IAS delay damns Rover
BMW standards change could come too late for car maker.
Slow progress by world stock markets in adopting international accounting standards could have finally consigned Rover’s Longbridge workers to the dole queue, experts are warning.
Rover’s German owner, BMW, revealed this week that its plans to move to international accounting standards in 1999 had been dashed because negotiations between world accountancy bodies and IOSCO, the world stock markets group, were dragging on longer than it had expected.
International standards would have dramatically reduced Rover’s losses.
Under UK accounting rules, Rover would have made a #20m profit in 1997 instead of the #91m loss under German standards which require rapid depreciation of investments.
Rover’s losses were the main factor in last week’s dramatic removal of BMW chairman Bernd Pischetsrieder, which, in turn, has fuelled speculation that the car giant will be the subject of a takeover bid.
Douglas Llambias, director of the Business Exchange, said: ‘When we have different accounting standards applied in cross-border manufacturing entities at a time of possible sale or closure, it can lead to a substantial undervalue.’
As well as creating losses, conservative accounting had weakened Rover’s position if BMW itself is taken over. ‘If an American car group were to acquire BMW, it could have a negative impact on Rover’s Longbridge operations.’ Llambias added.
Leisel Knorr, International Accounting Standards Committee technical director, said: ‘Conservatism leads to lower numbers. Lower numbers mean the future does not look as bright.’
She thought most people considering major investments, however, should be able to take different accounting practices into account.
A Rover spokesman this week described the use of German accounting policies as a ‘double-edged sword’. He agreed they had the effect of driving up Rover’s loss figures, but argued they were also a result of the heavy investment poured into Rover by BMW.