BusinessCorporate FinanceR&D complexities could mean AIM interim delays

R&D complexities could mean AIM interim delays

The interim results of a slew of AIM businesses could be derailed as finance departments struggle to comply with the imminent application of international financial reporting standards

The forecast was made by Ginny Stevens, KPMG’s audit chief for the AIM
market.

‘You may find that companies will be delaying their interim results because
of the fact that the finance departments at some of these companies are so
small,’ she said.

‘The FDs are still busy getting on with presenting 2006 reports under UK GAAP
and haven’t had a

chance to assess the demands of IFRS and conduct all the necessary
communication with the upper levels of management.’

Stevens highlighted the damaging effect that this would have on AIM’s
relationship with investors.

‘People don’t like uncertainty in the markets, so the knock-on effects are
obvious,’ she said.

As well as the well-documented pitfalls of share-based payments and business
combinations for the highly acquisitive AIM market as a whole, Stevens
pinpointed the R&D sector as particularly vulnerable if FDs did not give
IFRS proper consideration.

‘Typically, under UK GAAP, companies have simply written off most – but not
all – of their R&D expenditure. A lot of companies didn’t want to go through
the hassle of it, but under IFRS this must go on to the profit and loss account.

‘One of the main things that they should look at is if a project has definite
feasibility and the company is of the view that it will succeed, then it should
go on the balance sheet. It’s collecting that info that’s going to be difficult
because they haven’t done it before.’

The burden on London’s junior stock exchange is set to be even heavier than
it has been for its main market contemporaries.

AIM companies yet to make the crossover will not be eligible for exemptions
from the requirement to apply IAS 32 and IAS 39 to comparative information in
the first year.

The IAS 32 standard enhances investor understanding of the significance of
financial instruments to an entity’s financial position, performance and
cashflows.

It is closely linked with IAS 39, the standard which addresses the key
factors of impairment, derecognition and hedge accounting.

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