IFRS - Are you ready for Dual Reporting?
Worldwide countries are moving for either adopting or converging to IFRS as common accounting standards across globe. However during transition phase which is spread over next decade, organization adopting IFRS will have to do dual reporting to meet the requirement of IFRS 1.
Dual reporting is not a simple requirement of taking financial statements as per local GAAP and redrawing them as per IFRS. It will have deeper implications on business processes and IT systems specially ERP Applications. This is because IFRS and Local GAAP may have significant differences about not only how a transaction is to be accounted but also on how a transactions should be processed.
Though most ERPs support two versions of accounting for one business transaction, they can only process one version in sub-ledgers modules either as per IFRS or as per Local GAAP. This limitation poses significant challenge for an organization to report under IFRS. Such organizations should carefully analyze such differences and follow solution strategy which not only addresses the dual reporting challenges but also ensures smooth processing post IFRS switch-over. Differences exists over various topics like spares valuation, inventory valuation, discounting, financing, ESOPs, etc. To elaborate further on spares valuation As per IAS16 on Property, Plant and Equipment, “Spare parts and servicing equipment are usually carried as inventory and recognized in profit or loss as consumed”. As per Indian GAAP AS10 on Fixed Assets, “Stand-by equipment and servicing equipment are normally capitalized”. Most ERPs can process a purchase transaction as either inventory purchase or as asset purchase – separate flags ensure whether transaction is interfaced to Inventory module or Fixed Asset Module. In such scenario organization will have to either define custom solution or workaround to meet IFRS needs.
