BusinessCorporate FinanceIFRS to hit European issuer ratings

IFRS to hit European issuer ratings

The new set of international accounting standards due to take effect from 1 January 2005 may have a significant impact on credit ratings of European issuers.

Link: IASB ‘wrong’ over IAS39 changes

Moody’s Investors Service says issuers’ approaches in applying international financial reporting standards, such as disclosure of risks and types of financial instruments issued, could affect credit ratings.

According to reports in The Financial Times, less than 10% of European companies rated by Moody’s currently prepare their financial accounts under IFRS.

Of particular concern are two new rules on derivatives, IAS32 and IAS39, which require companies to account for financial instruments at fair value on the balance sheet. However, a compromise from the European Commission has left the door open for companies to initially leave derivatives off the balance sheet.

Moody’s offered an example of how the new rules will affect issuers. It revealed that Swiss agrochemicals company Syngenta’s reported liabilities of one issue of its bonds increased by almost 50% under IFRS from $677m to more than $1bn.

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