The FD Forum – Ship to shore report

FDs urged: learn to love the IASC

Finance directors were told they must end their hostility to international accounting standards or risk a boycott by investors.

David Damant, head of the International Federation of Analysts and a member of the International Accounting Standards Committee, said investors were calling for a convergence of reporting requirements. Speaking at the Finance Directors Forum, the largest conference dedicated to senior financial officers, he said: ‘In three to four years, the capital markets will have zero tolerance of separate accounting standards.’

PricewaterhouseCoopers accounting expert Mary Keegan agreed FDs must resist pressurising the Accounting Standards Board to alter international standards if they wanted to keep in step with company reporting trends.

‘We need to be conscious that we might be fiddling while Rome burns,’ she said.

Damant said it was wrong to believe the project was being driven only for the benefit of large multinational companies that wanted to list in several financial centres.

‘There are international equity funds that track smaller companies in Europe. If you want to raise money on the capital markets, they will be involved. There is no way they will stand for a jumble of different standards.’

He also said it was wrong to think the US standards body FASB was driving the project. ‘The US is unhappy with several decisions, including the latest agreement on financial instruments.’

FDs were split in their response. Rules released today on the impairment of fixed assets and goodwill (FRS11) by the ASB, which reflect international standards, were attacked by several FDs as the worst example of the convergence.

Lloyds/TSB FD Kent Atkinson said it would be difficult for the banking industry to use the rules because the asset must be kept separate after the purchase has gone through. ‘We don’t want to keep things separate in our business. We want to integrate new companies and benefit from the synergies.’ He added that investors in the US had never criticised the bank for using UK reporting rules.

Other FDs, including Andrew Goodburn, of car engine specialist Ricardo Group, said the accountants should resolve their differences and implement international reporting standards quickly.

Keegan said FDs should work to increase the funding of the ASB if they wanted it to lobby more effectively on their behalf to reflect UK accounting rules.

Sets fails basic requirements

The Stock Exchange faced mounting criticism over its switch to an order-driven trading system for the top 100 companies, after a delegation of finance directors said the system was failing to meet basic standards.

The Sets order-driven trading system was introduced last October after several months of consultation between the Exchange and banks, brokers, companies and consumer groups in the City.

Since then, it has faced growing criticism for allowing wild swings in prices that undermine the stability of the UK’s major companies. The system, part of a #50m overhaul of the Exchange’s systems by Andersen Consulting, has been snubbed by many brokers, leading to a lack of liquidity in the market.

Brian Birkenhead, deputy chairman of the 100 group of FDs, and Reed/Elsevier co-chairman Nigel Stapleton led a delegation on behalf of the group in a meeting with Exchange officials, it emerged last week. Birkenhead, former finance director of National Power, said the system was hitting the London market badly because it led to artificial pricing.

‘Prices can vary widely at the beginning and the end of the day. The Exchange has gone some way to making changes but more needs to be done if the position of the London market is not to be undermined.’

An Exchange spokesman said it had embarked on a rolling programme of system modifications, and more were likely in the near future. ‘It is a matter of concern to us that these finance directors are worried about the effectiveness of the system, but we are continuing to consult on the matter,’ said the spokesman.

FDs urged to adopt PR role

Finance directors were told last week to become a part of their company’s ‘rapid rebuttal’ team in order to protect their profits from the adverse affects of bad publicity.

Lord McNally, vice chairman of public relations company Shandwick, said FDs must be prepared to react quickly when the reputation of their company is threatened or they risk damaging their company’s share price.

He said FDs should follow the example of Tony Blair’s Labour Party before the last election, which made strenuous efforts to contact the media to ‘set the record straight’ after adverse information had been exposed.

‘Public relations is all about explanation,’ said McNally, ‘Once you speak to the press you will not have full control of the story, but you must get your side across and dispute any facts, or so-called facts, if you believe they are wrong. Going through this process also gives the impression that you are in control, that you are in charge.’

He contrasted the actions of British Midland boss Michael Bishop, who sped to the scene of a crashed plane which caused chaos after it landed on the M6 with former prime minister Jim Callaghan on board in 1979, with the time he refused to come back from a meeting in Guadeloupe because, he said, ‘there are more important things going on in the world’.

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