Braving the Burden: Making the Most Out of IFRS
Just one year from the deadline for companies to comply with newly imposed
requirements for International Financial Reporting Standards (IFRS), the task
ahead has not gotten any less daunting. There has been no miraculous cure-all,
no stay of execution for those trapped in indecision, and above all, no short
cuts. The call is in place for capturing significantly increased transparency
in reporting that will help to eliminate confusion – intentional or otherwise
– for shareholders, analysts, and the business community at large.
As many corporate leaders have already grasped, this means a complete overhaul
of the reporting process for a large percentage of companies, especially in
the insurance sector where very little scrutiny was given to accounting standards
until IFRS was brought to life. A staggering amount of time and money will be
poured into these efforts – an estimated €150m for financial institutions
alone. Staring at the necessary commitment and the demanded outcome of a community
unified and educated through full disclosure, the real choice before these companies
is not how best to achieve compliance while minimizing the impact on operations,
but whether or not to turn a regulatory mandate into a true business opportunity
– and insist on making a tremendous impact on operations.
The option exists, of course, to meet expectations with a temporary patch that
will enable transparency with reduced effort and expenditure. A patch will serve
as long as it is meant to: IFRS requirements will be met, and then further regulatory
developments or unforeseen operational nuances will appear that will make additional
adjustments necessary. Because a significant commitment is already demanded,
advantages can be drawn from the process of examining and restructuring internal
reporting processes. In an insurance industry that must completely realign its
perspective on a slew of issues, including the fair valuing of assets, invoking
such foresight and in-depth examination at the leadership level could yield
immense benefits in the mid- and long-term.
With the hope that the most difficult of economic stretches is at long last
subsiding, the objective across all industries is to prepare for the future
by pushing forward within each distinctive corporate setting. A plethora of
additional issues facing the insurance industry provides added incentive to
address operational efficiency. In their constant pursuit of a competitive edge,
companies are looking to address a combination of front-end and back-office
challenges – efforts that should not have to be deprioritized in order
to comply with IFRS. On the contrary, the opportunity exists to begin comprehensive
work on such wide-ranging issues with solutions that start improving companies
at the root of their concerns.
Much easier said than done, as companies are already frustrated and wading
waist-deep through an increasingly complex environment. The necessity of maintaining
reporting practices while still implementing change is causing businesses to
work with fragmented (and continually fragmenting) processes and systems: the
mandate to successfully upgrade that infrastructure is in itself a substantial
challenge.
Indeed, within the scope of accommodating IFRS, companies are exhibiting frustration
not with the overarching objectives, but with individual standards: the sum
is more palatable than the pieces themselves. Companies may have to operate
on three sets of standards (local GAAP, U.S. GAAP, and IFRS) as they move towards
compliance. Strain will manifest in the effort to maintain consistency in these
standards while juggling through the transition with limited time and resources.
Promising for companies is the level-minded, unbiased manner in which the International
Accounting Standards Board has thus far approached the issue. The IASB has been
consistently open to receiving suggestions and concerns and has shown a willingness
to work through universally identified issues. They have sound structures in
place to ensure that companies are informed, and have instituted an exposure
draft through which insurers can comment on proposals. This kind of understanding
demonstrates that while the board is quite serious about timely compliance,
they will adapt to reflect concerns as they develop new regulations and timeframes.
As institutions have begun to invest more in IT services, there are indications
of a healthier environment in the region. Also important, though, are the signs
that business leaders are ready to move beyond short-term cost-saving measures
and invest for the future with more comprehensive IT infrastructure work.
This mindset reflects confidence in the IT services that are available and
constantly evolving. Every company has its unique situation; defining the path
to the most effective operational platforms and migrating to it is the next
step. And while technology itself is no longer a barrier, the marketplace is
not a static atmosphere. Migration must be managed through a carefully controlled
program that leverages the offerings of disparate providers into the strongest
solution.
The ultimate goal is to address lagging back office operations, which are a
drain on business resources that can only be reduced by making fundamental systems
changes. In order to incorporate straight-through processing efficiencies into
the new reporting structure, the organization’s management of its financial
architecture needs to be placed into the proper context. Limiting objectives
strictly to compliance will not aid in generating perspective on analyst pressure,
the benefits of full transparency, or improving the business from the inside
out.
IFRS is a demanding change of course. During the struggle to achieve compliance
the distinct advantages goes to companies that have a grasp on advanced operations.
The challenge is not finding a way to meet the requirements, but is indeed much
simpler: to build the most effective office, demonstrating to clients and the
financial community at large that the future will be met with agility, strength,
and confidence.