Guiding utilities through IFRS adoption using Oracle Applications ...

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The IFRS journey For publicly held North American utilities, adopting International Financial Reporting Standards (IFRS) is no longer a question of “if” but “how" and "when". The mandate to adopt IFRS as a reporting standard in the United States continues to gain momentum, while in Canada it has been established for 2011. The United States appears to be closing in on mandating an adoption timeline as more than 100 countries to date have embraced IFRS, and the US Securities and Exchange Commission (SEC) has proposed a road map requiring adoption by large publicly-held companies as early as 2014. The Financial Accounting Standards Board and the International Accounting Standards Board have made significant progress in their efforts to formally converge US Generally Accepted Accounting Principles (GAAP) with IFRS. To date, several aspects of these two separate accounting standards have already been converged and discussions are ongoing. 2
The impact of IFRS on utilities Utilities are trusted stewards of assets that provide essential services to the public. A key aspect of this arrangement is the presence of a public oversight function, which mandates industryspecific accounting and reporting conventions in addition to US GAAP reporting required by the SEC. IFRS will represent an additional accounting basis required of these organizations. Other unique industry attributes will also pose challenges during the migration to IFRS, which is highlighted to the right (Figure 1). Figure 1. Utilities industry—key IFRS challenges • The extent to which the industry regulators will adopt IFRS will drive the complexity of the solution. • IFRS does not prescribe regulatory asset and liability guidance. Instead, it provides an industry-agnostic principle-based approach which will likely result in volatile fi nancial results during the adoption year. • Additional componentization of the existing asset base will change fi xed asset accounting and challenge group depreciation conventions. • The IFRS expense versus capital defi nition will change the way operational costs are tracked and reported within Work Management and Project Accounting applications. • Given the presence of specialized legacy applications, existing interface mechanisms may be challenged to handle the additional IFRS accounting basis. • Communicating changes in fi nancial results to multiple stakeholder groups will require a robust communications plan. • Trading functions will be impacted by evolving Fair Value rules. 3
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