Because IFRS can affect the human side of an organization, it’s vital to include HR in the implementation stage
The deadline to become IFRS-compliant is January 1, 2011, and doing so is more than an accounting exercise as it impacts constituencies across an organizational structure. Early adoptions of IFRS in Europe, South America, Japan and Australia suffered by focusing too much on finance and accounting and not devoting sufficient attention to other functions such as human resources
The human resources department plays a vital role in developing and implementing enterprise IFRS compliance strategy. This means proactively managing issues, including staffing and talent shortages, the identification and retention of key staff and consequent succession planning, training and professional development and staff communications. Considering human resource issues early allows project teams to evaluate IFRS strategically as an opportunity rather than a pain point. There are a number of key project elements to which human re-sources can make significant contributions.
Identify the key players and constituency interests at work
Key to an efficient and successful IFRS conversion is identifying the people, systems and processes affected. Major stakeholders — such as the CFO and controller, vice-presidents or senior vice-presidents of human resources, IT, tax, operations and communications — must have a seat at the table. Lack of senior management involvement will prove a major stumbling block. Establishing early consensus among prime movers is all the more important if business case expectations widen beyond a simple compliance framework — toward larger issues of organizational design or role restructuring. Human resources leaders, with their reach and contacts across the organization, are ideally positioned to drive a guiding coalition forward. By assuming an active and visible role, they aid in facilitating effective discussions that ensure timely closure on key issues
Perform a thorough impact assessment
Once the core team is assembled, it can turn to understanding the effects of IFRS on the individual business functions themselves. Areas of the conversion in which human resources typically plays a role include:
Compensation Executive incentive thresholds are based on reporting metrics (income, revenue, earnings per share, net asset value) that will be subject to change under IFRS. Accordingly they may become unreachable, overly facile, obsolete or inappropriate. Revisions to stock-option plans, compensation contracts and sales commission formulas may need consideration. Compensation committees must work closely with accounting staff to understand and plan for changes. Human resources should be involved in resetting thresholds and setting criteria for bonus/incentive eligibility; reviewing and approving pay and benefit packages and monitoring compliance with IFRS as well as other applicable legislation.
Staffing More than 50% of IFRS adopters in the EU, Japan and Korea required additional staff to complete the project. And larger organizations that think resources can easily be shifted to meet demand should think again. Generally, the larger the company, the larger the head-count increase. Human resources may help anticipate resource requirements and develop strategies to handle recruitment in key areas. Given the current economy, tackling staff shortages early is crucial. Recruiting hired guns later may prove costly and difficult.
Succession planning will also be more critical as those who speak IFRS, particularly project management resources, find themselves in greater demand. Risks associated with the departure of key staff include loss of intellectual capital, safeguarding of confidential information and the possibility of delays or missed deadlines. These risks increase throughout the project cycle, and human resources can assist in reworking compensation strategies to mitigate the problem.
Systems IFRS conversions impact IT systems and processes, including data collection, reporting mechanisms and system controls. Though accounting platforms (or accounting modules within the larger general ledger environs) will see the most change, human resources interfaces may require reassessment. This is particularly true if the current enterprise architecture is a patchwork of decentralized or legacy systems or if insufficient automation requires a great deal of manual data entry (even handwritten forms). These problems can place human resources’ IT at odds with goals of process efficiency and reporting accuracy and create problems with the overall conversion process. IFRS may be a blessing in disguise for such an environment, offering a clear business case for process fixes. A thorough risk and governance assessment and a review of the human resources information system within the overall architecture are sensible starting points.
Identify resource needs and constraints early
Cooperation with human resources during the planning phase is essential to ensure that resourcing strategy aligns with project timelines. Diligent project planning and management are necessary, as is the application of dedicated resources. Avoid the pitfall of asking critical employees to take on the IFRS project in addition to their day-to-day responsibilities. Otherwise, they will be tempted to place long-term initiatives lacking immediate urgency, such as IFRS, on the back burner. Early identification of key resources is also crucial. Significant shortages of management professionals with IFRS knowledge are expected by 2010, especially in such areas as IT and internal audit.
A multiphase project cycle, with clear accountabilities, makes the IFRS initiative more manageable. Establishing key timelines is necessary. Decide which phases can be run concurrently, which must be sequential and where dependencies between phases exist. Arrange quick wins — for instance, the rollout of a new reporting structure — at intermediate points along the project timeline. This maintains momentum and demonstrates value to concerned stakeholders. Past efforts have shown that a phased approach — spreading project efforts and costs over a longer period of time — has been more successful and less disruptive. An all-in format involving rapid, simultaneous conversion of all processes and systems is more difficult to execute. But a phased approach requires more aggressive management of tasks, dependencies and timelines, as well as an earlier start.
Consider long-term enterprise goals
The planning stage is an ideal time to consider initiatives beyond compliance. Staff roles change during conversion. It may be possible to identify opportunities to direct the resource allocation (human and monetary) strategically, for example, consolidating separate finance offices into a single central entity. Many organizations, particularly those affected by significant cost reduction imperatives attached to the recession, have already mandated such initiatives. It’s possible to align an IFRS conversion with organizational and governance changes such as cycle-time reduction and dramatic cost cutting.
Train selectively but aggressively
Where recruiting falls short, human resources should be part of the team that determines the extent of retraining accorded to staff. Conduct a thorough assessment before launching any training initiatives to decide who needs to know what. A targeted approach to developing new materials and conducting workshops and sessions is essential to control costs and avoid delays. For instance, compensation and benefits specialists will need extensive retraining. But your organization’s entire executive team — not only finance personnel — should receive some level of education regarding IFRS requirements and some of the more far-reaching implications unique to your business.
Ensure knowledge retention
IFRS-qualified resources, particularly those skilled in project management methodologies, will be in short supply. Keeping as much as possible of the IFRS initiative in house is preferable. But some organizations will have to recruit external resources to assist in their implementations. Since no training is required for external resources to become conversant in IFRS implications, the consultant approach carries short-term benefits. But simply outsourcing the firm’s IFRS work does not address the long-term problem — the need to embed IFRS knowledge internally. At a minimum, human resources should assist in developing a procedure to transfer that knowledge from consultants to internal resources. Ideally, internal resources will be involved throughout each phase of the project. As they work closely with consultants, they gain a more granular view of the conversion process. Well-planned resource rollovers may also be a part of this program.
Establish a change management strategy
Organizations often underestimate the breadth of IFRS conversion activity. Many employees’ roles will shift as resourcing needs change over the cycle of the project. Systems may be overhauled or abandoned. Performance expectations and reporting relationships may shift. Frustration may set in. Capability gaps are likely, especially in the first year of new reporting arrangements, and modifications in working styles may be required as a result. Human resources can help in viewing the process in terms of its change management components. Its role is to ensure that the impact on people receives deliberate consideration.
Ensure clear communication
In conjunction with corporate communications, human resources can assist in developing an awareness program for stakeholders. The objective is to explain the expected changes brought about by IFRS. It is important to orchestrate consensus-building efforts by monitoring, managing and maintaining key stakeholders’ engagement throughout the project cycle. Human resources can prove useful in communicating changes in performance metrics and compensation packages, thoroughly explaining the underlying rationale. Staff requires credible communication to sustain the effort required to complete an initiative the size of IFRS. A solid communication program assures employees that the changes they are experiencing are reasonable and necessary.
IFRS has the potential to affect the human side of an organization in significant ways. It’s only logical, then, that human resources should be an active participant in assessing these impacts and formulating the appropriate response. By securing human resources’ participation in needs assessment, recruitment and retention, and training and communications initiatives, organizations will improve the likelihood and ease of success.
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