Adapting to changes to accounting standards: People, Processes, Systems

11 Aug 20

Accounting standards are changing all the time, and new ones are being released frequently. Here’s how to think through the impact on your organisation and prepare well using a three-stage approach.

Key takeaways

  • Think about how to monitor changes in standards
  • Develop a three-stage approach
  • Set up a horizon scan for upcoming developments

 

How can we prepare for changes?

All finance professionals will be aware that accounting standards never stand still. There will always be minor updates and amendments, and completely new standards covering emerging topics or fully replacing existing standards. A key consideration is not just how these changes may impact your financial reporting, but more importantly how your organisation adapts and implements them. The ideal outcome is ensuring they are embedded into normal practice as efficiently as possible.

If you focus only on the impact of the financial reporting aspects of new or amended standards, you will run the risk of putting in place temporary solutions and fixes for completing the financial reporting on an interim or year-end basis that needs to be re-worked every year for the same issue. That could be both time consuming and error prone. Experience indicates that a little planning ahead with a focus on the three areas of people, processes and systems can enable a quicker and more efficient adaptation.

 

What is the people, processes, systems approach?

Let’s take a look at a current accounting standard for an example: IFRS 16 Leases is now on the horizon for the public sector.

On the people side, considerations could include:

  • Communicating changes to relevant parts of the organisation such as procurement, assets management and those responsible for budgets.
  • Revising the way people keep records and how approval and authority is organised – even making those responsible for aspects of governance and scrutiny aware of the changes.

For processes, considerations could include:

  • Checking whether current accounting policies remain valid or need to be changed.
  • Considering if any controls need to be amended.
  • Assessing any impact on asset valuation processes and systems.
  • Thinking through management reporting and budgeting process changes.

For systems, considerations could include:

  • Identifying current data gaps.
  • Making necessary updates to the chart of accounts and associated systems for consolidating and processing transactions.
  • Evaluating whether any new procedures need to be designed.

 

How should you monitor future changes?

This may seem like a heavy handed approach, but in some cases it will be necessary to be comprehensive about how you adapt to significant new developments. Obviously you should strike a balance where the changes are relatively minor. Determining that, however, does require a regular look at what is coming down the road and a quick assessment of whether there are any significant issues to consider.

Ideally this can be completed annually, at the time of finalising your year-end reporting. This could coincide with completing the note to the accounts on standards in issue but not yet implemented. Information is readily available on both the work plans of the International Accounting Standards Board (IASB) and International Public Sector Accounting Standards Board (IPSASB). This is a valuable starting point to keep on top of changes.

 

Are there any imminent changes to look out for?

Currently the IASB has a range of projects on its work programme. These range from research projects and standards maintenance items through to development of new standards. Two of the new standard setting projects are on management commentary and primary financial statements, both of which could result in changes that impact financial reporting. As these are not new standards yet, but merely projects in progress, they will not feature in the year-end disclosures for 2019/20 as standards in issue but not yet implemented.

My view is that the topics would be worth highlighting on a watch list for the future. That list could be risk assessed on a grid, looking at whether current projects are low, medium or high impact against when they are expected to be delivered. This can be revisited on a regular basis to determine any changes and to update the horizon timeframes, prompting assessment for potential adoption or implementation issues across people, processes and systems.

The watch word is that the better informed you are, the more efficient and effective you can be in adapting to the changes.

 

Questions for you

  • How do you keep an eye on upcoming accounting standards and changes?
  • Who and what are the key people, processes and systems for your organisation?
  • How could you start to implement this approach?

 

Further reading

CIPFA Qualifications in International Public Sector Accounting Standards

  • Alan Bermingham

    Alan Bermingham is a Policy Manager (Government) with CIPFA. Alan has previously been responsible for the management and delivery of the CIPFA IFRS training programme for central government and health in partnership with PWC. Alan has delivered a number of modules on the CIPFA professional qualification as well as technical training to central and local government across the regions. He was previously Director of Finance for a Northern Ireland based housing association and has lectured on the CIMA professional qualification at Belfast Metropolitan College. Alan is qualified with the Chartered Institute of Management Accountants and holds the Institute of Chartered Accountants in Ireland’s Diploma in IFRS.

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