Why Privately Held Manufacturers Should Implement IFRS-ready ERP Solutions

we'll review the different reasons why even private companies should prepare to adopt International Financial Reporting Standards (IFRS). We'll also delve into the reasons why asset-intensive industries should be excited to make the switch, and we'll discuss the specific steps involved in IFRS adoption.
Currently, the United States (US) is slow to adopt IFRS to replace Generally Accepted Accounting Practices (GAAP). While the timeline for adopting IFRS in the US may be an uncertainty, it may be inevitable. In the meantime, the International Accounting Standards Board (IASB) recently released IFRS guidelines specifically for small to medium businesses (SMBs)—which should put privately held companies on notice that IFRS is of keen interest to them as well.
In the US, some companies like IFS North America have already adopted IFRS. Companies with overseas operations may also adopt IFRS for parts of their business while running the rest of their operations on US-based GAAP.
What is IFRS, and Why Do I Care?
It is perfectly logical to think of IFRS as a new set of accounting standards that some companies will be required to adopt, and one that companies in some countries have already adopted. By looking past the regulatory requirement to holistic business dynamics, we get a better picture of what IFRS really means.
IFRS is becoming the global language of business. In the future, companies will communicate with investors in public securities, bankers, customers, merger and acquisition consultants, and other influential parties. It will be a consistent standard that everyone will be measured against—whether you are in China, the US, Canada, Mexico or anywhere else. As the global economy begins to encompass more and more mid-market manufacturers, and as more of these companies have trading partners or even subsidiaries overseas, it will be important for companies to speak the same financial language as the rest of the globe.
The IASB developed IFRS. This new method of financial reporting has already been formally adopted by many countries who are members of the European Union (EU), and more countries are adopting this standard every day. Some of the key business drivers for IFRS include the need for consistent accounting standards and disclosure requirements. If you are using US-based GAAP, or some other accounting standard, conduct international business operations, and you are dealing with IFRS, you are really operating with two different sets of records. This can be time-consuming, costly, and challenging at the end of every month, quarter, and annum as the different sets of books are reconciled.
In the meantime, you might be using management basis of accounting to run your business because US-based GAAP does not provide the best real-time information when it comes to making decisions about your business. This means that some companies may find themselves running three sets of books: IFRS, US-based GAAP, and management basis of accounting. Enterprise solutions are agile enough to deliver this degree of flexibility with minimal rework and administrative overhead, which is critical for manufacturers.
Figure 1. Internal Ledgers (top) track IFRS, US-based GAAP, and management accounts in one transaction feed eliminating the complexity of tracking multiple reporting books. The screen that displays asset carrying cost (below) provides visibility in multiple currencies by transaction, account, and corporate entity. Illustration provided by IFS North America.
Apart from agile enterprise software, financial executives will need agile minds as IFRS places a greater emphasis on fair value as a measurement basis. This may require some additional legwork and exercise of sound business judgment. IFRS is a more principle-based approach. It gives the financial executive greater latitude to exercise judgment as they account for the economic realities of a transaction rather than following proscribed steps. However, this will create challenges in the absence of precedent or guidelines. Accountants, chief financial officers (CFOs), and chief executive officers (CEOs) will find themselves making more judgment calls than they might initially be comfortable with.
There are three basic reasons why manufacturers will want to be prepared for IFRS sooner than required by regulation—even if the private companies are not affected by the US Securities and Exchange Commission (SEC) mandates:
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IFRS is important in order to access capital markets. Publicly held companies should find this attractive as an alternative method of obtaining capital, but if you are a private company, you are often entirely dependent on commercial lenders for capital. Analysts for these lenders are always looking at your company's progress, often comparing your company against competitors. It is hard to do that without a uniform measure for comparing organizations. *
The increasingly global nature of business will make IFRS capabilities a business success factor. Some US manufacturers with subsidiaries in countries that have rolled out IFRS will already have to run at least part of their business on international standards. Other companies planning to expand globally will want to develop IFRS capabilities proactively. There are already enough organizational hurdles to hanging a shingle in a different country without adding a new financial reporting methodology at the same time. Moreover, potential customers, particularly those located in geographies where IFRS is already mandated, will use international standards rather than US-based GAAP to evaluate the financial stability of their vendors. *
Manufacturers who are not publicly held often act as suppliers to companies that are public. These corporations in turn may see IFRS as a way to gain greater visibility into the financial health of their supply chain partners, which means the ability to communicate through IFRS could make a vendor more attractive as a trading partner.
IFRS Insights for Manufacturers
While some elements of IFRS will be of particular interest to manufacturers, one key concept that every executive needs to understand is that these new global standards are much more open to interpretation than US-based GAAP. This is in part because of wording from IASB. Without precedence, track records, or history that accountants and executives can look to for guidance, it is difficult, for instance, to determine exactly how to value capital assets.
Now that we have established what IFRS is and why it is important for privately held manufacturers, let's delve into some key points about IFRS. One change that will affect many manufacturers is in the area of inventory valuation. IFRS does not allow for last-in, first-out (LIFO).

SOURCE:http://www.technologyevaluation.com/research/articles/why-privately-held-manufacturers-should-implement-ifrs-ready-erp-solutions-20471/