IFRS update December 2005 – Introduction

In the last 12 months, UK-listed companies, their boardrooms and IT and
financial teams have performed magnificently against all the odds.

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Ever since 1 January flipped over on desktop calendars, 7,000 EU-listed
companies, including those in the UK, have been doing all they can to fall in
line with the requirements of international financial reporting standards.

But the implementation path hasn’t always been a smooth one.

Accountancy Age ran a survey in November 2004 asking how ready UK
plc was for IFRS. Not surprisingly, almost 32% of FTSE100 businesses rated their
preparation as ‘excellent’, but only 9% of FTSE350 companies said the same.

The survey also measured the readiness of UK plc’s IT systems and finance
departments -­ only 13% and 16% respectively suggested that the right technology
was in place. But with just over a month before ‘I-day’, worries began to
circulate among standard-setters and the analyst community. Fortunately, that
early sense of cautious pessimism drastically improved as the year progressed.

The first positive pointer was AstraZeneca. Its CFO and IFRS-champion Jon
Symonds led the charge in March 2005 by releasing the UK’s first-ever set of
restated figures under the new global standards and setting a benchmark for
transparent and accessible reporting.

Then in May 2005, six months down the line, Accountancy Age ran a
second readiness study. The signs were encouraging and it was clear that
progress was being made from the boardroom down to the accounts department.
Almost 52% of companies rated their readiness for implementing IFRS as good, and
finance departments also achieved similar heights.

Sir David Tweedie, chairman of the International Accounting Standards Board,
agreed. Mid-way through 2005 he remarked that if he were to look back to where
standard-setters were four years ago, he would ‘settle for this’. Confidence was
growing and things were picking up nicely.

A few months later, interims began to appear, with companies hinting at a
rising confidence because of the new rules. Interims were a crucial step in
IFRS, showing how companies were managing the balance between providing users of
accounts with understandable and transparent information, while also providing
new-look figures enabling better comparability across all industry sectors.

Then in October, a PricewaterhouseCoopers study found that financial reports
had increased in size, with the longest FTSE100 interim report reaching 192
pages. More importantly, the vast majority (90%) of FTSE100 businesses, and
nearly 75% of the FTSE250, were found to have included additional notes in their
2005 interims ­ considerably more than in 2004.

Although there was more paperwork, more man-hours worked and, on occasions,
more costs, it also proved that IFRS adoption had delivered additional
disclosure and transparency, that convergence was well on track and that
companies had reacted positively to the new standards.

But, as this year draws to an end and the next is only a handful of Christmas
shopping weekends away, listed businesses, as well as those on AIM gearing up to
adoption in 2007, will need to knuckle down and concentrate on the next big IFRS
buzzword: embedding.

The message is simple. Companies have done a great deal of hard work over the
past 12 months but not enough to rest on their laurels.

It is not enough simply to adhere to IFRS. If UK businesses want to remain at
the top, then IFRS best practice must become repeatable, sustainable and common
practice throughout a business’s supply chain. As one senior IFRS influencer
said: ‘It is now about using the management information, integrating the data
and making IFRS business as usual.’

Our in-depth management briefing tells you how to arm yourself with all you
need for the next 12 months of standards convergence.

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Related reading

Fiona Westwood of Smith and Williamson.