Utilities to feel benefit of IFRS

Utilities to feel benefit of IFRS

IFRS to produce substantial benefits for UK utility companies.

UK utility companies are set to enjoy substantial benefits when they introduce IFRS after National Grid Transco became the first in the sector to quantify its positive impacts.

Link: IFRS update – a management briefing

NGT revealed that it expected statutory operating profit for 2004 to skyrocket 35% from £1.8bn to £2.4bn under IFRS. But, while those numbers make for good reading, the most significant benefit will come from changes to the accounting for replacement expenditure.

NGT and all other UK utilities have until now had to write off all replacement expenditure ð- the cost of planned maintenance on assets ð- to the profit and loss account, a practice that has disadvantaged them when compared with European utilities.

When international standards kick in, however, replacement expenditure will be capitalised and written off over its useful life, which will place NGT and other utility providers on an equal footing with European competition.

‘We regard these changes as positive in that they will enhance comparability with other European companies in our sector, not least in relation to the biggest change, which concerns the treatment of replacement expenditure,’ NGT FD Steve Lucas said.

Such is the influence of the replacement expenditure accounting change that Andrew Wright, utilities analyst at UBS, believes NGT has gone from being disadvantaged under UK GAAP to ‘flattered’ under IFRS.

‘Whereas under UK GAAP NGT was systematically disadvantaged relative to its peers on accounting treatment, we believe that it will be flattered under IFRS,’ Wright said in a research note.

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource