Small caps to miss 2005 deadline

Link: Smaller companies struggle with IFRS

Smaller listed companies will struggle to be ready for the introduction of international financial reporting standards, because they started too late and haven’t grasped the size of the task or the resources required, according to a new survey.

The study of readiness among European companies for IFRS by PricewaterhouseCoopers found that the largest companies, and particularly those registered with the US Securities and Exchange Commission, were well on the way to meeting the deadline.

But smaller companies may fail to have IFRS embedded in their company structure in time, and will struggle to communicate the changes to an expectant market.

Of companies with a market capitalisation of more than EUR10bn (£6.93bn), 83% now have their IFRS projects set up and 44% are confident they have all the necessary resources in place to make the change on time.

For companies with a market cap of under EUR0.5bn, readiness is lagging, with only 35% having projects up and running and just 15% confident of a timely conclusion.

‘Despite the fact that the mid-cap and smaller companies will, in most cases, have less to do, the overall lack of readiness for IFRS in this group is a matter of increasing concern,’ said Ian Dilks, PwC’s IFRS conversion services partner.

‘Failure to embed IFRS in their core systems, or at least in the budgeting and forecasting processes, may see companies at risk of giving unreliable guidance to the markets during 2005. Focusing on getting IFRS reporting right first time and avoiding surprises is crucial. The capital markets are not forgiving of delay or errors,’ he said.

Staff training and communication also seem to be major problems. A similar PwC survey in March found that only 9% of respondents had implemented a training strategy.

By September this figure had only risen to 13%. Those who have made no progress in communicating their IFRS strategy to the market only fell from 42% to 30% over the same timeframe.

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