Businesses must move away from short-term approach to IFRS 15 compliance
August 31, 2022
New regulations, and complying with them, are always a challenge for businesses when they come into place, particularly when they focus on financial processes. There are many regulations that have been high on the agenda for financial teams over the last few years. Arguably the biggest of these is IFRS 15, introduced by the International Accounting Standards Board (IASB), and its US counterpart, ASC 606 Revenue from Contracts with Customers (“ASC 606”).
Since it came into effect in 2018, IFRS 15 has meant that many businesses – particularly their finance teams – have had to drastically change how they report financial statements. This is due to the nature of the regulation, which aims to eliminate variations in the way firms across a range of industries handle accounting for similar transactions, and firms must now include much more detailed, complex information in these statements.
For the most part, companies have adapted, making the necessary changes to ensure compliance. However, while businesses, CFOs, and finance teams may have done what was needed, in many cases they have had to prioritise a short-term solution to ensure they could comply quickly, implementing processes that have fast become a pain point.
Many businesses have put in place manual reporting processes, with financial statements being prepared by the finance team and then signed-off by the executive branch of the organisation before being reported publicly. While this way of working seems logical and straightforward, the complex nature of these documents, especially if working on multiple different statements, means that compiling these and receiving sign-off manually can lead to errors being missed and, as a result, blame being placed squarely at the executive branch. This can have serious ramifications for a company if it appears as though the executive branch has misreported or even lied on an important financial statement, and could result in huge reputational damage, and shareholder trust being shaken or lost.
Automate to regulate
With the aforementioned risks being placed upon businesses which try to comply with IFRS 15 through manual, complicated processes, firms and their financial teams need to be looking for ways they can streamline the development of these reports. To do this, businesses are starting to turn to technology and automation. Companies that want to avoid the risk that comes from manual reporting are looking for systems that can create financial statements automatically and remove the need for finance teams and executives to take a hands-on approach to their development.
There’s no one-size-fits-all solution
Automation is, without doubt, a step in the right direction to ensure a business is compliant with IFRS 15, but it alone is not enough. Revenue and cash flow implications vary from contract to contract, which is why many have chosen to compile these statements manually in the first place, to maintain control. This is why businesses can’t focus solely on automation when putting solutions in place, but must also look for flexibility.
Technologies which support financial reporting need to allow businesses to implement rules and formulas on a report-to-report basis. This will mean that changes can be made where needed, and that accuracy can be guaranteed, removing the risks inherent in both manual reporting and in taking a one-size-fits-all approach.
New regulations bring with them new challenges that businesses have to prepare for, as seen with IFRS 15. But complying with new regulations shouldn’t mean compromising on efficiency or accuracy. Through implementing solutions that can help companies comply with financial regulations in an accurate, secure and flexible way, everyone from the finance team through to the CEO and shareholders can rest easy knowing that the financial information they are making public is of the highest standard, now and going forward.
[Director of Finance]