International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements.

Largely off the radar screen for many including investors, the impact of IFRS on financial reporting for public companies could be significant. Here’s an eye-opening Japanese example:

Nikkei Report
28 September 2009
via Dow Jones Factiva
© 2009 Nihon Keizai Shimbun, Inc.

TOKYO (Nikkei)–The planned introduction of international accounting standards will significantly change how Japanese companies evaluate and report their business results and financial conditions, and the implications for investors are enormous as well.

Take, for example, Nippon Steel Corp. (5401), which posted a group net profit of 155 billion yen for the year ended in March 2009. Under IFRS’s key comprehensive income formula, the steelmaker would have reported a comprehensive loss to the tune of 200 billion yen for the year. That is because a decline in the value of the company’s cross-shareholdings and losses on the investment of pension assets would have to be recognized in
comprehensive income.

Canadian IFRS Timeline. The Canadian AcSB announced in February 2008 that the transition to IFRS will affect interim and annual financial statements for fiscal years beginning on or after January 1, 2011. Here’s the Canadian IFRS timeline:

So, with January 1, 2011 fast approaching, how are preparations going for the introduction of IFRS into Canada?

Talking to CA’s and CFO’s involved in the changeover here’s my take: SLOWLY. VERY SLOWLY.

A recently released survey conducted by the Canadian Financial Executives (FEI) Research Foundation verifies this feedback. It indicates that the state of readiness for transition varies widely. IFRS Readiness in Canada 2009 Executive Research Report features results from senior financial executives from over 250 organizations.

The report shows that some companies have barely started migration, while others — many of the large, established public companies — are well on their way to meeting the 2011 deadline. Despite the fast-approaching conversion deadline, more than 12% of the 147 public companies surveyed had not yet taken the first step of starting their initial diagnostic assessments. Furthermore, roughly one in five private companies that intend to convert to IFRS stated they had also not yet begun the migration process.

At the Big 4 accounting firms, there is concern that too few companies grasp the effort required to make the IFRS transition and are leaving the heavy lifting required way too late into the timeline. Ultimately, this could be a billing bonanza for the Big 4 but there’s a risk that the resources and IFRS expertise won’t be available for a last minute scramble.

So, what’s the situation at your company? With time beginning to rapidly run out do your finance people understand the implications of IFRS on your financial reporting and what effort will be required to comply? Will you be ready?