IFRS update December 2005 - Investors
Is IFRS a fund manager's best friend?
Is IFRS a fund manager's best friend?
Over the past 12 months international financial reporting standards have
forced the UK business population to alter the way it views figures, numbers and
company values. And it’s not only accountants, analysts and listed companies who
have had to start looking at companies, sectors and marketplaces in a different
way, but the investment
A study by PricewaterhouseCoopers into the impact of IFRS on fund managers
gives a vote of confidence for the new standards, according to Ian Dilks, lead
conversion partner. ‘The study asked fund managers whether IFRS was and is
influencing investment decisions. The findings were a real vote of confidence
for the way IFRS has been treated and the positive impact it has made.’
The PwC survey’s findings are meat and drink for the supporters of the new
standards. They show that the introduction of a global accounting language can
make and has made businesses and their financial results more transparent,
which makes IFRSof great use to the fund management community and of real
significance to the investment world.
The stand-out survey figure comes from the response of fund managers and
investors to the question of how significant a financial reporting development
the adoption of IFRS has been. A massive 76% said it had been very (36%) or
fairly (40%) significant.
Dilks says he wasn’t surprised when he saw the figure. ‘This shows there has
been a big shift in shareholder perceptions of IFRS, with only 22% saying IFRS
is not significant.’
And when asked which accounting standards US GAAP or IFRS were more
useful in understanding the performance of a company, almost twice as many said
that IFRS was more useful (47%) than its US equivalent (24%).
The survey also found that 61% believed that the management teams of
companies they followed or invested in had coped with the conversion to IFRS
‘fairly effectively’, with another 20% reckoning they had done so ‘very
A total of 24% said that changing accounting treatments to IFRS had had a
‘great deal’ (5%) or a ‘fair amount’ (19%) of impact on their perception of
value of individual companies. But only 14% thought their perception of sector
value had been affected to any significant degree.
More than half said that IFRS had influenced an investment decision, but 29%
said the new rules had influenced them to ‘divest from the company’. And 21%
said that IFRS had influenced them not to invest in a company, with only 13%
saying it had influenced them to invest in a business.
Dilks says the overall results are very encouraging, particularly the large
numbers who view IFRS as ‘significant’ and the 70% who believe the information
presented so far has been ‘useful’. However, he says that there are still ‘many
He explains:‘IFRS has had a bad press over the past few months and there have
been some rumblings about whether the new standards deliver the right benefits
and not just high costs. Some may claim that all IFRS does is change the
numbers. However, it needs to be understood that the results of the survey
indicate that perceptions of value are being affected.’
He reiterates that it is still early days in the whole IFRS process and that
it is now time to wait for listed companies’ annual results, including, for
some, considerable additional disclosures in early 2006.
‘This survey measures the temperature of IFRS and how far it has come from
the beginning of this year,’ says Dilks. ‘The majority of large companies
indicated how they were affected. No one has yet announced a full set of annual
audited results, so we are waiting for those to come through to complete the
Dilks adds that now 12 months of standards implementation has taken place it
is time for people to embed their technology and methods to ensure that IFRS
becomes the norm and almost ‘second nature’.