BY PETER EGWUATU
As companies migrate to the new International Financial Reporting Standards (IFRS) as mandated by the regulatory bodies in the financial sector,  shareholders have been warned to get themselves acquainted with the system in order to help them make favourable investment decisions.

Speaking on the implications of the transition to IFRS for companies and audit committee, KPMG Professional Services, stated that the implementation of IFRS poses a lot of challenges since certain principles covered in IFRS are not covered by Generally Accepted Accounting Practice (GAAP).

According to KPMG, “ IFRS requires extensive disclosures (2 standards on financial instrument presentations and disclosure). IFRS will impact tax calculations. Also, changes may need to be made to organisation’s strategic information system in order to generate information useful within the IFRS environment (e.g. BaseII/III, Enterprise Resource Planning (ERP) system, Enterprise Risk Management system.”

The KPMG emphasized that some critical areas of impact of the new reporting standards on business include challenges relating to management of increased volatility of financial results

The company, stated the need for the new reporting requirements to be understood by companies’ executive officers, saying “ certain financial guarantee contracts may qualify for recognition as liability under IFRS.

Besides, the need for change in the company’s budgeting system in line with IFRS there is need for  management to run the business on IFRS basis for at least a year before publishing results”.

Given the implications of the new reporting standards, KPMG said, “ shareholders will need to equip themselves with IFRS knowledge sufficient to enable them understand IFRS financials and the impact of the transition on the earnings of the company”.

The KPMG noted that the Nigerian companies and their committees were fortunate in the timing of transition to IFRS as they can learn from their counterparts in Europe, Australia and other countries that have had their transition before now.

According to the company, “ lessons to be learnt include: to identify difficult accounting or systems issues. Researching and securing the judgement of professionals on technical issues usually takes time; Allow time for unforseen problems allow time for testing of the system ahead of time before you; When evaluating accounting and reporting issues, give due consideration to long term impacts of the reslting decisions”.

While highlighting the impact of the new accounting reporting, KPMG call on the need for audit committee and management of companies  to work together to make the transition process seamless.

According to KPMG, “ the audit committee should talk with management about its transition plan and begin to think about its own oversight plan . Conversion to IFRS will take several years and audit committee certainly will be involved in the journey”.