Who's riding the IFRS gravy train?

INTERNATIONAL FINANCIAL REPORTING standards are on everyone’s mind. Standard setters the IASB are running out of time to complete the last few crucial rules before the December deadline for US convergence, while UK equivalent the ASB is elbow deep in a consultation on IFRS for SMEs (FRSME).

Companies are interested because changes materially affect their business, and accountants are with them every step of the way – but how are the firms faring on the back of IFRS-inspired changes?

FTSE leaders switched to global standards in 2005 and smaller AIM-listed clients have since shifted over. Their accountants have been enjoying the fruits of this transfer, but do smaller firms have a seat at the table, or are they still waiting for IFRS cash and experience to drift their way?

Mid-tier firms say no. Andrew Minifie, general practice partner at 14th-largest firm Haines Watts, said the benefits of IFRS-related work are not restricted to the Big Four. “Many mid-tier firms do have experience of IFRS and can carry out consultancy work for clients,” he observed.

Minifie conceded that the largest firms often have more experience of the global standards and this is “helpful” when it comes to winning clients, but said Haines Watts has already taken on IFRS-related work and is well placed to do more.

Conversely, he said IFRS issues might stop would-be entrants to the listed market, as it could be difficult for firms to gain the experience necessary to work on IFRS while only dealing with smaller, UK GAAP-using clients.

MacIntyre Hudson chairman Rakesh Shaunak was positive, saying leading firms outside the top six are fully prepared for IFRS. “We are up to speed technically – we have a team of experts, we train our clients, we convert accounts to IFRS – we are ready.”

However, he conceded that the biggest firms have a head start due to the size of their clients, saying it is a “knee-jerk reaction” to seek out accountancy giants for IFRS-related work.

Despite this, experts are convinced it will not be long before the revenue and experience benefits of the new standards trickle down through the echelons of accountancy.

David Wood, technical director at ICAS, said they are “already filtering down”, pointing to the ASB’s FRSME consultation as evidence of smaller firms’ increasing need to engage on IFRS.

However, he did concede that “clients will go where the expertise is”. Complex companies may be more likely to call on the big six due to their sector-specific knowledge, whereas smaller competitors could struggle in some areas.

Kathryn Cearns, technical accountant at Herbert Smith, agreed that IFRS benefits will envelop smaller firms eventually, and said they already enjoy some advantages to make up for the early IFRS windfall enjoyed by the big six.

Rules surrounding the delivery of non-audit services are more relaxed when it comes to non-listed companies, she said, adding: “Mid-tier firms service a different market for different reasons.”

Price advantages could also help smaller firms when it comes to delivering IFRS consultancy work, with relatively simple businesses such as manufacturers potentially tempted by cheaper accountants.

Complex companies such as banks and insurers will almost certainly stick to the top firms, however, as these are the only ones with the necessary experience.

Few stakeholders seem minded to claim that IFRS has widened the gulf between the top six and mid-tier firms. Smaller market participants are keen to appear ready and able to take on the challenge, while other stakeholders insist any advantage is only temporary.

ReesRussell partner Jonathan Russell was more strident, claiming IFRS changes “have been an area where the big firms have further differentiated themselves from the smaller firms”. He concluded: “They have used it as yet another mechanism to further inflate their charges while smaller firms have just taken them in their stride as another regulatory change which clients expect their accountant to deal with as a part of their usual service.”

Pricing arguments aside, it seems clear that, thus far, IFRS has added more to the coffers and CVs of the biggest firms, with mid-tier accountants jostling for crumbs at the edges.

If the ASB pushes for FRSME at the end of the current consultation, the mid-tier will have much to do helping their clients action the changes. However, for value-added services and the complex IFRS-related tasks, the top six could yet retain the edge when it comes to cashing in on the global standards.