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Accounting Considerations

While IFRS is similar to U.S. GAAP in many respects, there are still some significant differences. For example, IFRS specifically prohibits the use of the last-in, first-out (LIFO) costing method, and it provides the ability to reverse inventory write-downs, revalue fixed assets, and reverse long- lived and indefinite-lived impairment charges (with the exception of goodwill).

Many international companies have already adopted IFRS. Some of the benefits that have been derived from this shift include increased transparency and consistency of financial information, more efficient use and availability of global resources, streamlined internal controls, additional access to capital, simplified cross-border M&A transactions, and opportunities for improved cash management and local income tax cash liability reductions and income tax planning.

Key Impacts of IFRS Implementation

Technical Accounting

  • Overall approach to IFRS implementation

  • First time adoption policy considerations, including reporting dates and use of exemptions

• Ongoing policy consider- a t i o n s , i n c l u d i n g a l t e r n a t i v e s and approach to “principles”

Process and Statutory Reporting

  • Internal controls and processes, including documentation and testing

  • Management and internal reporting packages

  • Global reporting packages

  • Statutory reporting, including “opportunities” around IFRS adoption

Technology Infrastructure

  • General ledger and chart of account structure, including performance metrics

  • Global consolidation

  • Sub-system issues related to configuration and data capture

  • Capabilities to manage multiple GAAP accounting during transition

Organizational Issues

  • Tax structures

  • Treasury and cash

management

  • Legal and debt covenants

  • People issues, including education and training, and compensation structures

  • Internal communications

  • External and shareholder

communications

The potential benefits of transitioning a multinational organization to a single set of accounting standards do not come without a cost, however.

Conversion to IFRS will require a significant commitment of specialized resources in order to properly analyze and plan implementation. Companies must assess and create policies with a global understanding of the processes and goals of the entire organization, train the appropriate people in the organization (often across cultural and language barriers) and implement appropriate information systems and operational processes.

One significant challenge is a shift in how accounting policies are developed, written and applied. Since IFRS focuses more on principles rather than the rules-based approach under U.S. GAAP, the implementation of IFRS will involve a new way of thinking about accounting and financial reporting. This new way of thinking places greater emphasis on interpretation and application of principles — with a particular focus on the substance and underlying economics of a transaction, and on transparency of financial information rather than uniformity of practices. This requires a renewed focus on professional judgment in arriving at accounting conclusions. A cultural shift to IFRS may prove very challenging because most accounting and finance professionals in the U.S. are accustomed to detailed guidance and strict conformity of application. Companies will need to look at accounting and financial reporting in a new way.

While IFRS allows for a more principles-based approach, there are also published standards and rules that contain significant differences from U.S. GAAP. The purpose of this communication is to provide insight on the potential impact to consumer product companies that may result in a conversion from U.S. GAAP to IFRS, including technical accounting differences and the potential impact on income taxes and information systems. Keep in mind that no summary publication can do justice to the many differences in the details that exist between IFRS and U.S. GAAP and this document only focuses on the areas with a broad impact to the consumer products industry. In addition, even if the overall approach taken in the guidance is similar, there can be differences in the detailed application, which could have a material impact on the financial statements.

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