Accounting Change as per IFRS

5. Revenue

Revenue is always to be measured at fair value of receipt or receivable (IAS 18.9). Under IFRS, revenue
can only be recognized after the significant risks or rewards of ownership of goods has been transferred (IAS 18.14), and revenues for services are recognized only according to the extent of completion and whenever they can be measured reliably (IAS 18.20).
Impact: Revenue recognition rules will certainly have a direct impact on many revenue transactions. They may also alter the way companies decide to compensate sales and other personnel.

SAP Solution - SAP software to fulfill various rules of revenue reporting according to IFRS and U.S. GAAP. Revenue recognition provides unlimited flexibility by decoupling the realization of revenues from invoicing and automates the process of revenue reporting. The incentive compensation applications from SAP can further be coordinated to this process to help ensure timely and accurate payments based on governing corporate reporting practices.

6. Employee Costs and Share-Based Payments

Employee costs are to be recognized during the accounting period in which services have been rendered (IAS 19.10). Accruals are necessary for absences, holidays, and vacations (IAS 19.11), and profit sharing and bonus plans also require an accrual (IAS 19.17). Whenever goods or services are received in return for the issue of shares or other equity instruments, fair value must be accounted as either an expense or an asset (IFRS 2.7). In the case of options or other share based incentives, market value of the instruments must be charged as an expense over the period in which the benefits vest (IFRS 2.10).

Impact: North American companies will continue to be required to verify amounts of unrecorded sick time and vacation accumulations, as well as investigate potential for significant equity compensation liabilities that must be brought onto their expense books under IFRS. Updating personnel, benefit, and compensation systems to accommodate the new rules will be necessary to ensure documentation of compliance, as will planning for the orderly transition of the additional expenses to the income statement in cases where equity compensation programs are not currently treated according to IFRS regulation.

SAP Solution - current accounting practices for accrued absences, holidays, and vacations can be confirmed in compliance with IFRS, the major remaining concerns will center on ensuring that shared-based incentives are being properly expensed as they occur. A full assessment of all outstanding obligations will need to be tested against both the balance sheet and income statement to ensure first reporting under IFRS does not produce a sudden difference that might be of concern to investors.