Feature / IFRS: Raising the standard?

All NHS reporting will soon have to comply with international financial reporting standards. Early planning is vital for the challenging transition, says Sarah Isted

A new language is coming to accounting in the public sector. IFRS stands for international financial reporting standards and will apply to accounting in the NHS from 2008/09 (with restated comparatives for 2007/08).

So what’s all the fuss about? Our colleagues in the private sector learnt this new language when listed companies moved their financial reporting to IFRS in 2005. Experience shows that much effort was needed to convert to this new regime. No one ever said that converting to IFRS was easier than they expected.

The transition to IFRS will present challenges for any organisation and is not to be underestimated. First and foremost we are dealing with a completely new financial reporting language. IFRS is made up of its own unique set of standards, many of which look similar to the accounting standards that we currently apply under UK GAAP. Do not be deceived – similar is not the same. In many cases, IFRS provides a completely different way of looking at a transaction.

Don’t think that transition to IFRS can be made in a piecemeal fashion. PricewaterhouseCoopers’ experience of working with organisations to achieve IFRS transition shows that a methodical three-step approach to the IFRS conversion process will yield wide benefits and help avoid the risk of getting it wrong.

Step 1: use a preliminary study to compare your organisation’s current accounting policies and presentation with policies acceptable under IFRS. This should assess the impact on financial reporting and related systems, and identify opportunities provided by conversion to address operational issues.

Step 2: develop a detailed project plan, including project management teams, training, resources and timetable. Converting any organisation’s internal and external reporting to IFRS is a complex business and every organisation is unique.

Step 3: ensure that appropriate management information and internal communications are available and/or developed to support the conversion and embed the change.

Many NHS organisations still have a long way to go on their journey to IFRS readiness. PricewaterhouseCoopers conducted a survey last autumn, including delegates on HFMA training events, to assess the readiness of the NHS for the transition to IFRS. The survey looked at four stages of the conversion process, and compared progress made against the listed sector and against government bodies. Worryingly, in all four areas the NHS had made less progress than counterpart organisations in the other two sectors.

A massive 99% of respondents surveyed had made little or no progress with their IFRS conversion project. Some 54% had yet to establish a structure for the project and only 8% had begun planning. Only one-third of respondents had commenced an impact assessment – a vital initial step to ensure that scarce conversion project resources are properly focused. It also assesses the impact on financial reporting and helps to manage stakeholders’ expectations.

Only 6% had given any thought to new data requirements needed to report under IFRS. Respondents were slightly more advanced with data requirements for restating comparatives, with just over 10% having made some progress in this area. And very few – 11% – had begun to look at the impact on accounting policies, although many of these were only at the desktop review stage.

IFRS is coming, and the learning of this new language will present challenges. The best organisations will be ready for IFRS in good time. They will also be the sort of organisations that see how the transition to IFRS can be used to make positive changes in their organisation. These changes might be around systems and process improvements, or ‘up-skilling’ of staff. The first priority, though, is to start planning early for the transition to IFRS. Learning a new language is never easy.

Sarah Isted is a director in PricewaterhouseCoopers’ Public Sector Assurance Practice and specialises in the health sector.