Although the SEC has not specified a date by which US companies must fully adopt the International Financial Reporting Standards (IFRS), most have realized the importance of transitioning to the new standards. To date, around 120 countries around the world require or permit IFRS reporting, and about 90 require IFRS reporting for all domestic, listed companies.
IFRS adoption brings in many benefits. Increasing globalization requires a common set of high-quality, global accounting standards as provided by IFRS. The US financial reporting environment is too complex right now, threatening to become a competitive disadvantage for US capital markets. The IFRS offers a sophisticated and simplified platform for a fresh start for many US companies, and many IFRS standards are simpler than their US GAAP counterparts. Unified accounting standards will reduce the time and cost of preparing financial statements according to different standards and regulations, achieving enormous savings of capital in the longer term.
However, there is no denying the fact that conversion to IFRS will come at a cost. Secondly, there will be a period of dual-reporting, during which IFRS and US GAAP financial statements are reconciled. I think that it is with this in mind that Oracle has developed certain features in its E-Business Suite R12, such as Sub-ledger Accounting hub. This powerful tool allows you to develop your own customized accounting treatment and events so as to address diverse or uniform accounting requirements. It helps you design your business transactional events with a set of accounting rules that can be tweaked to comply with a specific accounting norm. This is especially useful in those cases where the accounting standards of IFRS and US GAAP do not converge.
Take the accounting treatment of R&D costs. IFRS allows for the development cost to be capitalized if specific criteria are met. For example, it allows the capitalization of a feasibility study done in connection with the development of a drug or product. However, under US GAAP, all R&D costs need to be expensed, except certain website development costs and software costs for internal use. The Oracle R12 Sub-ledger Accounting hub allows you to treat the same transaction differently right at root or transaction source, so that events and transactions from the Sub ledgers (Payables) are treated as per the respective standard and accounted differently in the respective ledgers maintained for US GAAP and IFRS. This averts the need for any sort of adjustment transactions that the company would be rehired to do at the end of the accounting period. In other words, a single Payable or invoice transaction can help you can channelize the specific accounting treatment and pass this on to the respective ledgers.
While one can talk about all these features and discuss them at length, it is of paramount importance for consultants from the product family to closely collaborate and work with the Accounting team of the client so as to realize the full benefit of this tool. I would encourage the readers to share their opinions and also challenges faced in the implementation of IFRS from the Oracle financials stand point.
Have you used the Sub-ledger Accounting tool in your IFRS/GAAP reconciliations?