Way back in 1987, as a young consu­ltant, I went to Tokyo to present a paper at the World Congress of Accountants. The keynote sp­eaker was the charismatic ch­airman of Sony Corporation, Akio Morita. His speech is indelibly etched in my memory. He challenged the president of the International Federation of Accountants (IFAC) — his ho­st — to devise a set of globally consistent accounting standa­rds. Without them, he said, “reading the consolidated accounts of a global company is like looking at a distorted mirror”. Since different countries apply varying accounting principles and standards, the consolidation arguably becomes an aggregate of apples, oranges and pears.

More than 22 years later, the global accounting comm­unity is still struggling with the issue of harmonising the measuring yardstick, that is, adopting a set of common st­andards, principles and interpretations. The International Accounting Standards Board (IASB) has adopted Internati­onal Financial Reporting St­andards (IFRS), a “principle-based” set of standards for th­is purpose.

The transition to IFRS in India is no longer a question of whether and when but a question of how. Reporting under IFRS, as proposed by the Institute of Chartered Accountants of India, would be applicable for accounting periods beginning on or after April 1, 2011. Thus, the financial results of public entities for the quarter ended June 2011 would be reported under IFRS. If India goes for the adoption route, considering the requirements for comparatives under IFRS, entities would have to prepare an op­ening balance sheet as of Ap­ril 1, 2010 (or other transition date), and compile full IFRS financial information from th­at date. However, if India goes for convergence of Indian st­andards with IFRS (which looks more likely) there may not be a need for comparatives from April 1, 2010 and accordingly, the opening balance sheet date would be Ap­ril 1, 2011.

Europe was a pioneer in the adoption of IFRS. The initial wave happened in 2005. IFRS enabled a direct compa­rison of companies’ financial stateme­nts for the first time. It facilitated their interpretation and understanding by the market. It resulted in reducti­ons in the cost of capital and, one could argue, a better allocation of ca­pital. Over 7,000 companies in almost 100 co­untries transiti­oned into IFRS smoothly without undue volatility in the market or any significant delays in closing of books or filings with the regulators.

However, the journey was not without pain and, for the unprepared, not without surprises. The key lessons that emerged from the European experience: it was not just the accounting, stupid. IFRS required more rigour and discipline in disclosures. Companies that did not perform a careful and meticulous impa­ct analysis (dry run) had difficulties in store for them. So­me companies faced last mi­nute hiccups while gathering data required for new disclosures. Most companies had to work extensively on their ERP (enterprise resource plann­ing) and internal control systems. Companies that did not consider the tax implications of IFRS were amongst the ones that looked like a deer caught in a headlight.

It is now universally ackn­owledged that a successful tr­ansition to IFRS requires a th­oughtful, multi-disciplined approach. First and foremost, you must set up a competent and empowered project management office to ensure that the IFRS transformation project is on-time and on-budget. Second, you will need IFRS experts who will help you apply and interpret the new standards in your specific industry. Third, you will need tax experts who will evaluate the impact of IFRS on your financial situation and these folks must know both IFRS and tax.

Fourth, you will need expe­rts in areas such as business valuations, retirement plans, share-based remuneration (if you have one) and acquisiti­ons (if you have done one or are planning one). Finally, you will need a set of technology savvy people who know IFRS and have worked with the sp­ecific ERP system you deploy in your company (SAP, Oracle or any other).

Most ERP vendors and co­nsultants have done extensive work and there is no need to re-invent the wheel. One wo­rd of advice: do not farm the work out to multiple best-of-breed consultants. A single, seamless team will avoid the risk of finger-pointing and pr­oject management nightmar­es. And do not under-estimate the need for training and constant communicati­ons – internal and with the investor community.

CEOs do not have pleasant memories of the huge costs and time spent on Y2K projects and in compliance with the Sarbanes-Oxley Act (SOX). They are worried that the IFRS project would cause them more grief. They have concerns that unlike Y2K or SOX, adoption of IFRS would merely make them compliant with a regulatory requireme­nt. With full conviction, I will now utter the four dangerous words that Sir John Templeton warned against — but with a slight twist,

“This time it’s different” — or at least it can be.

Both Y2K and SOX were time-compressed projects. Y2K was driven by a tryst with the unknown. At the stroke of midnight, everyone plugged and prayed. In the case of SOX, many were compelled to move with haste. In contrast, there is the rich experience of IFRS conversions spanning hundreds of countries and th­ousands of companies. In mo­st cases, companies have used the IFRS project to transform their finance function to ma­ke it more effective.

Finally, if you begin early and plan well, the journey can be smooth and even enjoyable!

The writer is managing director of Deloitte Consulting. These are his personal views