International Financial reporting Standards - IFRS and IAS
Do you need to understand IFRS?
The introduction of IFRS is causing changes to reported results.
"One of the most serious dangers in the whole process of moving Europe's listed companies to International Financial reporting Standards by the end of 2005 is that the market simply will not understand the information it receives"
FT Understanding IFRS - September 29 2004.
A specific example:
In Accountancy Age 3 Feb 2005 EPS for Northern Rock are quoted as possibly falling from 74p to 65p. "IFRS does not change cash accounting - it changes the phasing. Fee income gets deferred under IFRS. Income lost today in the P&L account comes back in the year after," Bob Bennett FD Northern Rock.
Are these changes due to tighter accounting rules? Is IFRS accounting "new". Some of the latest standards break new ground (and may be controversial):
IAS 39 - Financial Instruments: Recognition and Measurement
Issues over use of "fair value" accounting and restrictions on the use of hedge accounting
IFRS 2 - Share-based Payment
New accounting - shares given as payment have to be valued and shown as an expense in the income statement
IFRS 3 - Business Combinations
Merger accounting banned - goodwill no longer to be systematically written off but reviewed annual for impairment
IFRS 4 - Insurance Contracts
The start of specific rules for financial reporting in the insurance sector
IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations
A new concept of assets "held for sale"
For some sectors such as banks and insurance companies the increasing use of fair values and restrictions on hedge accounting will have a major impact. A rational view for most UK companies is that as most UK FRS's were aligned with IFRS then the impact of the change should be minimal. There is a concern that the change over could be used to excuse past "loose" accounting.
Make sure you can ask the right questions and challenge your figures and published financial statements.
The Complete Guide to IFRS including IAS and interpretation - Ralph Tiffin explains the IFRS in clear terms pointing to the areas of possible concern.
ISBN 1 85418 279X publisher Thorogood - firstname.lastname@example.org
Read the Introduction to The Complete Guide to IFRS