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27/09/2006. Source:PricewaterhouseCoopers.
International Financial Reporting Standards (IFRS) implementation is posing unique challenges to companies in the oil & gas and utilities industries, says PricewaterhouseCoopers. This report highlights the specific issues faced in the energy sector and examines how companies are responding to these dilemmas. Manfred Wiegand, PricewaterhouseCoopers Global Utilities Leader, observes:
'Delivery of IFRS has coincided with a rapidly shifting price, supply and regulatory context for these companies. Emissions trading, supply uncertainty and record energy prices all accentuate the challenge faced by companies and these come on top of issues such as the reporting treatment of long term contracts, environmental reparation and decommissioning.'
The report points out that the sectors are characterised by the need for big upfront investment, often with great uncertainty about outcomes over a long-term time horizon. Their geo-political, environmental, energy and natural resource supply and trading challenges, combined with often complex stakeholder and business relationships, has meant that the transition to IFRS has required some complex judgements about how to implement the new standards.
Real Time looks across the value chain of each of the industries and discusses in detail at how the new standards are being put into practice. It also includes examples of accounting policies and other disclosures from published financial statements.
Mark King, PricewaterhouseCoopers Partner and IFRS Oil & Gas expert, says companies in the sectors are responding with varying degrees of success in their adoption of IFRS:
'One of the challenges of working with 'principles based' standards is that without a "rulebook", management needs to spend more time explaining the judgements they have made to apply the principles. We see companies grappling with issues that appeared at year end - how to present and describe the volatility arising from IAS 39, the difficulty of calculating deferred tax, collecting information for disclosure requirements and still producing financial statements in less than 100 pages!'
The challenge is to move IFRS into the 'real time' day to day practice of the company. But companies face a huge divergence of operating and regulatory conditions and this has an influence on how fast they can achieve this. Many companies remain in 'special project mode' and are yet to make the successful transition of making the standards integral to 'business as usual' activities. In contrast, others have not only achieved this for their external financial reporting but have also successfully aligned their internal management and performance reporting with external IFRS.
The report concludes with a checklist of six key enablers to help companies successfully embed IFRS into their real time, day to day practice:
- Processes - have you successfully streamlined processes and introduced efficiencies that will help 'close the books' faster and smarter?
- Data, systems and technology - are you maximising your return on IT spend? Can data systems and technology cope today and in the future?
- Controls - can you be confident that controls are adequate and consistent across the company?
- People capability - are you equipping your people with the skills and approaches required to make IFRS work?
- Organisational structure - are you maximising the contribution of the finance function and the contribution of IFRS to your company's performance and regulatory reporting requirements?
- Planning strategies and reporting - are you looking ahead at how IFRS can be used to be part of the future success of the business?
Click here to view full report (pdf 674KB) You need Adobe Acrobat to read this document. If you do not have it, you can download it free from www.adobe.com/products/acrobat/readstep.html
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