IFRS – Introduction

‘If I was to look back to where we were four years ago, I would have to say I would settle for this,’ says Sir David Tweedie, chairman of the International Accounting Standards Board. Would the 1,500 or so companies listed on the main board of the London Stock Exchange say the same?

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In truth we probably won’t know until the middle of next year once each of them has issued IFRS-compliant accounts. But what we do know is that the next quarter is a crucial one. The first ‘real’ IFRS numbers are now trickling out and for everyone else the final touches should be being put to preparations as we speak.

New year’s day 2005 may have been the compliance deadline for European Union listed companies, but Sir David is also drawing comfort from the number of other companies electing to adopt IFRS. ‘It is interesting to see the way that people are coming round, such as Japan and Canada which are switching to IFRS rather than GAAP.’

And domestically events are moving apace too. The end of last month saw the Auditing Practices Board issue guidance for auditors on first-time application of IFRS in the UK. The guidance removes a number of uncertainties contained in the draft bulletin it issued on the topic back in August 2004.

Nevertheless no one should pretend that it’s plain sailing from here on in. To its credit, the APB doesn’t. ‘In spite of the progress made in resolving many of the legal and regulatory issues there are some remaining uncertainties,’ it acknowledges.

‘In particular, the specific wording to be used in the auditor’s report when describing the financial reporting framework is still under debate. The wording used in the draft Bulletin is “those IFRSs adopted for use in the European Union” but there is a continuing discussion within Europe on the best term to use.’

The APB wants consistency and is prepared to wait until there is a European consensus before issuing firm guidance.

With some understatement Richard Fleck, APB chairman, says: ‘The adoption of IFRS is a very significant development in financial reporting and is a key issue for auditors of listed companies in 2005.’

The European accountancy body FEE agrees that the only thing that is certain is a degree of prevailing uncertainty. ‘Both in the accounting policies and in the audit report, reference needs to be made to the applicable financial reporting framework,’ it said in a recent report. ‘But selecting appropriate text for such a reference is not straightforward as endorsed IFRS may not necessarily be the same as (full) IFRS’.

So far so simple. In truth companies are, to a degree, aiming at a moving target – something they have long complained about, particularly during the IAS39 debacle. It’s a complaint that is never going to go away, unfortunately. But in business it was ever thus.

So it falls to the City’s senior policeman to impose a degree of certainty on UK plc. Last month Gay Huey Evans, director of the Financial Services Authority’s markets division, urged companies to release important information on the changeover as soon as possible.

Where this information could be considered price sensitive she says a regulatory information service should be informed ‘without delay’. So far, fewer than half of the FTSE100 have provided detailed figures on how adoption of IFRS will affect their accounts, according to figures from PricewaterhouseCoopers.

Huey Evans also sent out a stern threat to companies that may be falling behind in their preparation for the switch, saying that failure to submit IFRS interim accounts in time would breach the listing rules and ‘is likely to result in the suspension of the issuer’s securities’.

She encouraged those preparing IFRS accounts to ‘devote sufficient resource, not only to producing the relevant financial information in 2005 but also to fully embedding IFRS into their reporting systems’. ‘Many issuers are ready to meet the challenge of IFRS in 2005,’ she says. Those who are not should act on a timely – and threatening – reminder.

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