Steven Brice, Head of IFRS for Mazars in the United Kingdom. reflects upon the challenges facing European companies in light of the impending requirement for European Union (EU)-listed companies to prepare their consolidated financial statements under IFRS, beginning in 2005. The views expressed are based upon the results of a recent Mazars survey of 425 European companies and Brice's own deliberations on the latest developments issued by the International Accounting Standards Board (IASB).
One of the biggest issues facing European-listed companies at the present time is the conversion of their current generally accepted accounting principles (GAAP) to the "full" weight of international standards. Some entities, such as those in the banking, energy or financial services sectors, to name a few, certainly face an uphill struggle, but many companies in these sectors have already recognized the complexity of International Financial Reporting Standards (IFRS) for their business and have well-advanced conversion projects underway. As well as cross-sector complications, the IFRS "assault course" certainly introduces more obstacles in some countries than it does in others.
The prize at the end of this course--a high-quality set of global standards leading to greater transparency, improved comparability across borders and, ultimately, more informed investment decisions--is certainly a valuable one. It's much like working out in your local gym: it's a case of "no pain, no gain," if this prize is to be obtained.
Confidence in reporting is seen as critical for the stability of European capital markets, and the requirement for EU-listed companies to use IFRS from 2005 is seen as an important step towards reaching that goal. Mazars European IFRS survey results showed 73 percent of listed companies believed that applying IFRS would result in a greater degree of transparency, and nearly 79 percent of them think that IFRS will contribute towards making financial statements more reliable.
Transparent reporting--based upon a principles approach, combined with robust auditing under International Auditing Standards--will hopefully help to ensure that there are not too many hidden surprises waiting to jump out of the financial statements of European companies. If greater trust in reporting can be established, then this will surely lower investment risk, and companies will benefit from a resulting fall in the cost of capital.