IFRS FAQs International Financial Reporting Standard - Ernst & Young - Korea

What will converting to IFRS mean for our business?

Converting to IFRS is expected to result in major change for business. It will affect more than just the finance function. Any business function that relies on financial information could experience potential changes, such as:

• Executive and employee evaluation and compensation plans (Human Resources)
• Foreign exchange and hedging activities (Treasury)
• Corporate income taxes (Taxation)
• Ratios and bank covenants (Finance and Treasury)
• Internal controls and processes (Finance)
• Investor relations and communication to capital markets (Finance and Investor Relations)
• Management reporting (Finance)
• IT and data systems (IT)

How should we approach conversion to IFRS?

As with any change management exercise the IFRS conversion should be approached using a structured methodology encompassing the best practices of project management.An impact assessment or diagnostic is the first step in the process. This will help determine the extent and complexity of the conversion and allow management to make better decisions about how to plan, structure and resource the project and determine the next steps. Follow this link to learn more about Ernst & Young’s methodology.

What is the timeline for IFRS conversion, what resources will be required and how much will it cost?

What are the key lessons learned from the European Union conversion experience?

How will the conversion impact external financial reporting?

• Transitional impact on reported earnings
• Potential for increased volatility of financial results
• Increased volume and complexity of financial disclosures
• Increased transparency and comparability of financial performance between peers, locally and internationally

How should we address the need for 2010 financial information prepared under both Korean GAAP and IFRS?

• the estimated benefits in terms of time/cost,
• the perceived risk of errors arising during the restatement process,
• the ability of the present accounting system to handle dual GAAP accounting or the costs of upgrading to a system that does, and
• the implications for internal control certification.
  
  

  Which other business areas will be affected by the conversion?

  There are numerous areas of the business that will be impacted by the conversion. These include:
  
  • Performance reporting
  • Financial covenants
  • Executive compensation
  • Investor relations
  • Dividend distribution policies
  
  
  

  What are some key risks associated with converting to IFRS?

  The potentially pervasive nature of the changes at the accounting, functional, transactional and internal control levels mean the principal risks associated with converting to IFRS are most likely to be misstatement of financial information and fraud. Other key risks management should be aware of include:
  
  • Failure to effectively communicate the impacts of change to stakeholders including boards, audit committees, investors and analysts.
  • Managing the issues associated with accounting for and reporting under multiple GAAP in the 2010 period.
  • The impacts on internal controls and the certification process.
  • The impacts of change on retention of key employees.
  • Excessive costs and work levels resulting from ineffective planning.
  • Inability by management to conclude and certify on the design or effectiveness of the company’s internal controls over financial reporting.
  
  
  

  How can our organization take advantage of the opportunities presented by the conversion to IFRS?

  There may well be significant opportunities to use the conversion project as a means to drive through other areas of change; such as, streamlining accounting and reporting processes, and accelerating the financial statement close process.