SAP

In this blog entry , we discuss some of  major challenges faced by organization in adoption of IFRS. "Starting early" is one of the key decision organization should take to overcome these challenges.

 

In continuation to my previous blog post on "IFRS adoption and IT systems: What should be your focus area ?", we realize that transition to IFRS is a major challenge for any organization. It is far more than a technical accounting exercise. Implementing IFRS will have impact on many business process of the organization, if not all. It will give rise to new risks as well. The issues include changes to the system, implementation of the new system, modification to the business process, enhanced reporting requirements, etc. Day to day activities of employees will be affected by the additional requirements which will in turn lead to changes in their roles and responsibilities. New accounting policies may have to be drawn up for complying with the requirements.

IFRS is a principle based standard and it is entirely different from the rule based approach of US GAAP. Companies responsible for internal control over financial reporting under SOA section 404 and operational audits will have to analyze how IFRS is going to impact their company. The risks and controls may have to be redefined and monitored.

In the initial years of IFRS adoption, duel reporting is inevitable. Organizations will have to adjust their reporting packs and ERP systems to meet the complex reporting formalities. It is a time consuming process. At the same time, additional resources will be required to meet the requirements. Staff training for the new processes will have to be developed and implemented for the successful adoption of IFRS.

IFRSs available now are not the final standard. IASB is making changes to the standards from time to time. An organization will have to monitor these changes and need to incorporate them in their accounts. The documentation and testing will have to be changed in line with the accounting changes. The controls will need to be revisited from time to time to ensure that all the risks are remediated or mitigated.

The other major challenges for the IFRS adoption are:

• The shortage of IFRS trained employees
• Under estimation of time required
• Determining the areas where the company needs to apply fair value and determining those fair values.
• Familiarizing with new concepts in IFRS which did not exist in previous GAAP.
• Identifying the areas of GAAP differences and making a decision on selection of the exemptions to be applied.
• Analyzing complex topics like Financial Instruments and drawing up the necessary disclosures.
• Identifying changes required in the existing financial reporting system to confirm with IFRS requirements.
• Identifying the extend of effects on the existing contracts and agreements.
• Lack of co-ordination between group entities and the limited knowledge transfer
• Poorly defined roles and organization structures

The major risks concerning IFRS adoption are :

• Failure to effectively communicate the impacts of change to stakeholders including boards, audit committees, investors and analysts.
• Managing the issues associated with accounting and reporting under multiple GAAP in the transition 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.
• Inability to interpret the principle based standards and adopting the appropriate accounting policies.

The success of IFRS adoption depends on how organizations tackle these challenges and risks.

 

Posted by Anand Prakash Jangid at 1:54 PM | Permalink | Comments ( 0 ) | TrackBacks ( 0 )

 If we were to name some of the critical success factors for a successful SAP project implementation, what would be those;

Precise requirements gathering, Efficient Design, Minimum Customization, Effective program management...

Will identifying the right project sponsorship/leadership be among the top5 CSFs? Probably as an IT/Package solutions vendor you would care less about it during project initiation or execution phase particularly if the requirements were validated and documented, design & development are in harmony with the requirements and UAT has been signed off. You would probably be assured of having a smooth go-live and a happy end-user community. Well, may be not.

In this blog, I would like to elucidate a project scenario and invite valuable comments from the readers.

This project has gone live in a few pilot locations and the team has completed the hyper-care and warranty support. It is just 6-8 weeks since the go-live and operations end-users start complaining about why the solution doesn't meet their requirements and compiling a big list of the changes required to make it work according to their business processes. This is where you start wondering whether the requirements were not correct or is it a case of change management going awry. But the real reason could lie somewhere else. The project, branded as a business transformation project, didn't have the ownership/sponsorship of the operations community who actually runs the organizational business. There was no mandate from the operations senior management to the regional/district managers to adopt the system as the one that standardizes the processes across geographies and brings in more efficiencies in the organization.

Is it true that a new process/system would be viewed as just another IT system and not adopted since it hasn't been mandated by their senior management?

On the other hand, is mandating a new process or system the only means of ensuring adoption? Adoption of a new system by the end-users depends not only on preparing the users for the change but also assigning accountability. We all know that accountability can not be imposed; it comes with the sense of belongingness and ownership. So how do we create this sense of belongingness and also the willingness to accept standardized processes?

In the wake of this scenario, what pro-active steps could have helped? I would be keen to get your point of view to tackle such a situation.

Posted by Amit Gupta at 1:36 AM | Permalink | Comments ( 0 ) | TrackBacks ( 0 )

How to decide on an enterprise application to be better suited in the cloud over traditional hosting is a vital question to be addressed in Life Sciences and Health care environment, continuing from the Part 1 of this post. Cloud computing offers avenues of Infrastructure, Platform, and Software- as-a-Service (IaaS, PaaS, and SaaS) for taking a second look at enterprise IT architecture.  Being a buzzword I trust cloud's benefits are well known. Moving on let us ponder over factors that may turn out to be a 'Pro' or 'Con' in a Life Sciences environment while taking this call.

•  Data Security: This has been the first concern for exchanging sensitive information over internet. Today's service providers offer data encryption with increased level of data security. Life Sciences and healthcare companies now can even consider data like patients' health records to be on cloud. If there is a critical data of new drug development which requires complete control, it is can be considered for retaining in-house.
  
• User Base: Smaller user base is in favor of cloud based application, whereas large user base may go against it. For large multinationals with thousands of users, applications such as matured ERPs are currently hosted in-house. Migrating such an application to cloud may not lead to a great business benefit. On the other hand a small start up biotech firm may find it cost effective to go for a cloud based ERP SaaS. Secondly if a large Life Sciences corporation wishes to invest in a phased manner in an IT application, like CRM, starting with a small user base, the on-demand model of Software is advisable.
  
• Scale of operation: One of the primary benefits of cloud based application hosting is linked to the cost saving by moving to cloud over traditional hosting. If the scale of operation is very high, the operational expense (service charge) may be comparable to the otherwise Capex (hardware, software purchase) over a period in future and hence may take away the impetus of moving to cloud.
  
• Mission Criticality: Some of the applications, like chemical reaction processing in drug discovery, may require uninterrupted system availability in order to ensure data processing. Considering the availability of internet bandwidth, geography of operation enterprise must assess application, before hosting on cloud, for its mission criticality.
  
• Deployment Time: Business environments are dynamic and IT is expected to enable business to make timely moves to remain competitive.  Shorter deployment time requirement is a plus for on-demand SaaS.  If there is a new business process or activity to set up and a new IT application is a part of it, cloud computing can help. Application for research on a new drug molecule, for example, can be considered.  On the other hand it may not offer great advantage for an application involved in long term strategic move.
  
  Finally it remains an area to be closely watched for transforming enterprise IT architecture in Life Sciences and Healthcare organizations and for giving rise to new ways of carrying out the core business functions, especially drug discovery and development.  More vendors are foraying in this space and more customers are trying it. A fine balance of internal and cloud hosted applications can lead to a high organizational cloud quotient.  After all, it's a matter of innovation.

 

Posted by Hemant Pathak at 2:57 PM | Permalink | Comments ( 0 ) | TrackBacks ( 0 )