Accountancy Age is this week launching a campaign to raise awareness of International Accounting Standards. There's no doubt many companies have a lot of catching up to do if they are to be ready to adopt the new rules for reporting periods that begin after 1 January 2005.
Link: IAS special report
More than 7,000 companies listed in the member states of the EU will be affected, though more than 90 countries are adopting IAS.
But when Accountancy Age spoke to 500 finance directors this week about the most significant change to hit companies since the birth of the euro and the death of the millennium bug, their view, in summary was, that international accounting standards will not help UK plc because investors do not understand the new rules and most of the companies affected will not be ready by the 2005 changeover deadline.
It could not, however, be further from the truth.
With the Americans still absent from the party, if international standards are to be a success, they have to work in the UK. Some 1,610 UK companies are listed on the London Stock Exchange, with a further 395 international companies listed on the City’s main market. And don’t forget the IASB’s headquarters are in London, and its chairman is a Scot.
But let’s deal with FDs’ concerns. Few companies affected would say they are on top of IAS – but that doesn’t mean the rules will not work in favour of UK plc, nor does it mean that the process of educating investors should not begin now.
Writing in Accountancy Age, IASB chairman Sir David Tweedie explains the benefits of a single set of accounting rules. ‘The decision to adopt IFRS will transform the basic infrastructure underpinning Europe’s capital markets and provide impetus to Europe’s effort to unite its many national markets,’ he argues.
‘For companies, acceptance of common accounting standards in Europe should expand the pool of potential investors, bringing down their cost of capital, and reduce expenditure on consolidating the accounts of their subsidiaries.’
Yes, problems are inevitable. But by making preparations over the next few months companies can – and must – be ready to prepare comparative statements from next year. Those preparations must include readying investors.
There have been plenty of reasons not to engage so far – indeed the IASB does not release its first raft of revised standards for some weeks. And expect differences. ‘We adopted IAS three years ago, when our European parent company changed,’ one FD, who has already been through the transition, told Accountancy Age.
‘There is a wide assumption of “very little difference between IAS and UK GAAP”. This is wrong. While the general principles are similar, we find IAS to be far more prescriptive, and requires a greater awareness of the actual detail in the standards than is generally the case with UK standards. We, our parent and auditors are learning as we go along.’
But none of this should be used as an excuse not to engage. Failure could be a self-fulfilling prophecy. If companies don’t prepare they won’t be ready. If investors aren’t educated, they will take flight when they are surprised by year-on-year changes.
And if that happens, it will take longer to realise the benefits. That would be a costly mistake that can be avoided if the hard work starts now.