AIM has work cut out to make IFRS deadline

Fewer than one in five companies on AIM are fully prepared for IFRS compliance even though there is less than eight weeks to go before the new regime kicks in, according to a survey by PKF.

Jason Homewood, director of assurance and advisory specialising in IFRS at PKF, said: ‘Our recent survey of small quoted and AIM companies indicated that fewer than one in five were fully prepared for the transition.’

From 1 January 2007, AIM companies will have to adhere to the complicated standards.

Steve Maslin, head of external professional services at Grant Thornton, which audits around 160 AIM companies, agreed there was a lack of preparation. At this stage, he said, only a minority of companies were well advanced with their IFRS compliance activities.

‘The frustrating thing is that a number of companies did a lot of good work in preparation for the original deadline in 2005, but when that got pushed back, a lot of those efforts were put on the shelf and they will now have to be dusted off again,’ Maslin said.

‘Hopefully, we’re going to be well geared up now,’ he added. ‘We have been in contact with many other firms that provide consultation and most understand the amount of effort it’s going to take after the experience of the main market’s conversion.’

Maslin said that AIM companies could avoid the most common IFRS pitfalls.

‘The key thing is to have your high-level analysis in place with proper resource and project

planning,’ he advised. ‘Don’t underestimate the disclosure issues – a lot of segmental information must be provided. Make sure you have enough time secured to cover the amount of research needed.

‘An emphasis needs to be put on your profit and loss accounting because a lot of time and effort is needed to produce a detailed IFRS balance sheet, including the detailed disclosure issues.’

Maslin also addressed the expense issues and warned companies of the penalties for non-compliance.

‘The biggest expense is management time because there will be a lot of companies outsourcing. I wouldn’t name any particular sector which is most at risk because I wouldn’t want the remainder to think that they didn’t have work to do.

‘If they don’t work out the impact and then problems arise over how the accounts are shaped under IFRS, the investors could find the stocks unattractive. Also, review panels may criticise the accounts.’

The junior exchange has already been targeted for tighter regulation on its nominated advisers as LSE policymakers look to reinforce market controls as a way of protecting investors from sinking their cash into businesses that have failed to live up to forecasts.

If the proposals are endorsed, the market, which has about 80 nominated advisers, will have to abide by a rule book specifically catering for the AIM exchange.

The LSE’s consultation is set to continue until 1 December. If agreed with market participants, the new rules will come into force at the beginning of 2007, in concert with IFRS.

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