PracticeAuditThe Debate: World economy needs IAS

The Debate: World economy needs IAS

IAS will protect companies' future in the long term, writes David Illingworth. But, says Peter Williams, a moving target is always difficult to work aim at.

World economy needs IAS

By David Illingworth

The finding that 43% of UK finance directors polled by Accountancy Age could see no benefit in the switch to international accounting standards suggests there is still much work to do to persuade UK businesses that the gain is worth the pain.

Difficult though the process may be, particularly for FDs who have to grapple with delayed publication and unfamiliarity of the standards, and the task of preparing comparatives for 2004, there is a substantial pay-off on the horizon.

There’s no getting away from the fact that a truly global economy must have global accounting standards. Financial statements continue to underpin the entire system of market information and comparability is key for a single securities market.

So what’s in it for UK businesses? The move to adopt IAS will see reduced costs for multinational companies who will no longer have to reconcile financial statements in an increasing number of jurisdictions, and it will make it easier for investors to make valid comparisons. This is a significant step towards the goal of having one global set of reporting standards and the benefits will be seen through improved communication and lower cost and availability of capital.

There is much to do between now and then, but ICAEW research indicates that conversion by the deadline is achievable for most companies. Eighty-one percent of chartered accountants from listed groups felt their company would be ready for IAS in 2005, compared with only 1%, who believed they would not be ready in time, and 17% who were unsure.

The institute is committed to doing all we can to help accountants and the wider business community make the necessary preparations.

During my presidential year, I will also be making the case to investors and others in the reporting chain that a global set of accounting standards will benefit them. This should positively support UK companies’ efforts to inform shareholders and analysts about the changes that IAS will make to their financial reporting.

  • David Illingworth is president of the Institute of Chartered Accountants in England & Wales.

IAS too shaky to implement
By Peter Williams

As companies desperately start to gear up for the joys of reporting under international accounting standards, it would be good to think that all the average finance director was fighting was his accounting system and time.

Very few disagree that the idea of international accounting standards is fine in theory. One set of rules would lead to greater transparency and lower cost of capital.

Unfortunately we are not in an ideal world. More FDs are beginning to wonder whether they are being conned over the IAS project. For a start there is the US/IAS question. Europe may huff and puff, but we all know it’s the capital markets in the US that matter. Yet all FDs know at this moment is that the International Accounting Standards Board (IASB) and its US counterpart, FASB, have promised to do their best to meet each other. The prospect of reconciling from IAS GAAP to US GAAP still looks odds on in the short term.

Then there is the slightly difficult point that FDs are trying to implement standards that haven’t yet been finalised. The outstanding work programme is best illustrated by the highly charged and politicised opposition over IAS39 on financial instruments led by self-interested French banks.

The IAS39 row only serves to underline how shaky this project is. If IAS39 is emasculated by political interference, the whole IAS project will be an expensive and time-consuming failure.

There is also the mess that is being created on the home front. One of the golden rules of financial reporting over the years has been that the biggest company and the smallest company follow the same measurement rules.

There has never been a big GAAP/little GAAP dichotomy. Until now.

This unwelcome and impending split has been further confused by the DTI summer announcement (maybe it was the heat?) that any company could adopt IAS. That seems to be a recipe for indecisiveness and confusion.

Let’s hope that private UK companies will decide to leave IAS well alone until the dust has settled. At least they have the choice.

  • Peter Williams is a freelance journalist.

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