03 IFRSImplementation-PreparedOrScared LindawatiHalim

IFRS Implementation: Prepared or Scared?
Lindawati Halim Solution Architect SAP Indonesia
IFRS Key Points
SAPs View on IFRS
Transactional Layer
Parallel Accounting IFRS Project Implementation
Consolidation Layer
SAP Services
Wrap Up
IFRS Key Points
SAPs View on IFRS
Transactional Layer
Consolidation Layer
SAP Services
Wrap Up
IFRS Is Becoming a Global Reporting Standard*

Global Capital Markets US Japan UK France Canada Germany Hong Kong Spain Switzerland Australia Indonesia US GAAP moving toward IFRS Convergence to IFRS IFRS IFRS Convergence to IFRS IFRS HKFRS (equivalent to IFRS) IFRS IFRS or US GAAP AIFRS (equivalent to IFRS) Convergence to IFRS
Every major non-US capital market is moving to IFRS Over 100 countries around the world require or permit IFRS
*Source: Ernst & Young
2010 SAP AG. All rights reserved. / Page 4
IFRS Convergence by DSAK IAI (2009 2012)

CONVERGENCE METHOD Progressively replace local GAAP approaches with IFRS. Gradual strategy (not big bang):

Converge step by step with transition period, To avoid psychological shock To give more time for preparation To reduce negative impact of the new PSAK (if any)
The target of IFRS Convergence in Indonesia is to revise the current PSAK to comply materially with IFRS as per
1 January 2009, which will be effective in 2011 or 2012, Some newly revised standards already effective since 2008.
Source: Kompas 06 May 2010 Source: Deloitte Presentation by Merliyana Syamsul @ IFRS Event 18 May 2010
IFRS Convergence by DSAK IAI (2009 2012)

CONVERGENCE METHOD Progressively replace local GAAP approaches with IFRS.
Reasons for Convergence
To improve the quality of the Financial Accounting Standards and reduce to cost of preparing the Standards To improve the credibility and functionality of the financial statements by enhancing the quality and comparability. To inline with the standards that applied internationally. It is the commitment of the Government as member of G20 and also Indonesia as member of IFAC.
Source: Kompas 06 May 2010 Source: Deloitte Presentation by Merliyana Syamsul @ IFRS Event 18 May 2010
IFRS .. and the impact
Greater use of fair value as a measurement basis pacing emphasis on obtaining reliable measurements Much more disclosure in the year-end reports and accounts IFRS is likely to have a significant impact on the balance sheet and profit/loss figures and statements for a company Financial reporting model is more complex and less understandable often requiring narrative Organizations need help to understand the issues, assess the impact, and find solutions
The Gap 1 January 2012
Source: Deloitte Presentation by Merliyana Syamsul @ IFRS Event 18 May 2010

The Roadmap
Source: Deloitte Presentation by Merliyana Syamsul @ IFRS Event 18 May 2010

Key Impact of IFRS

The table below illustrates the systems and processes that could be impacted by selected IFRS rules
Converting to IFRS - Systems Functions affected by the transition to IFRS IFRS FS
Financial Reporting & Analytics Managem ent Reporting & Analytics Financial Consolidation General Ledger Budgeting & Planning Accounts Payable Expense Reim bursem ent Accounts Receivables Cash Management Fixed Assets Lease Property Treasury Project/Job Accounting Contracts Service Managem ent/Costing Sales/Order/Billing Managem ent Customer Relationship (CRM) Purchasing/Procurement Inventory Manufacturing/Production Human Resources Payroll
IAS 2
IAS 11
IAS 12
IAS 14
IAS 16 / IAS 40
IAS 17
IAS 18
IAS 19/ IFRS 2
IAS 36
IAS 37
IAS 38
IAS 32/ IAS 39
Source: Ernst & Young, March 2008
SAP 2009 AG. All 12 2010 SAP / Page rights reserved. / Page 12
Key Impact of IFRS

The table below illustrates the systems and processes that could be impacted by selected IFRS rules
Converting to IFRS - Systems Functions affected by the transition to IFRS IFRS FS
Financial Reporting & Analytics Managem ent Reporting & Analytics Financial Consolidation General Ledger Budgeting & Planning Accounts Payable Expense Reim bursem ent Accounts Receivables Cash Management Fixed Assets Lease Property Treasury Project/Job Accounting Contracts Service Managem ent/Costing Sales/Order/Billing Managem ent Customer Relationship (CRM) Purchasing/Procurement Inventory Manufacturing/Production Human Resources Payroll
IAS 2
IAS 11
IAS 12
IAS 14
IAS 16 / IAS 40
IAS 17
IAS 18
IAS 19/ IFRS 2
IAS 36
IAS 37
IAS 38
IAS 32/ IAS 39
Its Pervasive across organization
Involves Transactional System and Consolidation & Reporting System
Source: Ernst & Young, March 2008
IFRS Key Points
SAPs View on IFRS
Transactional Layer
Consolidation Layer
SAP Services
Wrap Up
SAPs View of IFRS

SAP consider the implementation of IFRS a SIGNIFICANT PROJECT:
The complexity of project will be driven by your industry, company, and country SAP will provide application support for SAP products. Basically SAP can help with configuration/ consolidations and reporting help. Correct interpretation of the IFRS rules and guidelines, its best for company to work with their consulting partner. Customer IFRS project will require INPUT and GUIDANCE from: Customer consulting / audit partner SAP services Customer internal experts Customer current landscape status will also play a role in the complexity of project: System upgrades, SAP General Ledger migration projects, SLO (System Landscape Optimization) projects, etc
Theres no single best solution for IFRS The best solution for your company will be the result of a thorough review of your current status and the overall impact on your company when adapting to IFRS
SAPs Approach to IFRS

How SAP supports:
IFRS 3
Business Combinations and Acquisition Accounting Property, Plant and Equipment
Integrated Business Planning & Consolidation & Full ERP Financials IFRS Starter Kit for enhanced consolidation and reporting Fully compliant asset accounting capabilities (SAP ERP) Fully compliant financial accounting, controlling, materials management, production planning, material ledger capabilities (R3/ECC) FSCM for cash, collections & payments, and Treasury Multi-currency support for revaluation and restatement Revenue Recognition capabilities for US-GAAP and IFRS Comprehensive Incentive Compensation Management Comprehensive HR, Payroll and Benefits functions Support IFRS standards for recognition, exp and report Sophisticated Fixed Asset, Project and Investment Accounting app to track all relevant data for IFRS SAP Leasing supports for finance and operating leases Contract management and accounting for lessors Controlling and project system func for long-term contracts Financial Asset Management app for fin instruments report
IAS 16, IAS 23
IAS 2
Inventory/Stock
IAS 36, IAS39, IAS46
Receivables, Payables and Borrowing Revenue
IAS 18
IAS19, IFRS2
Employee Costs and ShareBased Payments Income Taxes
IAS12
IAS17
Leasing
IAS39, IAS11
Valuations
Classification of Differences
Differences between local GAAP and IFRS can be classified as:

Fully related to operational accounting, examples:
IAS 21 The Effects of Changes in Foreign Exchange Rates
TRANSACTION
IAS 16 Property, Plant and Equipment
Partially related to operational accounting, examples:

IAS 19 Employee Benefits IAS 26 Accounting and Reporting by Retirement Benefit Plans
CONSOLIDATION
Related to consolidation, examples:

IFRS 3 Business Combinations IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
IFRS Key Points
SAPs View on IFRS
Transactional Layer
Consolidation Layer
SAP Services
Wrap Up
IFRS Compliance Option for Transactional Layer

Companies that report financial results under multiple Accounting standards (e.g. local statutory, US GAAP, IFRS) have several options to capture accounting entries representing the differences between the various standards: Parallel Accounts/ Ledgers (e.g. ERP) Topside Consolidation Entries (e.g. BPC) Combination of parallel and topside entries Which option is chosen will be influenced by several factors: Complexity of accounting to comply with a specific standard Existing Accounting and Consolidation System configuration and capabilities Capabilities of Local and Group Accounting Staffs
Best Practice: Capture All Accounting Flows at the Ledger Level in ERP
Ensures a complete audit trail for all transactions recorded and complete transparency throughout the accounting organization for results published
Parallel Accounting is one of the Challenge Determine the Parallel Valuation Requirements
Most of the countries worldwide require the financial statement according to the local GAAP and according to IFRS as well for many purposes (i.e. Legal) That fact leads directly to the question of parallel accounting (valuation). Aim of the parallel accounting/valuation: Figure out the differences between local GAAP and IFRS or between PSAK and legal or other reporting requirements. Figure out which of these differences are affecting the company
VALUATION 1 PSAK ?
VALUATION 2 LEGAL ?
VALUATION 3 IFRS ?
VALUATION 4 OTHER ?
Alternatives - Parallel Management of Values in SAP ERP General Ledger Accounting
Approach Account-Based Parallel Ledger
Classic General Ledger
New General Ledger
Current recommended configuration approaches for multi-GAAP valuation
First Approach Parallel General Ledger Accounting

Pure Local GAAP Accounts
Pure IFRS Accounts
Common Accounts
How it works
Items with significant valuation differences are posted to different accounts. Each valuation has its own set of pure accounts. Each set of accounts contains its own retained earnings accounts in order to balance Need clearly discernable account number ranges or distinguishing digits or letters to distinguish among sets of accounts Since each set must be in balance, extra care must be taken to ensure correct account determination: establish a coding handbook. IFRS Financial Statements report using common accounts and pure IFRS accounts together
Alternatives - Creating Charts of Accounts Using Prefixes in the Account Approach (Layer Model)
Options for creating charts of accounts: Prefix and account number or last digit of the account number
Prefix: Alphanumeric
or numeric
Account Number
xxxxxx Common accounts xxxxxx IFRS accounts xxxxxx Local accounts
Suffix 0 1 2
A B C
Making entries here entails considerable effort!
1 2 3
0 1 2
-Generally already filled -Selection of "from" and "to" numbers is more difficult
Common accounts retain a 0, but all local valuation accounts have to be created again and can be transferred manually (with the exception of FI-AA) A prefix is added to all account numbers. Chart of accounts is converted using the chart of accounts conversion tool.
IFRS Reporting
0 common accounts and 1 IFRS accounts
Local Reporting
0 common accounts and 2 local accounts
=> Validation of the layer is useful for postings using the same valuation approach and values
Second Option Parallel Ledger With New GL
How it Works

Provides lead and non-lead ledgers in an integrated fashion Posting to CO only from Lead GL Replaces silo solutions with an unified solution Default Postings in lead GL are replicated in non-lead GLs Postings specific to accounting principles are recorded in the respective non-lead GLs only via Ledger Groups Segment reporting built-in Implementation from the beginning of fiscal year Real-time integration with CO eliminates FI-CO reconciliation Integration with the lead GL standard, unlike special ledger approach where integration is done via Integration Manager
Second Approach Parallel Ledger
If ledger is not specified at time of document entry: Posting to all defined GL ledgers Typical transactions: Ingoing invoice, Outgoing invoice, Payment
Any number of parallel ledger for parallel valuation local GAAP, group GAAP, tax purposes and for different fiscal year variants
Ledger A (IFRS) (leading ledger)
Ledger B (Local GAAP)
Ledger C (US-GAAP)
Second Approach Parallel Ledger
If ledger is specified at time of document entry: Posting to the specified ledger only Typical transactions: Valuation postings, Period end postings
Ledger A (IFRS) (leading ledger)

Ledger B (Local GAAP)
Ledger C (US-GAAP)
Summary Comparison Parallel Account vs Ledger

Pure IFRS Accounts Pure Local GAAP Accounts
Common Accounts
Parallel Account is recommended where

Relatively few valuation differences exist which can be dealt in one GL No issue with an increased number of GL accounts Standard reporting is used Different fiscal years not required
Parallel Ledger is recommended where

Complete set of separate books is preferred Segment reporting required Large number of GL accounts not desirable Different fiscal year is needed Notes: Its available on version ERP2004 (ECC 5.0) or later
Summary SAP Recommended Solution

Pure IFRS Accounts Pure Local GAAP Accounts
Common Accounts
Parallel Account
Easier to implement (no need to migrate to the new GL for customer who is using classic GL) Can lead to unmanageable GL Chart of Account Review might be required Adding some validations in the system might be required
Parallel Ledger
Most transparent approach Independent set of books Future IFRS requirements more easily accommodated
Customer Case Study Matrix Solution Scenarios

ASPECTS to CONSIDER
IFRS Key Points
SAPs View on IFRS
Transactional Layer
Consolidation Layer
SAP Services
Wrap Up
Potential Impact of IFRS on SAP Landscape An Example
Source: Slide from Ernst & Young

IFRS Key Points
SAPs View on IFRS
Transactional Layer
Consolidation Layer
SAP Services
Wrap Up
Project Steps High Level Overview If Customer Wants to Utilize New GL

A high level overview of the project steps a company should follow in an IFRS conversion project utilizing New GL. Assume all projects start with the Classic GL installed. If you are currently on an older R/3 based release (4.6c & 4.7) Define customer specific IFRS requirements Upgrade to ERP6.0 Migrate to NewGL IFRS Project If you are currently on ERP2004 Define customer specific IFRS requirements Upgrade to ERP6.0 (Suggested) Migrate to NewGL IFRS Project If you are currently on ERP 6.0 Define customer specific IFRS requirements Migrate to NewGL IFRS Project
IFRS Key Points
SAPs View on IFRS
Transactional Layer
Consolidation Layer
SAP Services
Wrap Up
SAP BusinessObjects solutions support IFRS

Financial consolidation and reporting solutions from SAP BusinessObjects Planning & Consolidation (BPC) are fully IFRS capable
1500+ successful IFRS implementations
Key functionality to support IFRS is available today:

Parallel reporting Top-side adjustments Rules-based environment Disclosures and commentary Flexible and powerful reporting XBRL publishing* (Optional) Process Control* (using GRC-PC)
Deep integration into underlying transactional and GL systems

Including SAP ERP, SAP Business Suite, and SAP NetWeaver BW Platform independent and open to non-SAP environments
SAP Business Planning & Consolidation Use Case 1 - Consolidation

Differences between local GAAP and IFRS can be classified as: Fully related to operational accounting, examples:
IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 16 Property, Plant and Equipment
Partially related to operational accounting, examples:

IAS 19 Employee Benefits IAS 26 Accounting and Reporting by Retirement Benefit Plans
Related to consolidation, examples:

IFRS 3 Business Combinations IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
SAP Business Planning & Consolidation Use Case 2 - Top-Side Solution

For ERP or R/3 customer running Classic GL What can I do to meet the IFRS reporting deadline? Two options:
1. Migrate to New General Ledger and use one of the options:

Parallel Ledger Leading Ledger is Local GAAP or IFRS Account Based Approach
If a GL migration project is not an option continue with the Classic GL utilizing an Account based configuration Note: If currently using parallel accounts for local GAAP it will require additional investigation to determine correct design 2. Look to a top side solution using a consolidations solution and various reporting options to make top side adjustments to meet the IFRS requirement. This approach will not change any settings in the transactional layer and will require a transactional layer conversion at a later date.
IFRS Key Points
SAPs View on IFRS
Transactional Layer
Consolidation Layer
SAP Services
Wrap Up
Tackling the Challenge SAP IFRS Assessment & Education Services

The SAP IFRS assessment service will help you identify the system implications, qualify the process changes, and define the resources you need to complete an IFRS adoption for your SAP applications.
This service will: Assess your current situation Identify major hurdles based on SAP experiences Prepare a high-level:
Solution Design Assessment Technical/Architectural Assessment Functional Assessment Organizational Alignment Assessment
SAP Education Services, provide training services, such as:

AC207: Parallel Accounting and Reporting for IFRS AC210: New General Ledger
IFRS Key Points
SAPs View on IFRS
Transactional Layer
Consolidation Layer
SAP Services
Wrap Up
Summary Steps to IFRS

Transactional Layer Account Approach ONLY
DEFINE Customer Specific IFRS Requirements
Consolidation Layer
Transactional Layer Account/Ledger Approach
Upgrade to ERP 6.0
Top-Side Solution
SAP Business Planning & Consolidation Project
Migrate to New General Ledger
IFRS Projects
Key Success Factors Based on research done by independent consulting firm, the following are the key success factors in IFRS implementation:
Source: IFRS Survey Result, Accenture, January 2010
Takeaways How to Be Prepared for IFRS
IFRS implementation is not a push-button project. Acquisition of detailed IFRS knowledge is a key part. Engage early and begin planning for an IFRS transition Know where you stand, complete an IFRS assessment Get your house in order prepare your systems for IFRS Initiate IFRS education and training
Resources
Read our IFRS white papers Streamlining Your Conversion to IFRS "Complying with IFRS http://www.sap.com/solutions/sapbusinessobjects/brochures/in dex.epx Join the Business Process Expert (BPX) Community For sharing IFRS on SAP knowledge www.sdn.sap.com/irj/bpx/ifrs Contribute to IFRS on SAP Ideas, Best Practices, Tips and Tricks https://wiki.sdn.sap.com/wiki/display/IFRS/IFRS+on+SAP++Best+Practices Listen to the IFRS Webinar Series on SAP EcoHub http://ecohub.sdn.sap.com/irj/ecohub/home?rid=/hub/uuid/601 9e662-4a58-2c10-91a9-a13e06f6135b Read the SAP PRESS book Transitioning to IFRS in SAP ERP Financials
http://www.sap-press.com/products/Transitioning-to-IFRS-in-SAP-ERPFinancials.html
Why Is SAP the Best Choice for IFRS?

SAP offers the most complete IFRS solution, addressing all facets SAP provides a single technology stack with support for all major architectures SAP provides market-leading, integrated ledger, and consolidation applications Proven install base of customers already reporting according to IFRS Agile solutions and content offer quickest wins for customers adopting IFRS
1,500+ financial consolidation and reporting implementations 4,000+ general ledger implementations (includes 100+ U.S. GAAP to IFRS conversions)
People
Phased Transition to IFRS Financial consolidation and reporting General ledger Sub-ledgers
Technology
Process
Thank You
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IFRS Implementation: Prepared or Scared?

Lindawati Halim Solution Architect SAP Indonesia

IFRS Key Points

SAPs View on IFRS

IFRS Key Points

SAPs View on IFRS

IFRS Is Becoming a Global Reporting Standard*

IFRS Convergence by DSAK IAI (2009 2012)

IFRS Convergence by DSAK IAI (2009 2012)

Reasons for Convergence

IFRS .. and the impact

2010 SAP AG. All rights reserved. / Page 7

The Gap 1 January 2012

Source: Deloitte Presentation by Merliyana Syamsul @ IFRS Event 18 May 2010

Source: Deloitte Presentation by Merliyana Syamsul @ IFRS Event 18 May 2010

Key Impact of IFRS

IAS 19/ IFRS 2

IAS 32/ IAS 39

Source: Ernst & Young, March 2008

Key Impact of IFRS

IAS 19/ IFRS 2

IAS 32/ IAS 39

Its Pervasive across organization

Involves Transactional System and Consolidation & Reporting System

Source: Ernst & Young, March 2008

IFRS Key Points

SAPs View on IFRS

2010 SAP AG. All rights reserved. / Page 14

SAPs View of IFRS

SAPs Approach to IFRS

Business Combinations and Acquisition Accounting Property, Plant and Equipment

IAS 16, IAS 23

IAS 36, IAS39, IAS46

Receivables, Payables and Borrowing Revenue

Employee Costs and ShareBased Payments Income Taxes

Differences between local GAAP and IFRS can be classified as:

IAS 16 Property, Plant and Equipment

Partially related to operational accounting, examples:

Related to consolidation, examples:

IFRS Key Points

SAPs View on IFRS

2010 SAP AG. All rights reserved. / Page 18

IFRS Compliance Option for Transactional Layer

2010 SAP AG. All rights reserved. / Page 19

Alternatives - Parallel Management of Values in SAP ERP General Ledger Accounting

Approach Account-Based Parallel Ledger

Classic General Ledger

New General Ledger

Current recommended configuration approaches for multi-GAAP valuation

2010 SAP AG. All rights reserved. / Page 21

First Approach Parallel General Ledger Accounting

Pure IFRS Accounts

2010 SAP AG. All rights reserved. / Page 22

Second Option Parallel Ledger With New GL

2010 SAP AG. All rights reserved. / Page 24

Second Approach Parallel Ledger

Ledger A (IFRS) (leading ledger)

Ledger B (Local GAAP)

2010 SAP AG. All rights reserved. / Page 25

Second Approach Parallel Ledger

Ledger A (IFRS) (leading ledger)

Ledger B (Local GAAP)

Summary Comparison Parallel Account vs Ledger