Link: IAS/IFRS special report
The charge is predicted to wipe an average 5.42% a year, or £68m, from the profits of the top 25 FTSE100 companies by 2007.
Drinks producer Diageo would be the worst-hit FTSE100 company if the standard was applied now, taking a 43% charge on its latest year profits of £76m, while BSkyB and Standard Chartered would also suffer huge dents to their profits.
The new standard will also prove troublesome for many FDs, such as ICAP’s Jim Pettigrew. The study found the broker company would take a charge of more than £7.5m, or nearly 9%. It would also adversely affect the profitability of FTSE250 companies such as Trinity Mirror, P&O and EMI.
‘IFRS2 is not merely another change to accounting standards,’ said Halliwell principal consultant Jon Dymond. ‘The charge will impact on profits, recruitment, retention, reward structures, performance management and relationships with shareholders.’
The report said the charge on profits could also lead to a dramatic effect on the ‘shape’ of executive remuneration practice in the future, as companies would need to consider their aims and to whom options should be granted.
But Ken Wild, Deloitte technical partner, suggested that although IFRS would have an impact on businesses and the investment community, education about the implications of IFRS2 would be key to allaying fees.
‘I’ll be surprised if the market changed its assessment of a company merely because it accounted for its share-based schemes in a particular way, when it is essentially presenting the same information in a different way,’ said Wild.
‘We get all these new standards, and it’s like, ‘the world is going to end’, and it doesn’t. I’m not underestimating their impact, but it’s short-term and the markets see it through.’
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