PracticeAuditIFRS causing soaring debt

IFRS causing soaring debt

Study shows balance sheets being hit more than profits

Corporate debt is rising due to the introduction of international financial reporting standards, according to a new study.

Link: Internal controls – a management briefing

A survey by Dresdner Kleinwort Wasserstein of 28 large companies that have released details on how IFRS will impact their accounts found that debt and other liabilities were up 16%.

The results suggest that IFRS is going to have a much larger impact on balance sheets than on the profit and loss statement, with the change in net income from the same companies dropping less than 3%.

The rise in debt can be attributed to the appearance on balance sheets of pension fund deficits, leases and securitisation vehicles, while the change in treatment to derivatives and subsidiaries are also having adverse effects.

However, some of these debt rises have been offset by increases in net equity, reports the Financial Times.

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