PracticeAuditBill mounts for IT cost of IFRS

Bill mounts for IT cost of IFRS

Large, listed UK companies could spend up to £625,000 each to prepare their IT systems for new international financial reporting standards.

Link; IAS special report

A survey of 1,000 European companies conducted by JMH Financial Services canvassed opinion on cost and readiness for the arrival of the standards on 1 January 2005.

The report estimates that the average compliance cost across UK companies will be about £360,000. This figure rises to £446,000 for a top-500 company; £625,000 for companies with a market capitalisation value between £1bn-£2bn; and over £1m for companies valued at more than £2bn.

IAS39, is widely recognised as the most complex standard and experts agree it will take up by far the most time, resource and cost. Together with IAS32 it applies to the classification and measurement of derivatives, hedge funds and other financial listings.

Companies will have to ensure their accounting systems are ready before the 2005 deadline and prepare at least one year’s comparative financial statements. From January 2004, companies will have to run two sets of parallel accounts – one following the old rules, another for the new.

This, as well as re-coding of the connections between ERP to group accounting systems, will make up the bulk of the costs.

Deloitte Consulting business intelligence principal Gary Simon said that companies are making major changes to the basis of their data entry because of the way different expenses are defined. ‘This will feed through to changes that will have to be fed through group reporting systems. A lot of companies will have to review the way contractual transactions have been classified,’ he said.

This advice could apply to the classification of assets, including those held in derivative and hedge fund accounts, as well as research and development spending. Software vendor The General Ledger Company said companies should prepare for all accounting regulations, including IFRS and Sarbanes-Oxley, by making changes to their general ledger.

Sales and marketing manager Nick Gomersall said: ‘If a company’s general ledger can only hold one set of books and relies on data warehousing to produce accounts, there is a potential for actual profit and loss figures to be inaccurate. Companies should make sure they can re-state their general ledger accounts in different ways.’

But Simon said that, in the short term, companies do not have the time or resources to do this and will turn to short-term fixes and outsourced help to meet deadlines.

IFRS will affect at least 1,650 UK companies, including companies in the FTSE100, FTSE350 or smaller, subsidiary companies. All European Union member states have signed up to the standards, so all EU-listed companies must comply or face fines.

Related Articles

BDO replaces Deloitte as Mitie auditor

Audit BDO replaces Deloitte as Mitie auditor

4d Emma Smith, Managing Editor
FRC closes KPMG HBOS audit investigation, Treasury Committee expects ‘full explanation’

Accounting Firms FRC closes KPMG HBOS audit investigation, Treasury Committee expects ‘full explanation’

6d Emma Smith, Managing Editor
PwC to audit BBC pay policies following gender pay gap outrage

Accounting Firms PwC to audit BBC pay policies following gender pay gap outrage

3w Alia Shoaib, Reporter
PwC fined a record £5.1m by the FRC over RSM Tenon audit

Audit PwC fined a record £5.1m by the FRC over RSM Tenon audit

1m Alia Shoaib, Reporter
KPMG fined £4.8m over Miller Energy audit

Audit KPMG fined £4.8m over Miller Energy audit

1m Alia Shoaib, Reporter
PwC to take over from Deloitte as Diploma auditor

Accounting Firms PwC to take over from Deloitte as Diploma auditor

3w Alia Shoaib, Reporter
Deloitte rises in auditor rankings with most FTSE 250 clients

Accounting Firms Deloitte rises in auditor rankings with most FTSE 250 clients

3w Alia Shoaib, Reporter
Latest Big Four auditor changes

Audit Latest Big Four auditor changes

1m Alia Shoaib, Reporter