Why is the City in a panic over IFRS?

Link: Trouble: it’s been a long time coming

Is the city is in a panic over IFRS because:

• Businesses have left their preparations too late and will not be ready
• Firms are suffering from a lack of skilled auditors in the run-up to 1 January
• Or is the eleventh-hour intervention due to a combination of both of the above?

Mounting problems surrounding the introduction of international financial reporting standards, including a lack of preparation by companies, uncertainty over the standards and a shortage of auditors, has forced the Financial Services Authority to give listed companies another month to make the switch.

The move came as Accountancy Age’s exclusive IFRS survey this week revealed that, with less than two months to go until their introduction across the European Union, 42% of 1,000 companies polled have yet to begin preparing for the impact of international standards. By contrast, only 15% of respondents said their preparations were complete.

This lack of readiness is compounded by widespread concern among the business community that as 2005 nears, auditors already burdened with Sarbanes-Oxley work will be desperately short of IFRS-skilled people to meet the demand from clients.

Acknowledging these concerns, alongside the continuing uncertainties caused by IAS39 and other as-yet endorsed standards, the Financial Services Authority last week revealed it would allow companies an extra 30 days to publish their first interim results under IFRS.

The relaxation gives UK companies the EU maximum of 120 days, instead of the FSA’s 90, to file their first interim figures in accordance with the new standards.

In a letter to chief executives of listed companies, Gay Huey Evans, the watchdog’s director of markets, said: ‘We do accept that preparing for the introduction of IFRS has not been easy for firms, given general uncertainties about the standards. There is also the question of sufficiently qualified auditor resources – although we think auditors’ existing resources should be adequate to cope with demand from clients, there is a small risk that they will not be.’

Last week’s Accountancy Age/Robert Half Finance & Accounting salary survey highlighted that skilled staff were getting harder to find. Wages rose 5.3% over the last six months as the first skirmishes of a talent war began. Nearly two-fifths of respondents said they were struggling to find staff with the right skills.

Ernst & Young chairman Nick Land admitted this week that the Big Four’s assurance businesses were suffering. ‘The problem is a) in the UK there is a skills shortage full stop; b) we all cut back on our graduate recruitment; and c) all this increased transparency – 404 and IFRS – means corporates are recruiting very actively,’ he said. But Kieran Poynter, chairman at PricewaterhouseCoopers, dismissed the idea that there would not be enough skilled audit staff at the firm to cope with the needs of clients moving to IFRS.

‘While it’s no surprise that there aren’t too many people experienced in IFRS, we have been working hard on training our employees up.’ He added that training would be supplemented to a limited extent by using the experience of staff in other parts of the world that have been dealing with IFRS for longer, such as in Russia.

Companies wishing to take advantage of the FSA’s 30-day extension must inform the market before the end of the accounting period the delay relates to, explaining the reasons behind the move.

The FSA also revealed it would keep to a minimum the number of changes in its regulatory accounting rules, in light of the new standards, to help reduce disruption to companies further.

PROBLEMS, PROBLEMS

• European Commission’s creation of a second version of IAS39 causes market confusion
• Big Four chiefs admit they need to expand assurance departments to cope with IFRS work
• AIM decides last month to give companies until 2007 to adopt IFRS
• With just eight weeks to go almost half of companies have not yet started or are behind in IFRS preparations.