The future of consolidation (3/7): IFRS and Local GAAP

IFRS and local GAAP

By Allen White, Sigma Conso co-founder & Administrator

One of the main reasons for the technical difficulties arising from the consolidation process has always been the discontinuous nature of the process. Contrary to the accounting process, which is based on the transfer of balances brought forward, changes in currency rates, percentages, consolidation methods and entries/exits of companies from the perimeter are all discontinuities that have always made the consolidator’s task difficult.

IFRS standards added another discontinuity to the process in 2005 in that the accounts included are, in principle, established based on local standards whereas consolidated accounts must be created using IFRS standards. Legislators will have to take some difficult decisions sooner or later, which in my opinion are inevitable, to deal with contradictory situations. Let’s take a closer look at this.

First, we don’t think it’s normal that a parent company establish its statutory accounts in local standards and that, in the same annual report, its consolidated accounts are published according to IFRS standards. Next, maintaining local standards for group companies implies adjustments in the consolidation to ensure that they conform to IFRS standards. This is a twofold difficulty.

Either IFRS adjustments remain centralised with the parent company without necessarily having sufficient information to manage them correctly, or IFRS adjustments are decentralised in the group’s companies with the ensuing risks for misunderstandings and difficulties due to the fact that their management isn’t integrated.  There is a deterioration of the quality of information in either case.

Stepping back, it becomes clear that over time the worldwide accounting rules underpinning consolidations will erase both national practices and the disparities between listed and non-listed groups. Excel has been a global success because it was adopted by everyone everywhere, by both professionals and non-professionals. This same degree of success is shared by the PC, the Internet, GPS, Facebook and more. Accounting standards will evolve the same way.

Articles in the “Future of Consolidation” series:

  1. The structure of the data to consolidate and processing in consolidation
  2. The reconciliation of intercompany balances: is there hope?
  3. IFRS and local GAAP
  4. Statutory consolidation and reporting: unified consolidation
  5. Group structure
  6. Financial communication
  7. Impact of future technological changes on consolidation

 

Group controlling vs. consolidation

Business controlling versus consolidation How can software help promote cooperation and improve the group’s production […]

Download the white paper
Share this article :
Discover Sigma Conso Consolidation & Reporting
Sigma Conso Consolidation & Reporting is a consolidation software package which unifies statutory consolidation and management reporting to provide a single version of the truth. The software is multilingual, multi-standard and multi-currency to meet the needs of international groups. Web native, quick to implement and fully configurable by customers, it provides the lowest possible cost of ownership.
Recent articles
Innovation at Sigma Conso: your financial software in the cloud Sigma Conso, supplier of CPM […]
By Vincent Cornil, Director of Development, Sigma Conso Many of our new clients have told […]
X