With the mandated adoption of the International Financial Reporting Standards (IFRS) on the horizon, media companies need to begin the transition because being able to report financial results under IFRS will involve comprehensive training of personnel and investment in technology infrastructure. And it will take some time for full and effective implementation.
For most of us, the year 2012 is significant because it’s the next time we will see both a Presidential Election and Summer Olympic Games. For media companies, that combination is like getting a good hand in poker, it generally means increased revenues.
While our accounting and finance personnel will be equally excited about those revenue opportunities, they are looking at something else that’s coming in 2012. That something could be more challenging than having to take on the U.S. men’s basketball team or a sitting president — it’s the adoption of IFRS accounting standards.
IFRS refers to International Financial Reporting Standards, which are overseen by the International Accounting Standards Board (IASB). These standards are already in place in more than 100 nations around the globe, including the European Union member countries, Australia, Canada, China and South Africa.
As it has done in other cases, the United States has preferred to establish its own system of measurement — think inches vs. centimeters. In this case, what is being measured are financial statements of publicly traded companies. To ensure that these financial statements are free of unqualified opinions, we in the U.S. use Generally Accepted Accounting Principles (GAAP). These principals are overseen by the Federal Accounting Standards Board (FASB). The main difference between GAAP and IFRS is that IFRS principals are more basic, and thus, more open to interpretation.
With the increase in globalization, multinational companies have been in the situation of having to report using both GAAP and IFRS standards. This is time consuming, expensive and can lead to mistakes, just as the failure to properly convert between English and metric measures doomed a Mars Rover.
While some U.S. companies have already begun adopting methods from IFRS, the full U.S. transition to these standards should occur by 2016. But the transition could begin to affect accounting departments by 2012 and strategic planning even sooner.
These requirements and their ramifications are summarized in an article entitled “Goodbye to the GAAP” written by Dwight Delapenha, a partner at Grant Thornton LLP, that appears in the July-August issue of MFM’s The Financial Manager magazine. The article is currently available online for both members and non-members. It argues that now is the time for companies to begin the transition process.
Although the SEC’s “IFRS Road Map” proposal, doesn’t call for large, accelerated, calendar-year filers to provide financial statements using IFRS until their 2014 reports, these companies would need to start accumulating IFRS data beginning in 2012 in order to comply with SEC requirements to provide a two-year comparative balance sheet and a three-year comparative income statement.
As Delapenha notes, being able to report financial results under IFRS will involve comprehensive training of personnel and investment in technology infrastructure. And it will take some time for full and effective implementation. In addition, with many public media companies already marketing their brands and transacting business overseas, understanding IFRS is a “must-have skill” for their accounting professionals who need to present financial statements to U.S. stakeholders.
As we did when the Sarbanes-Oxley act was introduced in 2002, we will also need to address IT requirements that will result from the transition to IFRS accounting.
“Moving towards more principles-based accounting standards will put a premium on each entity having a quality IT platform so transactional data can be processed in a way that supports IFRS reporting,” Delapenha says. “Existing U.S. IT and financial reporting systems traditionally support U.S. GAAP financial reporting. So there will be a need to invest in both technology and training of personnel to enable IFRS financial reporting.”
While one of the major arguments against adopting IFRS is the cost of converting existing systems and training personnel, Delapenha believes there can also be a steep cost if U.S. companies don’t change, given the competitive global business environment.
Similarly, Delapenha encourages his accounting peers to view this process as an opportunity to take a fresh approach toward accounting policies. The ultimate objective of the conversion is transparency in financial reporting. “So using this as an opportunity to upgrade accounting policy as well as financial reporting tools and processes is likely to benefit organizations in the near term,” he notes.
This is consistent with what other financial professionals are saying about the need to update policies or create new ones to enable reliable and consistent financial reporting. In fact, FASB and IASB have established joint task forces to work on two key areas where there are discrepancies between their rules for revenue recognition reporting and lease accounting, and are currently accepting comments. Of course, changes to rules such as these may require organizations to change how they conduct their businesses as well as how they report their business activities.
Delapenha’s article underscores the essential, but often unrecognized, role played by our industry’s accounting and finance professionals. Have you noticed that when industry recognition is handed out, it seldom involves the financial executives who often play a pivotal role in that success?
It’s with that in mind that MFM has established “People to Watch in 2010.” The program is designed to recognize the financial executives whose leadership will be instrumental in creating change within the media and financial industries over the next year. Nominees do not need to be a member of MFM or its BCCA subsidiary in order to qualify and anyone interested in making a nomination can complete the online form, which may be found on MFM’s website. People to Watch in 2010 honorees will be selected by the editorial board for The Financial Manager and recognized in the magazine’s January-February 2010 issue.
And speaking of people deserving recognition, I would like to take a minute to recognize and thank the 2009-10 MFM officers and board of directors, who will be instrumental in guiding our organization over the next 12 months. As reported in TVNewsCheck (“MFM Sets New Officers, Board Members“), our association will be led by Chairman Sam Bush, senior vice president, treasurer and CFO, Saga Communications; Vice Chairman and 2010 Conference Co-Chair Jim Clayton, executive vice president and CFO, Scripps Networks; Secretary William “Rick” Mangum, vice president, broadcast accounting, Clear Channel Worldwide; and Treasurer Richard Taub, vice president, business development, V-me Media.
We also welcome six new board members who are beginning three-year terms this month: Robert Damon, senior vice president and CFO, Katz Media Group; Matt Deprey, vice president, financial planning and analysis, Discovery Communications; Jerrlyn Iwata, director, mobile content strategy and acquisition, Verizon Communications; Mark G. Limbach, vice president, strategy/acquisitions and group controller, McGraw-Hill Broadcasting; Marc D. Shedroff, distribution and strategic partnerships, Cooliris; and Michael Wilbur, vice president, corporate finance, Advance/Newhouse Communications.
In addition, Scott Jenkins, director of customer marketing and sales within the controller’s department for ESPN, has been reappointed to represent the BCCA Committee on the MFM Board for a one-year term.
Already serving on the MFM board are: Deborah Cowan, senior vice president, finance, Radio One; Michael Denson, vice president, network credit & collections, Katz Media Group; Kate Lucas, corporate controller, Regent Communications; Carey Hendrickson, senior vice president/chief accounting officer, Belo Corp.; Cheryl Ingram, senior vice president/controller/chief accounting officer, Turner Broadcasting System; Jeremy Kagan, associate professor, Columbia Business School; Ed O’Connor, business manager, ABC Inc./WTVD Durham, N.C.; Tim Pecaro, principal, Bond & Pecaro; Curtis Reinhart, partner, Ernst & Young; Dean Rohrbaugh, director, tax information systems, The Washington Post Co.; Dawn M. Sciarrino, partner, Sciarrino & Shubert PLLC; and C. Robin Szabo, president, Szabo Associates
I also want to recognize and thank the members whose MFM Board terms ended in 2009 and include outgoing MFM chairman, Bill Fitzsimmons, vice president, corporate finance and chief accounting officer, Cox Communications; Trila Bumstead, chief executive officer, New Northwest Broadcasters LLC; Brian Madden, member, Lerman Senter PLLC; Andrew C. Kober, executive vice president-CFO, Bresnan Communications; Dalton A. Lee, vice president, broadcast group and controller, Meredith Broadcasting; and Ellen McClain, vice president, finance, Hearst Television. Fortunately, we will continue to benefit from their leadership and service as part of our advisory board.
Dwight’s Delapenha’s article reminds us that each day will bring new challenges, like adapting to IFRS accounting rules, which require us to continue our professional development in order to turn them into growth opportunities for our companies and the industry. Thanks to the leadership and commitment of MFM’s board and invaluable contributions from members like Dwight Delapenha to our Association’s educational programs, MFM will continue to foster the financial leaders who will contribute to the industry’s future success and encourage others to follow their lead.
Mary Collins is the president and CEO of the Media Financial Management Association, a professional society addressing the diverse needs of the industry’s financial and business professionals. Her column appears here every other Friday.