International Standards (IFRS) – Your questions answered

Recent independent research reveals that more than a quarter of companies in the UK said they would not be ready to embrace the new International Financial Reporting Standards by the 2005 deadline – compared with 12 per cent in France, Germany and The Netherlands. Only two per cent of UK companies say they are ready now – compared with 20 per cent in the other three countries.

To help you consider your position, Maclntyre Hudson’s Kathi Hambleton answers some key questions....

Q What’s the difference between International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs)?

A IASs is the old name for IFRSs. Some IASs are still in force (akin to UK SSAPs), but all new ones being issued are called IFRSs (akin to UK FRSs).

Q Why are they important now?

A An EU regulation (passing directly into each EU member state’s law) requires the use of IFRSs for certain companies from next year.

Q What does the regulation say?

A All EU entities which have debt or equity admitted to trading on a regulated market (eg many of the equity and bond markets run by the London Stock Exchange) must prepare their group (consolidated) accounts using IFRSs instead of local accounting standards for accounting periods beginning on/after January 1, 2005.

Q Is it only companies which prepare group accounts who will be affected?

A No. The UK’s DTI is allowing companies not hit directly by the regulation to adopt IFRS voluntarily.

Q Why will this impact on the way a company does business?

A All business decisions are reflected in the financial statements. Therefore the shift from UK GAAP to IFRS may change the way some transactions are accounted for. Although an accounting driver, the impact is far-reaching, as many group-wide policies will be hit, such as dividends, mergers and acquisitions, financing and even employees’ remuneration packages. An employee with a profit-related pay scheme may have a different trigger for a payout and share options may become less popular as they now impact the profit and loss account.

For more information on IFRS training ring Nicki Cole on 020 7583 7575 or email nicki.cole@macintyrehudson.co.uk