Frequently Asked Questions

Only 34% of finance directors believe that their employees are ready for IFRS".
Source: Accountancy Age survey of Finance Directors, February 2004

As of January 1st 2005, all European Union public companies have had to conform to the International Financial Reporting Standards (IFRS). For many companies this shift to a global corporate reporting language has raised many challenging issues. Here you will find answers to the most commonly asked IFRS related questions. If you would like further information, please contact us at ifrs@intellexis.com

	What are key dates in the implementation of IFRS?
	What will the impact be on my organisation?
	What are the threats to my business?
	How does IFRS differ from UK accounting standards?
	What steps should I follow when implementing IFRS?

What are the key dates in the implementation of IFRS?

	March 2004 New and revised IFRS standards issued by IASB
	March 2004 IFRS will apply to 2004 accounts (for reports submitted in after January 2005)
	January 2005 All European Union publicly quoted companies have to adopt IFRS in parallel with standard reporting schedules
	January 2006 Dual reporting ends, IFRS becomes the standard

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What will the impact be on my organisation?

Do not make the mistake that IFRS is just a technical accounting issue; its impact will be far reaching and fundamental to your business.

It will:

• Affect your approach to P&L, budgeting, forecast and management reporting
• Govern the use of financial instruments such as Hedge Funds and Leasing
• Affect your approach to revenue recognition and management rewards
• Affect your approach to corporate governance
• Challenge your ability to disseminate knowledge to stakeholders as well as the financial community

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What are the threats to my business?

The main threats that IFRS could pose to your business are listed below:

	Share price value reduced
	Corporate value reduced
	Business disruption
	Ignorance of non-financial staff
	IFRS constantly changing
	Expertise shortage as deadlines approach
	Cost of poor planning
	Penalties for failure to comply

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How does IFRS differ from UK accounting standards?

The main differences between International Financial Reporting Standards (IFRS) and UK accounting standards are as follows:

	Subject		Under IFRS
	Income taxes		In effect full provision needed, including on revaluations Discounting prohibited
	Property, plant and equipment		Residual values (used to calculate depreciation) to be based on prices current at balance sheet date All revalued assets carried at market value
	Employee benefits		Actuarial gains and losses recognised in profit and loss account (rather than reserves) but normally over time rather than immediately
	Joint ventures		Wider definition of a jointly controlled entity Proportionate consolidation permitted
	Intangible assets		A wider range of intangible assets will be recognised, particularly in a business combination Certain development costs must be capitalised and are not permitted to be written off
	Financial instruments: Recognition and measurement		Financial instruments measured at cost or fair value Derivatives measured at fair value with gains and losses in profit and loss account Embedded derivatives must be identified and fair valued Prescriptive hedge accounting rules that must be complied with if hedge accounting is to be achieved
	Share-based payments		Profit and loss charge based on fair value rather than intrinsic value For employers, different vesting periods More disclosures
	Business combinations		No merger accounting More intangible assets recognised and amortised over their useful life Goodwill subject to an annual impairment review
	Discontinued operations		Assets classified as 'held for sale' are presented separately from other assets in the balance sheet Depreciation ceases on 'held for sale' assets

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What steps should I follow when implementing IFRS?

The following 7 steps can be used as a rough guide to follow when implementing IFRS:

1. Assess the business impact (at least a primary assessment).

2. Decide on the accounting policies you are going to adopt.

3. Identify missing data.

4. Enhance systems to collect data.

5. Put processes in place to ensure data collected is robust.

6. Design internal controls to demonstrate reliability of data.

7. Finally, embed IFRS and use it for internal managedment reporting.

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