Accounting Change as per IFRS

3. Inventory and Stock Valuations

Inventory and stock are to be valued at “net realizable value,” which must net estimated selling prices with costs to complete, transport, and sell (IAS 2.9 and 10). LIFO is specifically not allowed, and FIFO may only be applied where items cannot be individually identified.

SAP Solution – (IAS 2): Inventories. With financial accounting, controlling, materials management, and production planning functionality, SAP applications can calculate product costs in the form required by IFRS as well as those that may be required under U.S. and Canadian national accounting standards. It is possible to store multiple versions of the costs for a single material by using the material ledger function. SAP software also offers the ability to calculate the actual costs for each period, required by some other jurisdictions in parallel with IFRS. In addition, it is possible to calculate work in process according to different accounting approaches and to create the appropriate postings for these at period close.

4. Receivables, Payables and Borrowing

Receivables and payables are to be recorded at fair value (IAS 39.43). Subsequent assessments are to be at amortized cost, and anything with a significant credit duration must be discounted (IAS 18.11 contains an example for revenue accounting). Receivables and payables are to be recorded at fair value (IAS 39.43). Subsequent assessments are to be at amortized cost, and anything with a significant credit duration must be discounted (IAS 18.11 contains an example for revenue accounting). If a receivable is in default, its carrying amount is to be written down to its recoverable amount, which can be either “value in use” or fair value less costs to factor (IAS 36.9 and 59). All borrowing is recorded at amortized cost, using the “effective interest rate” method, which deducts borrowing costs from the principal and amortizes them over the period of the debt (IAS 39.46).
Impact: IFRS regulations will require careful review and revaluation of payables and receivables, as credit situations are known. Factoring and borrowing costs, along with related tax and other advantages, will require specific treatments and reporting. This is especially important where different currencies complicate the process and proper translation and revaluation techniques must be maintained.

SAP Solution - a unified approach to producing required cash-flow statements, as well as correctly recording all current asset values according to IFR S, will be in order. SAP software fully supports multiple currencies so that business transactions can be recorded in both transaction and functional currencies as they occur, rather than after the fact. Comprehensive drill-down functions help ensure that the original currency and the exchange rate employed are always available. SAP applications also provide functions for the revaluation of foreign currency items at market rates on the balance sheet date – and support the translation of foreign currency financial statements in consolidation.