Falling in line with the mandate for companies to comply with the International Financial Reporting Standards (IFRS) from April 1, 2011, Hero Honda has completed the upgrade of its ERP system from SAP R3 to ECC6. The auto major is spending Rs 3 crore to Rs 5 crore toward the IFRS implementation.
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From manual to automation
Even though the company was technically ready for IFRS compliance using manual intervention, it upgraded its SAP R3 to ECC6 to do a system-based recasting of accounts. This move was the result of the company not being able to sustain the manual recast. In addition, ECC6 supports parallel accounting (managing both IFRS and Indian generally accepted accounting principles(iGAAP) books of accounts) as against SAP R3.
Implementation so far
The company divided the project into three phases: people, process and technology. The third phase is currently underway.
To enable a system-based recasting of accounts, Hero Honda is making changes to the ERP system which has been upgraded from SAP R3 to ECC6. “We are looking for IFRS compliance with respect to parallel ledgers, parallel accounting, etc. Our IT team is working on it, and it will be live by March-April,” informs Vijay Sethi, VP, IT, Hero Honda.
Hero Honda took the initial steps toward IFRS implementation even before the SAP R3 to ECC6 upgrade.
The first phase began 18 months ago when it started training people in IFRS, its impact on IT systems, and how accounting would be different with IFRS as opposed to the then-used iGAAP system.
Next was the process phase when Hero Honda hired an external auditor who did a full impact assessment to identify areas where SAP R3 would require changes with respect to IFRS norms. The company had to redesign its business processes such as valuation of fixed assets, valuation of useful life, depreciation, classifying investments and revenue recognition.
Based on the results, Hero Honda redrafted its accounts to comply with IFRS standards manually. Hence, while the company was still running SAP R3and had not yet upgraded to ECC6, it used Excel-based templates to manually recast its accounts for 2009-10 and 2010-11 in line with IFRS. “The objective was that all the processes in the organization were to be clear to our people so that when we upgraded from SAP R3 to ECC6 we didn’t start from scratch,” explains Sethi.