IFRS update December 2005 - Country focus

Well begun is only half done, cautions an Italian proverb. The
business community in
Italy has taken this advice to heart in its move to international financial
reporting standards which, from 1 January this year, require all publicly listed
companies on EU stock markets to present their financial statements in line with
the new accounting principles.

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Quoted on the Milan, Frankfurt and New York stock exchanges, Benetton is one
Italian firm that hopes to reap the benefits of early planning for the
changeover to the rules introduced by EU legislation. The clothing and textiles
group, which has built up one of the most globally recognised brands in Europe,
is based in
Treviso, in the north-eastern Veneto region of Italy.

Massimo Branda, head of administration, tax and corporate affairs at
Benetton, has been charged with overseeing the firm’s transition to IFRS as head
of a central working group, which, in 2003, began to outline the impact of the
standards on the company’s activities.

‘Our work in this changeover period has been greatly helped by the fact the
Benetton group has been quoted on the US stock exchange since 1989,’ explains
Branda. ‘US GAAP requires a level of disclosure on equity and net profit that is
similar enough to the international standards, so we were at an advantage from
that point of view.’

This year has seen what Branda describes as the ‘embedding’ of the
international benchmark in the company’s systems; Benetton has so far presented
half-year and September figures for consolidated accounts under the new
requirements.

Notwithstanding the upheaval associated with having to convert IT systems and
providing staff with the time to familiarise themselves with programs and
practices, the firm avoided any major setbacks as the switch came well in
advance of the 2005 deadline.

‘The final test for us will be the presentation of the 2005 annual financial
report,’ says Branda, who moved from Italian car maker Fiat to join the
financial department at Benetton.

‘After that we’ll be able to assess how well the transition has gone. We
don’t really see IFRS as something we have to comply with. Rather, we view the
standards as a tool to improve our accounting practices. We now have internal
and external reporting which use exactly the same principles and schemes. That’s
a definite plus in terms of how the business culture is evolving in Italy.’

Lucia Starola, who sits on the national council of accountants and company
economists, recognises Italy’s conversion to IFRS as a necessary move towards ‘a
clearer dialogue with countries such as the US’.

Starola reckons Italy is now in step with other EU member states in the
transfer process, thanks to guidelines provided by many of the non-governmental
organisations representing financial sectors.

Like many of her fellow accountants, Starola has reservations about Italy’s
moving away from the accounting principles enshrined in the country’s civil code
because of the impact of adherence on the valuation of firms’ assets.

‘For example, with IFRS, the value of company property over the years may be
devalued,’ she says. ‘Now assets will not be linked to actual purchase price but
to market value.’

A spokesperson for Consob, the government regulator for the Italian
securities market, believes the concept of ‘fair value’ introduced by the
standards and the associated benchmarks means that would-be investors will have
‘a more focused snapshot of the markets. The adoption of standards such as IFRS
is a guarantee of transparency. By giving more detailed information, Italian
firms are taking an important step forward.’

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