they may be sold
● For whatever purpose these transactions take place
● At any cost level considered to be acceptable.
From the user’s point of view the quality of IFRS accounting they will obtain is influenced by several factors: its on-line accessibility, operational relevance, applicability and validity to their job. It is more or less immaterial to the user if the part of the deliverables he or she needs has been made in-house or has been outsourced. What is material is:
● The quality of project results, and
● The cost of the service being rendered.
This is particularly true if the user is going to pay for the new IFRS services from their own budget, as should be the case. And because cost is a material issue to the company anyway, the control of costs is one of the tasks of the IFRS project manager. A basic management principle, however, is that it is only possible to control costs if the use of resources is subject to the project manager’s choices and decisions.
For reasons outlined in the preceding paragraphs, whether we talk of board, CEO, or project management level, easy-going ways of managing costs are ineffective due to a lack of clear goals, and absence of continuity in cost control. Moreover, in addition to the following principle of cost control there is the issue of:
● Quality of available cost data, and
● Interaction of cost with performance.
With these concepts in mind, senior management must appreciate that the design of a project should definitely incorporate a costing and control compo- nent by project activity and milestone. Decisions in this regard frequently require that a balance is struck between the desired standard of technical per- formance and allowable cost.
People responsible for costing and cost control must also keep in mind that there are a number of ways in which the validity of quality of cost data can vary, each way affecting the exercise of cost control. Requirements of high-quality data can be phrased, briefly, in three bullet points:
● Relevant and applicable to the project in which it is used
● Readily accessible to those making decisions that have cost consequences
● Related to each project stage, to provide continuity of cost basis through- out each stage, and for the whole project.
It is also advisable to keep in perspective that if the breakdown of project details is not taken far enough, parcels of work that appear separately in the database will be too large and too general to be useful in formulating budgets or in appraising future cost options. On the other hand, if the hierarchy of costs extends too far into too many levels of subdivision, the parcels of work to which cost data refer may become too small and the number of them too great.
Several researchers on cost planning and cost control have shown that the accu- racy of cost allocations tends to deteriorate exponentially with the number of cate- gories over which costs are allocated. Therefore, the project’s component parts should be subdivided only to the point at which it can be said that the work is clearly defined in a comprehensive and comprehensible way.
This essentially means that a balance must be struck which provides the right quantity and quality of cost data to an appropriate degree of detail. Quite often the use of non-comprehensive numbers and of excessive detail is the refuge of the unable who has been asked by the unwilling to do the unnecessary.
7
An IFRS Task Force Case Study. Top Management Responsibility
1. Introduction
No major project, IFRS or any other, can succeed without full understanding, appreciation, and support by top management. As we have seen on repeated occasions, IFRS is not just an accounting and procedural issue, it is a cultural issue affecting the whole organization. Therefore, a high level task forceshould be established to:
● Develop the new accounting strategies that support the company’s busi- ness needs, and
● Father the IFRS project, all the way from planning and control, and assur- ance of deliverables.
Chapter 6 has mentioned that the term task force was deliberately chosen to avoid the appellation ‘steering committee’, which got itself a bad name with information technology projects in the 1960s and 1970s. Also, a task force has wider duties than the steering committee, because of being a direct contrib- utor to the functionality, performance, and success of the project under its authority.
Composed of senior executives (see section 2), the task force should assure that the firm’s new accounting culture, as well as associated systems and procedures jointly developed and implemented by all departments, are able to sustain and improve the entity’s business strategy.
This requirement can be best accomplished through a comprehensive plan in which all units participate. Interdepartmental collaboration in the IFRS project can assure effective and responsive utilization of concepts and tools. This should be clearly outlined when the task force is established.
● Its mission is to identify and analyse all IFRS issues with strategic impor- tance to the company, and
● Its role must be to help in resolving issues of authority and responsibility, formulating policies/directives that guide the project’s studies and actions.
For this reason, task force membership should include department heads or higher level executives overseeing critical functions, and it must be chaired by an executive vice-president of the corporation. Small membership comprised of innovative, respected, and knowledgeable people is necessary to allow the task force to resolve strategic and tactical issues effectively.
From my experience from similar projects, I can suggest that the most active department heads, who are not afraid of change, are the appropriate task force members, given their institution-wide perspective. The choice of a chairperson known to deliver at high quality, on time and on budget, is necessary to give the task force credibility. As a body, and individually, each task force member should utilize effective meetings and communications procedures. He or she must be provided with staff support to operate successfully.
● Strict agenda and meeting procedures are needed to assure effective use of membership efforts, and to retain their participation.
● Company-wide effective communications regarding the IFRS project are vital to disseminating task force information without use of the company’s grapevine.
Staff and financial resources are necessary to support task force activities, includ- ing oversight of the IFRS project under its authority, as outlined in Chapter 6.
After the project is finished, the task force owes the company one more duty: to set up, using the best elements who participated in the IFRS project, a research and development (R&D) operation focusing on further evolution of accounting standards and adaptation to this evolution (more on this in section 2).
Speaking from past experience, seven steps are necessary to initiate task force activ- ities and continue them in a successful way to completion. First, a review with executive management of task force duties, to receive their concurrent endorse- ment of this initiative’s purpose, charter, and membership – as well as budget, timetable and quality of deliverables of the project the task force will monitor.
Second, after executive management concurrence, the definition of time to be spent by task force members to allow them to prepare for their participation, as well as to make sure everybody understands his or her responsibilities. The third step is entity-wide announcement of the task force’s charter and its mission to assure everybody in the firm understands not only its role but also the role of the IFRS project.
Fourth, the membership of the IFRS task force will require accounting educa- tion, if each member is to analyse the issues confronting it effectively. All mem- bers do not need to be accountants, but a brief accounting education program is important and should be initiated as quickly as possible – preferably prior to the first meeting.
The fifth step concerns the critical role to be played by the firsttask force meet- ing, since this will set the tone for future meetings and project efforts. At this first meeting an unambiguous definition should be made of the corrective action sub- sequent meetings will, in all likelihood, need to take.
Training task force members should include not only the dynamics of IFRS, out- lined in Chapters 2 and 3, but also some of the mechanics, the rationale behind IAS 39, and importance of fair value accounting. Just as important is training on the impact of IFRS conversion. This is necessary because task force members will be expected to do:
● IFRS impact assessment
● Evaluation of conversion work, and
● Confirmation of IFRS policies and procedures.
The sixth step is that of task force participation in the design reviews, whose need, role, and function has been defined in Chapter 6. The seventh step con- cerns preparation for the task force’s last meeting. Its effectiveness is important to assure the light in which the task force’s efforts will be seen. Its success must be fully demonstrated on the strength of deliverables it has produced.
Finally, apart of having been at the receiving end of a training effort, task force members must look into the development of a wider IFRS training strategy within headquarters and business units, including workshops and seminars.
They would also have to authorize an IFRS communications strategy, including the communications roll-out. Individual companies may choose to add to these duties, tax planning under IFRS being an example of the added baggage the task force has to take on board.