Get ready for the big switch

‘Prepare for 2005!’ they keep saying, ‘start planning!’ Accountancy Age has quite rightly been highlighting the mandatory change of accounting standards for the group accounts of listed companies in 2005 and encouraging corporate UK to think ahead.

Not surprisingly, one of the biggest complaints from financial teams at listed companies is that they are unsure what the standards will look like. All that is about to change – there will no longer be any excuses.

By the end of this year, companies should have around 27 of the final standards for 2005 – and much of the text of the others. The International Accounting Standards Board (IASB) intends to publish all the standards that will be mandatory for 2005 by the end of March next year.

So where to start? A good place is the first completely new standard issued by the IASB ‘First time adoption of IFRS’. Published in June 2003, IFRS 1 sets out the basis for transition for any company from its current national standards to those of the IASB. It is not an easy read and it needs careful thought. But it does make clear where there are options for first use of the new requirements.

Where next? Well 12 of the international standards are not predicted to change for 2005. Watch out for IAS12 on income taxes, for example, it is rather more complicated than FRS19 and, unlike the UK standard, will require deferred tax to be provided on revaluations.

Cash flow statements and segment reporting will also look rather different from today’s UK equivalents. IAS29, 30 and 41 deserve a careful reading too, if they apply to your business. And don’t be fooled by the title of IAS41 – it will also apply in the biotech sector. Growing assets may need to be ‘marked to market’ at the balance sheet date.

The next group of standards – listed in the box – is being revised and improved by the IASB, ready for 2005. Most were included in a major exposure draft from the international board in May 2002. Further minor changes to IAS31 on joint ventures were proposed in December 2002. The IASB has now concluded its consideration of the responses to those consultations and is due to publish its revised texts by Christmas.

For these, the Accounting Standards Board described the ‘headline’ changes from UK standards in our October newsletter, Inside Track (see

The biggest effects for UK groups with foreign subsidiaries may emerge from IAS21 (acquired goodwill must be treated as a foreign currency asset, and profit must be translated at average rates). Those with property leases need to pay close attention to the revised IAS17, as should lessors with tax-driven leases. Property companies will need to think carefully about leases under IAS40.

So what does that leave? Well it can’t have escaped your notice that the biggest accounting changes for UK groups are likely to arise from the international standards IAS32 and 39 on financial instruments. Most of the text of these two standards is also due for publication by this year-end – and it applies to most sectors.

Read these financial instruments standards carefully as soon as they are published – both are likely to require considerable thought and planning.

And for groups in the financial sector, there will be further changes to IAS39 in the first quarter of 2004 – arising from the IASB’s consultation in August 2003 on portfolio hedges of interest rate risk.

The IASB seems, however, likely only to require prospective application of most of IAS32 and 39 – that is, they will operate for 2005, but will not mandate the preparation of comparative information for 2004.

Also in the first quarter of 2004, we shall see the IASB’s final views on share option accounting, business combinations and asset sales and its (hopefully) temporary standard on insurance. In the meantime, though, there is plenty to read – and much to plan for.

But what of pensions, you ask? Well, for the moment, that remains the IASB’s most closely-guarded secret. Obviously, this will be the subject for another article before too long!

For more, see


  • IAS1 presentation of financial statements

  • IAS2 inventories

  • IAS8 net profit or loss for the period, fundamental errors and changes in accounting policies

  • IAS10 events after the balance sheet date

  • IAS16 property, plant and equipment

  • IAS17 leases

  • IAS21 the effects of changes in foreign exchange rates

  • IAS24 related party disclosures

  • IAS27 consolidated financial statements

  • IAS28 investments in associates

  • IAS31 financial reporting of interests in joint ventures

  • IAS33 earnings per share IAS40 investment property.

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