By David Illingworth
The government’s decision to allow unlisted companies to opt to use international accounting standards in their annual and consolidated accounts from 2005 is welcome. Not least because it provides much needed clarity for small and medium-sized enterprises coming to terms with the potential ramifications of IAS.
The decision to review the impact of the European regulation around 2008 is also a sensible move. By that time, it is likely that UK GAAP will be significantly similar to IAS and so therefore a possible mandatory extension will be less burdensome to UK businesses.
A word of caution, however: just because the adoption of these standards will be optional for smaller businesses does not mean that heads can be buried in the sand. IAS will eventually affect businesses of every size and it is critical that companies consider the implications now and make the necessary preparations.
Recent ICAEW research showed just how much work still needs to be done.
A survey of our members revealed that less than half felt they were aware of the effects IAS would have on their company or financial statements. A majority were also unaware or unclear about the timetable for introducing new and revised standards.
For UK business as a whole, 2005 will be a critical watershed and it is vital that companies start to assess the likely impact on their operating practices sooner rather than later.
The institute has launched a major project to raise awareness of these issues among FDs, auditors, bankers, analysts, executives and shareholders.
It’s appointed a head of IAS implementation to make sure that the institute is able to play a leading role in helping to inform the business community.
It has also set up a website as a resource to help all those concerned keep track of developments as the 2005 deadline draws closer.
By working in partnership with government, members and business, we can effect the necessary changes, but time is short and we need to act now. – David Illingworth is the ICAEW president.
- David Illingworth is the ICAEW president.
Years of upheaval to come
By Michelle Perry
Last week’s Department of Trade and Industry announcement that the UK’s non-listed companies will have the option to adopt international accounting standards was welcomed by most as the most sensible thing to do.
Not least because it moves the process of harmonisation a step further and brings non-listed companies – the cornerstone of the UK economy – into the fold.
In the long term, a single set of international accepted accounting rules will lower all sorts of costs for business as well as ensure comparability.
But it is the short term that concerns us for the time being. And it will be this immediate lack of comparability that could cause chaos.
By 2005, all European-listed companies will have to begin reporting under IAS. Some listed companies may immediately require their subsidiaries to report under IAS. And some of the more progressive non-listed companies will choose to do so, too.
But there will still remain a large swathe of non-listed companies – the UK has around 1.5 million private companies – that will opt to bide their time in moving from UK GAAP. So by 2005, reported results among listed and non-listed companies will be almost impossible to compare.
For the investor community this will prove problematic. But for growing private companies this could prove catastrophic, as lack of comparability and different methods of accounting may move potential investors to reconsider their funding options.
Then there are the tax issues. Should a company make the move to IASs, it will be prohibited from moving back to UK GAAP at any stage in the future. This would be to prevent tax-saving opportunities being obtained by switching in and out of two sets of accounting standards.
But do not think the DTI announcement is a chance to bide your time.
It is just the beginning of years of upheaval in financial reporting.
With the UK Accounting Standards Board determined to forge ahead with its plans, most non-listed companies will have to get to grips with change – even if it is later rather than sooner.
- Michelle Perry is features editor at Accountancy Age.
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