Next month, with the accession of 10 new member states, there will be 24 different sets of accounting standards (25 if you take into account that some countries also allow the use of International Financial Reporting Standards) in use in the European Union.
Readers will be aware that the EU requires all listed companies, including banks and insurance companies, to prepare consolidated accounts in accordance with IFRS for accounting periods beginning on or after 1 January 2005. That of course means that 2005 accounts must show comparatives for 2004, also prepared under IFRS. But what about unlisted companies?
The Institute of Chartered Accountants in Ireland (ICAI) has called for the Irish Government to make resolving the out IFRS implementation issues a key of goal of its EU presidency.
Three options to be considered by the Irish Government were set out by KPMG’s Una Curtis in an article published in this magazine in April 2002:
• IFRS required and permitted only for the group accounts of listed companies
• IFRS required and permitted only for the financial statements of PLCs and public interest companies (say regulated companies and large private companies)
• IFRS required for all companies.
In October of last year, responding to a Parliamentary Question, Minister Michael Ahern indicated that all companies in Ireland will be given the option of using IFRS from January 2005.
More recently, in response to a similar Parliamentary Question tabled in December, the Government again indicated that is was 'minded' to follow the UK decision which allows unlisted companies to choose between existing local accounting rules and IFRS.
There has still been no definitive announcement and so we have considerable uncertainty not just for the accountancy profession but for business in general.
The ICAI released a detailed position paper on IFRS in February. Launching the document, ICAI Deputy President, Terence O'Rourke said: "It is unacceptable that the Government has not yet made this decision. While it may not impact upon smaller companies that can continue to use Irish GAAP, listed companies may soon be obliged to use IFRS in preparing their consolidated accounts but Irish GAAP for their subsidiaries. This is an unnecessary waste of resources. The Government has indicated that it will probably move to allow all companies to use IFRS but its failure to make a formal decision is negligent. This failure is creating real confusion.
"ICAI is of the view that the Government should not simply make the decision made by the UK authorities which allows all companies use IFRS from next year on an open-ended basis. We would like to see the Government set a definitive timetable for transition by all company types to IFRS. This kind of clarity would allow accountants and the professional bodies the time necessary to prepare for a changeover. It would also help the Revenue Commissioners, the Companies Registration Office and other state agencies in having only one set of accounting standards to deal with. It would additionally, we believe, be beneficial for Irish business. International standards are the way the world is moving - over 90 countries are committed to using the standards by 2005 and plans are in place for convergence with US standards. ICAI believes that Ireland should be in the forefront of this move."
Just as moving to a single set of accounting rules would have obvious benefits for investors, analysts, business professionals, accountants and other users of financial statements so failure to move on the issue will have real costs for business. These were clearly identified in the ICAI position paper and include:
• Cost of preparing two sets of accounts
• Additional audit costs
• Systems costs
• Training
• Risk of error
• Cost of error - particularly for listed companies as the capital markets will be expecting them to manage their changeover in a professional manner.
The issue of training is one that should not be underestimated since it affects not just listed companies and their subsidiaries, but also those accountancy students currently in training with the accountancy bodies.
Readers interested in keeping abreast of developments on this important issue should monitor the ICAI's dedicated IFRS website at
www.icai.ie/ifrs.cfm . No passwords required and the full text of the position paper referred to above is included on the site.