In the classroom: a smooth transition?

An IFRS changeover shouldn’t be a painful experience given proper planning
and training. Those involved in UK GAAP financials these past two years have
seen some equally significant changes due to the continuing efforts being made
by the worldwide financial reporting community to converge standards. The
current UK regime can be confusing especially with standards only applicable to
certain entities, for example FRS26 on financial instruments.

As a starting point for IFRS accounts, ensure that you are adequately
equipped with the skills to identify the areas of difference from UK GAAP,
particularly if you studied UK GAAP for your professional exams.

If you are converting to IFRS then IFRS1 is a must-read. It contains several
exemptions such as the option to say that previous translation differences for
subsidiaries (which are now recognised in equity) are zero on the date of
transition, just in case you are one of the many companies who would have great
difficulty calculating these figures!

IAS39 and FRS26 may have the effect of putting derivative contracts on to the
balance sheet and income statement and will clearly have an effect on the
bottom-line results. This impact will be felt on the restated comparatives and
interim results. These standards are complex and normally problematic to apply.

Deferred tax (IAS12) under IFRS is conceptually very different to UK GAAP.
Auditors are discovering many mistakes in this area, compared to the other
standards, so further guidance may need to be sought as the numbers and
disclosures will be different.

The biggest change for companies will be IFRS3 and the separate recognition
of intangible assets. The potential future impact of the proposed UK equivalent
standards would be equally significant.

However, the process of identifying these changes is only part of the battle.
Making the changes and communicating the impact is a neglected aspect of
financial reporting change. When business decisions are made, which then give
the impact on results required, it may be possible to say that the war has been
won ­ until the next onslaught of standards.

Bob Hawken is managing director of BPP Professional

Related reading

Fiona Westwood of Smith and Williamson.