Accounting Dissertations - IfRS

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7000-plus listed European companies will have to
implement new financial reporting standards from
January 2005
SECTION I - INTRODUCTION
The adoption of international financial reporting standards across the European Union from 1st January 2005 is one
of the biggest events in the accounting history. This is especially important after the capital markets were rocked by
some big accounting frauds in recent years. In the first phase, 7000-plus listed European companies will have to
implement new financial reporting standards from January 2005 (Fuller, Jan 2005).
When European Union moved towards one market across Europe, it faced the prospect of different financial
reporting regimes across EU participants. To achieve true scale of financial integration, it has become necessary to
adopt common financial reporting standards.
In June 2002, the European Commission adopted a regulation requiring all listed EU companies in regulated
markets to prepare their financial statements in accordance with International Accounting Standards (IAS) or
International Financial Reporting Standards (IFRS). The regulation is applicable only on consolidated accounts and
companies are free to choose their national GAAPs for subsidiaries and associate companies. The regulation came
into force from January 2005.
Companies Act 1985 governs the use of UK GAAP by UK based companies. Similarly other EU states have their own
laws for accounting standards. The EU states have now modified their national laws to include IFRS regulation to
offer a common financial reporting standard. Companies Act 1985 (International Accounting Standards and Other
Accounting Amendments) Regulations 2004 has extended the application, on a non-compulsory basis, of the EU
IFRS regulation to all non-charitable organisations.
In the last quarter of previous century, the world economies have moved towards globalisation. Multinational
companies are manufacturing and selling across the world and many of these firms are listed at foreign stock
exchanges. Globalisation of markets and establishment of multinationals led to increased desire and awareness
about international markets. This was soon followed by globalisation of financial markets which increased the value
of understanding of international financial results and reporting formats. Rapid improvement in communication
technologies and easy access through internet has further spread the profile of international investor. Now a day
international investors are not limited to some portfolio managers in big banks. International investors are now as
diverse as sophisticated equity manager to a small investor in a remote town. Investors too have diversified their
portfolio by international equities and bonds. This rapid globalisation has fuelled the desire to have common
international standards that could be understood and followed across nations.
The ever increasing network of investors has not only opened new financing sources to countries, it has also put
some pressure on the financial regulatory authorities to design and improve their financial reporting systems in a
manner that is easily understood by wider audiences.
The regulatory authorities have on one hand evolve the financial reporting system to match the ever increasing
demands of international investors and on the other hand make sure that companies in their countries are not faced
with sudden increase in time, resources and knowledge needed to cope with new regulations.
In 1973, 9 countries included UK formed International Accounting Standards Committee (IASC) with an aim to
develop common accounting standards. The membership has now grown well over hundred countries with each
country, especially bigger economies, bringing in their own perspectives of accounting standards. IASC had to deal
with accounting conflictions in coming up with common acceptable accounting standards.
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One would immediately think whether IASC has been successful in resolving all the conflicts with all member
countries and the answer would easily be no. To fully satisfy more than hundred accounting bodies from across the
world is almost an impossible task. Yet IASC has done a commendable job and from 1 January 2005, International
Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) is applicable in more than 90
countries. In EU, IFRS is compulsory only for listed companies.
The standards that UK listed companies will follow are not those issued directly by the International Accounting
Standards Board, but are those that have been endorsed by the European Commission. EU has now endorsed
IFRS, except for IFRS 6 and some of the IFRIC interpretations, and some changes in IAS 39 relating to the fair value
of financial instruments (PwC, 2005a).
While the EU regulation is only enforceable on listed companies, it also says that a member state has an option to
extend the use of IFRS to unlisted companies within their jurisdiction. Department of Trade and Industry (DTI), the
government trade body responsible for company regulation in UK, has said that while there is no mandatory move to
IFRS for unlisted companies, the unlisted companies would still be allowed to adopt IFRS over UK GAAP from 2005
onwards.
The basic aim of new financial reporting standards is same as that of existing standards to provide information
about financial performance and position of a company to different stakeholders. Internal stakeholders
management normally have a good grip of whats going in the business. It is external stakeholders like investors,
auditors, suppliers and creditors who need to be informed in a succinct and clear manner about financial
implications of business decisions.
The IFRS would aim to present a more complete picture of a business by making operating income a more
encompassing number. As an example, the financial implications of stock options were kept out of income
statements. Companies merely mentioned the number of stock options granted. But now onwards, companies will
have to incorporate the fair costs of granting stock options in their income statements. This will allow investors to
assess the true costs of executive remuneration.
Though the overall aim is same, the differences in implementation and financial reporting do occur due to social,
economic and political backgrounds of different nations.
Will it be a good policy to allow two different accounting standards in UK one standard for listed companies and
another for unlisted companies. UKs Accounting Standard Board clearly sees there is no merit in having two
separate standards. ASB issued a Discussion Paper in March 2004 highlighting its strategy for convergence with
IAS and says that convergence of UK accounting standards to IAS is a foregone conclusion. It has already
introduced many changes in recent past to bring UKs GAAP in line with IFRS.
Smaller companies, even listed ones, will find it difficult to cope with extra work due to IFRS. Alternative Investment
Market (AIM) realises that most of its companies wont be in a position to meet IFRS requirements soon. So it
changed its regulatory status in October 2004 and is now an exchange regulated market and out of purview of
European Commission regulation on regulated markets. Now companies listed on AIM have time until January 2007
to implement IFRS.
Accounting Standards Board is also sensitive to the needs placed on business in making a transition from UK
accounting standards to IFRS. Big businesses probably have sufficient resources to cope with the change in one
year. But the smaller businesses will find it difficult to make all required changes in one year. ASB has proposed a
series of changes that would be implemented in 2005 and 2006 which will bring UK financial reporting standards
more in line with IFRS. Thereafter ASB will carry out a series of step changes by replacing one or more UK
standards. So by the end of 2005-2006, UK standards will almost be in line with IFRS and unlisted companies
transition to IFRS in 2007 would be smooth.
This research analyses the attitude of unlisted companies towards IFRS. Many research and surveys have been
carried out on the acceptance and readiness of listed companies for transition to IFRS. But the issue has not been
explored in depth with respect to unlisted companies.
The research is based on primary and secondary data. Primary data is collected via interviews and questionnaires
with companies and their auditors. A total of [34] interviews [20] with companies and [14] with their auditors were
conducted to obtain primary data. [52] questionnaire responses by postal survey were also analysed.
The results show that there is definitely a much scope in improving International Financial Reporting Standards for
unlisted companies. Respondents were concerned about the costs associated with transition to IFRS and also the
additional burden that will come with regular enhanced reporting. That IFRS will help in globalisation of capital
markets and probably cheaper costs of capital is not of much significance for unlisted companies registered in UK.
This research would be useful for institutes and associations framing accounting standards for unlisted companies.
Mostly accounting standards have been framed with an eye for listed and large companies. But unlisted companies
have much lesser resources to spend on large regulatory requirements and hence should have different reporting
requirements that match the benefits obtained from such reporting.
The time limitation and resource constraint mean that the primary data via interviews and questionnaire surveys
could only be collected through a limited number of respondents. It would be useful to cover a larger data base
before implementing the changes. Also more users of data in unlisted companies like banks and creditors should be
contacted before policy formulation.
The remaining paper is divided in the following sections. Section II is a literature review on justification and
applicability of IFRS, and state of readiness in companies. Section III discusses the methodology used in this
research. Section IV covers analysis of data obtained through the primary data collection and its interpretation. The
paper concludes with section V.
SECTION II - LITERATURE REVIEW
In June 2000, the European Commission proposed a new directive requiring that all publicly traded companies in the
member states to adopt International Accounting Standards Board (IASB) standards by no later than January 2005.
On 19 July 2002, the European Parliament and the Council approved the IAS regulation (EC) 1606/2002 which said
For each financial year starting on or after 1 January 2005, companies governed by the law of a Member State
shall prepare their consolidated accounts in conformity with the international accounting standards adopted if, at
their balance sheet date, their securities are admitted to trading on a regulated market of any Member State (EU,
2002).
Rationale for EUs adoption of International Financial Reporting Standards
The main aim of International Financial reporting Standards is to bring convergence among different national
financial reporting standards. Over time, the evolution of different national financial reporting standards has been
influenced by local social, political and economic environments. Some of the major reasons for differences in
accounting standards are:
Political Capitalist or Communist. Capitalist and communist countries have almost contrasting fundamental
economic approach and their accounting standards reflect the same.
Stage of economic development. Developed countries generally have better accounting standards in terms
of transparency and clarity.
Corporate finance debt or equity. Companies in continental Europe are financed more by debt than the
companies in UK. Accounting standards have over time evolved to reflect the importance placed by different
sources of financing on different aspects of financial statements.
Legal and taxation systems.
Convergence will help investors and analysts to compare companies across borders in a better way. But it also
implies that either member countries will lose their independence to make national accounting standards that reflect
local economic conditions or if they start introducing some changes, IFRS may slowly lose its main strength of
common standard. Local, political and economical conditions may force national accounting bodies to introduce
variations in IFRS. EU has already introduced some changes in the IAS 39 dealing with financial instruments. It is
beyond the scope of this research to see which member countries have introduced variations in IFRS.
Convergence between UK GAAP and IFRS
ASB has declared its intention to converge UK GAAP with IFRS. It has issued a number of new standards in
December 2004 to speed up the convergence of UK GAAP with IFRS. So sooner, even unlisted companies would be
following a substantial portion of IFRS due to this convergence.
Comparison of UK GAAP and IFRS
Similarities
The ultimate goal of UK GAAP and IFRS is same to present information about financial performance and position
to all concerned stakeholders. If the aim is same, then should be the main approach adopted by both accounting
standards.
The UKs Accounting Standard Boards Statement of Principles for Financial Reporting is a vital contributor at macro
level standard setting. It plays almost same role as International Accounting Standards Committees Framework for
the Preparation and Presentation of Financial Statements. It is a description of the fundamental approach that the
Accounting Standards Board (ASB) believes should, in principle, underpin the financial statements of profit-oriented
entities (ASB, 1999). The Statement of Principles has true and fair concept at its core, much like the focal point in
International Accounting Standards. Also like IAS, Statement of Principles insists on financial information being
relevant and comparable.
It is beyond the scope of this research to highlight each and every similarity between UK GAAP and IAS.

Differences
Though the overall aim is same, the differences in implementation and financial reporting do occur due to social,
economic and political backgrounds of different nations.
Main concepts behind UK GAAP and IFRS are same, but when we look at micro level, we see many differences at
the individual standards level. Following are the main differences between UK GAAP and IFRS:
The Statement of Principles allows use of both historical cost and current value approaches in measuring
balance sheet categories. The dual use of historical and current value methods is known as modified
historical cost basis (ASB, 1999). Under historical cost, the carrying values of assets and liabilities are
stated at the lower of cost and recoverable amount. This approach is more conservative as compared to IAS
approach which uses fair value method. Also the choice of historical or current value method is based on
subjective analysis of a companys management and hence it is open to some manipulation.
Fair value. If we look at global level, both UK GAAP and IFRS have adopted fair value method as the
foundation of their accounting standards. IFRS takes fair value adoption even higher when it says that
income statement will include the changes in the fair value of items that have not been yet traded like
derivatives. The emphasis in new accounting standards is on mark-to-market fair value of assets and
liabilities rather than on actual market price based fair values. Now both realised and unrealised changes in
fair values would be incorporated in income statements. The first year of transition will see high volatility in
earnings and balance sheet statements. Though this brings higher volatility, it will also test the management
skills in proper presentation and explanation of changes. It may also change the benchmarks of success for
managements.
Acquisitions. Acquisition accounting will change under new accounting standards. Under UK GAAP,
companies can choose between purchase and merger accounting. Under IFRS, companies will have to
account under purchase method only.
Goodwill. UK GAAP allowed amortisation of goodwill and companies had the option of not segregating
intangible assets from goodwill. Under IFRS, intangible assets have to be separated from goodwill. Goodwill
can not be amortised now but companies will have to undertake annual impairment tests to justify the value
of goodwill on the balance sheets. BATs profits for year 2004 increased by 454m because it no longer had
to amortise goodwill of that amount (AccountancyAge, 2005b).
Consolidation of accounts. Under new accounting rules, companies may have to consolidate certain
additional subsidiaries into group accounts. On the other hand companies will have to exclude certain
subsidiaries or special purpose vehicles which were not included till now.
Research and development costs. Under IAS 39, research costs cant be carried on the balance sheet and
would have to write them off as incurred. Companies would still be allowed to capitalise development in line
with UK GAAP.
Stock options. Internet and share market last boom in late 1990s led to rapid increase in share options as a
way to reward employees. The new requirements to record an expense on income statement for the value of
share options granted to employees could have a significant impact on earnings. AstraZeneca said in its pro
forma 2004 IFRS numbers that new accounting rules on stock options has made it re-consider the use of
stock options in rewarding its employees (Tricks, 2005).
Distributable profits. Organisations ability to pay dividends is dependent on their distributable profits.
Following are some of the major impacts of IFRS on distributable profits - Inability to discount deferred tax
liabilities, higher provisions for deferred tax when companies move from historical costs to fair value and
inclusion of pension deficits in income statement. All of the above will reduce distributable profits. Many
companies would have to financially restructure themselves in order to have sufficient distributable profits to
meet dividends paid in last year.
Deferred tax credit. Deferred tax credit is available under UK GAAP but not under IFRS. GlaxoSmithKlines
restated its 2004 earning per share by (1.9p) due to non-availability of deferred tax credit under IFRS
(AccountancyAge, 2005a).
Inclusion of business disposals gains in profits from operations. BATs profits for year 2004 increased by
1.3bn after it included gains from disposals to operating profits (AccountancyAge, 2005b). Adding disposal
gains to operating profits will make it harder for investors and analysts to separate the earnings from
continuing businesses.
Derivative contracts. Under IFRS, some derivative contracts will not qualify as hedges as they wont meet the
criteria. UK GAAP allowed deferment of such contracts until transaction took place. IFRS wont allow the
deferment of such contract and would impact the profit and loss account even before the transaction took
place. It is better in a way that investors will know the current value of the firm as on date rather than
historical costs of such instruments, especially if the duration of financial instruments was long. At the same
time, it would increase the burden on the company to calculate the fair value of all such transactions.
Agricultural. UK GAAP allowed companies to use a cost model for biological assets and all agricultural
produce. But under IAS companies would have to use mark to market method for valuing such assets. Now
companies would have to use market valuation even for assets in far off countries.

Advantages of IFRS over UK GAAP
Common financial language. Adopting common financial reporting standards will open up a company to
more markets and investors. The growth in telecommunications has made it easier for smaller investors to
invest across physical boundaries. Such investors are normally not as financially sophisticated as some big
financial institutions. They would also not like to understand more than one accounting standards as they
dont have required resources in hand to do so. With one common accounting standard, more investors
would like to explore companies across nations.
Acquisitions. IFRS 3 is more open and transparent than UK GAAP on acquisitions. It will allow investors and
analysts to judge faster the success of an acquisition. Many of the companies that have relied on acquisition
as a key cornerstone for growth would now come under intense scrutiny and may have to develop a new
strategy for growing business.
Consolidation. In IFRS, all entities will have to provide a cash flow statement. Additionally there would be
more transparency within the group companies and this should make the consolidation process more
straight-forward.
Securitisation by businesses is likely to be impacted by the new ways governing how companies can show
assets and liabilities on their financial statements. Companies have used securitisation to cash in assets like
trade receivables sitting on their balance sheets. Securitisation helps companies to slim down their balance
sheets and hence allows companies to show higher return on assets at same earnings. And it was one of
the reasons why companies went for securitisation. But stringent criteria for moving assets and liabilities off
balance sheet will threaten securitisation. Sue Harding, chief accountant at Standard & Poors in Europe
said that new international accounting standards were sweeping a lot of securitised assets back on to
balance sheets (Jopson, Feb 2005).
This will help investors compare like to like and avoid companies that have used securitisation only to make-up their
balance sheets. There is no harm in using securitisation if used in a proper way and not to deceive stakeholders.
But we have seen how corporations like Enron had used securitisation to disguise their true financial position.
Annual impairment review. Annual impairment review will benefit investors because the companies then
wont like to take big goodwill cuts in one year and not do anything for years. Annual reviews would help
investors judging whether the amount paid by companies in acquiring other company was justified or not.
Access to cheaper capital. Increase in investor profile diversification would most probably lower the cost of
capital for most of the companies. This is especially true for smaller companies which dont have financial
muscles and resources to tap international investors.
Expensing research costs gives better information to investors and other stakeholders because at research
stage the chances of success are quite uncertain. Investors can only be sure of development costs bringing
in some returns in future. Also by segregating research and development costs, external stakeholders will
now have a better chance to differentiate the suitability of costs incurred in developing new products.
Multiple listings. Many companies now have multiple listings across different countries. Companies need to
prepare financial statements as per each local accounting standard to meet listing requirements. With one
accounting standard only it will save a lot of botheration for companies with multiple listings.
Dividends. Under IFRS dividends are not provided for until the dividend recommended by the Board is
approved by shareholders. This move will bring more convergence between accounting profits and cash
flows.

Disadvantages of IFRS
Fair value. While fair value in a way conveys more up to date value of a company as compared to historic
costs, it also puts a question mark on the methods used and the reliability of fair value. Derivative
instruments which are commonly traded on various stock exchanges can be easily assigned value. So while
valuing some of the assets or liabilities may not be difficult, the question still remains what impact such
valuations will have on companies business models. Many companies use hedging instruments as a
strategic tool rather than for intentional gains. Any short-term swings in such instruments may have a
significant impact on income statement and probably adverse market reactions may deter companies from
using such instruments.
Then comes the more important issue of valuing assets and liabilities that dont have a proper market. The
companies may use some valuation model, which itself may not be the right way, to value an asset or liability. The
model will incorporate some subjective assumptions. An example would be brand value. A same brand can have two
different values for two different companies because of its strategic importance. So at one hand, investors and other
external stakeholders are getting more objective information about a companies assets and liabilities, they are also
getting valuation based on more subjective assessments. Only time will tell whether some individuals or companies
will use it to manipulate results.
An interesting thing to observe would be the treatment and importance given by analysts to unrealised fair value of
assets and liabilities. Some investors may try to separate unrealised gains and losses from other operational
performance. It may also prompt companies to issue adjusted earnings excluding unrealised gains and losses.
An important point to note about fair value principle is that the financial statements should not be seen as perfect
prediction of things to come. That depends on the strategic and business decisions management will take in future.
Just having a fair value of assets and liabilities doesnt mean that the company will be able to extract those values in
future.
Dividend. New accounting standards promote payment of dividend from distributable reserves. With the
inclusion of unrealised gains and losses and pension deficits, the first few years of new accounting
standards may not leave enough of distributable reserves for dividend payments.
Securitisation. Securitising assets into special purpose vehicles and re-financing them through had also
helped companies raise funds at lower costs. The new accounting standards by restricting the use of
special purpose vehicles, would diminish some sources of cheap financing. It is question yet to be fully
tested in the practical world that since the assets are same, change in financing options shouldnt change
the returns on total assets. By refinancing at lower rates through securitisation should result in higher
financing cost for remaining assets such that the overall costs remain same. But examination of this
hypothesis is beyond the scope of this dissertation. But what is mostly observed in capital markets is that
when companies announce refinancing, the share price rises. How much of the rise is from relief that
company will survive and how much from the fact that the overall costs have lowered is not known.
Annual impairment tests. Annual impairment tests are easier said than done. Companies would not only
have to devote substantial resources to do that first would have to train its personnel to do that. Assessing
true value of a goodwill is not easy. If there is a comparable market then companies can easily value it. Even
then it may differ from case to case as it would be very unusual to see exactly two similar companies.
Goodwill is very different from tangible assets or technologies and depends a lot on market perception and
strategy. Companies would have to review the whole process of valuing goodwill and would have to review
the valuation process at constant intervals.
Net pension liability. The inclusion of net pension liability on the balance sheet may have severe impact on
the shareholders funds. Companies will be required to have annual actuarial valuation of their pension
liabilities and the same would be reflected in financial statements. Most of the pension funds invest in equity
markets, which have been quite volatile in the recent years. So though over a longer period, the movements
in pension liabilities may even out but in short to medium term, it may have a dramatic effect on balance
sheets and earning statements.
Segmental information. IAS 14 requires companies to report information on their business segments and on
a scale more detail than UK GAAP. As of date, no agreed accounting practices have emerged on how much
should be disclosed because companies may end up revealing sensitive information to its competitors. If
companies disclose the turnover, earnings and expenditure for each segment, its profitable operations may
come under intense competition. Ian Dilks of PwC said that some companies have found theyre giving
much more information than theyre comfortable with on sales and the profitability of product areas (Tricks,
2005)
Expensing research costs may result in listed companies focusing more on products in development stage
than in research stage. This will keep their balance sheets healthy but may harm long term prospects.
Complex and long IFRS compliant reports. PricewaterhouseCoopers estimates that an IFRS compliant
financial report for insurance companies could be up to twice as long as those prepared under existing UK
GAAP (Finn & Zoon, 2004). The requirement for other industry sectors though may not be as intensive as
for insurance sector, their IFRS compliant financial may also be longer and resource intensive than under
UK GAAP. Any company that has makes an acquisition will have to do annual goodwill impairment analysis
and most of them would like to explain the results also.
Comparable formats. IAS 1 is less prescriptive than the UK GAAP when it comes to the format of the balance
sheet and income statement. It just distinguishes current and non-current assets and liabilities. Investors,
when faced with different formats, may find it difficult to compare companies.
Modify organisation structures. Meall (2003) suggested that the additional burden of more financial
reporting along different segments may force companies to modify their existing organisational structures
within their financial systems to collect and analyse data.

Impact of IFRS on different industries
IFRS will have different impact on different industries. For some, most of the applied UK GAAP is almost same as
IFRS and wont feel the difference. But for some industries, the difference in accounting standards may have a
substantial impact. Financial services and insurance companies are among them. Financial services companies
would be affected by substantial change in recognition and measurement of financial instruments under IAS 39. UK
GAAP has no equivalent to IAS 4 which deals with insurance contracts. Insurance companies would now have to
account for this in their financial statements.
Under IFRS, insurance companies would have to book financial instruments such as derivatives at market value
rather than historical value allowed under UK GAAP. Many insurers have said that this will distort their earnings
(Reuters, 2005a). IFRS will put more stringent criteria for classification of insurance products and this may lead to
reclassification of some insurance products as investment products.
Other industries that might face higher impact are the ones that heavily use hedging instruments in their day to day
operations. Mostly companies using commodity materials like oil as a significant part of their input costs use hedging
to smooth over the volatile changes in commodity markets.
New accounting standards will reduce Tescos projected annual profit of 2,000m by 30m only, a reduction of
1.5%. But for some companies the impact would be much more. Royal & Sun Alliance said that new accounting rules
would reduce its net assets by 400m (Reuters, 2005a). This is a big number by any standards and shareholders of
Royal & Sun Alliance would surely be concerned. Even though the company may classify it just an accounting issue,
it casts certain doubt on the business practices and assumptions followed in past by the company.
The movement in assets and profits is not unidirectional for all companies. ICI, the chemicals company, said that its
2004 year profits were boosted by 6 per cent due to the changes introduced by new accounting standards (Smith,
2005). So while the underlying business has remained same for companies, introduction of new standards has the
potential to increase or decrease the value of companies.
Moving from UK GAAP to IFRS is not just same as adjusting numbers. Many companies and their managements
view move to IFRS as just an accounting issue. Andrew Higginson, Tesco's director of finance and strategy said
"The adoption of IFRS is an important issue for all EU listed companies and one that we take seriously, but
ultimately, it is an accounting, not an operational change," (Reuters, 2005b).
New accounting standards can also lead to confusion, at least in the short term till accounting practices are well
agreed by different parties. An example of this was the recent comment about Northern Rock by Credit Suisse First
Boston (Smith, 2005). Credit Suisse First Boston claimed profits at the UK bank would fall by 10 per cent due to the
effects of IFRS. This led to a fall in Northern Rocks share price. But Northern Rocks management didnt agree with
the analysis and issued a rebuttal of the claims. Both Northern Rock and Credit Suisse First Boston are well
established financial firms and if their accounting departments can have such significant differences over
interpretation of IFRS, it can be imagined that smaller companies with less resources will face tougher choices.
Restatement of previous year financial statements has sometimes led to increase in profits also. British American
Tobacco reported that its 2004 profits increased by 1.7bn under IFRS as compared to UK GAAP
(AccountancyAge, 2005b). The increased profits have not resulted in higher valuation of the company. Jonathan
Fell, analyst at Morgan Stanley commented The increased figures are mainly a result of changes to the accounting
for disposals. They do not affect the overall view of BAT (AccountancyAge, 2005b). It is a case of high movements
in profits without a change in value of the firm.
While it may just be an accounting issue only but companies can still benefit from the change by looking at the ways
of information collection and also at what data is collected and how it is analysed. Additional reporting will mean that
some of the companies may now have to collect more data. Internal management reporting will be looked at to
confirm to new accounting standards.
Adopting accounting policies and identifying the required financial data seems to be the approach taken by many
companies. Introduction of IFRS is yet to see a change in business behaviour except in some areas like grant of
share options. PwC said companies are limiting the scope of their transition project in the short term and putting all
their resources into finding fast solutions to provide the appropriate information for their 2005 reporting deadline
(PwC, 2004b). Providing relevant numbers may meet the regulatory requirements but the full benefit of IFRS will
only come when the principle behind its formulation are also incorporated into business thinking.
IFRS 1, First-time adoption of International Financial Reporting Standards, was published by the International
Accounting Standards Board to guide organisations through their transition from national GAAPs to IAS. IFRS 1
would make the transition process easier.
But still the work required to convert from UK GAAP to IFRS wont reduce substantially. Companies would have to
spend considerable resources and time in analysing and making significant changes to existing accounting policies.

Readiness of businesses
ICAEW acknowledges that companies wont be ready for IFRS in the first year of transition. In a press release dated
26 July 2004 it said that it is inevitable that some audit reports will require qualification next year given the number of
companies who are lagging behind in their preparation of IFRS (ICAEW, 2004b). Andrew Ratcliffe, Chairman of the
Institute of Chartered Accountants Audit and Assurance Faculty has warned that some companies may delay
publication of their financial statements due to transition to IFRS.
ICAEW carried out a survey of UK companies on the preparedness of companies for transition to IAS (ICAEW,
2004a). The survey received 661 responses from businesses and accounting practices in 2004. ICAEW had
previously also carried out survey of British businesses on the same. The main outcomes of the latest survey and
their analysis are as below:
81 percent of respondents were either very aware or fairly aware of the publication of the EU regulation.
This is good news because in the previous survey only 61 percent of respondents were aware of EU
regulations. The bad part is that even when EU regulations were so close to being coming into force, not all
respondents were aware of it. Only half of respondents were aware of the IAS timetable. By mid 2004, the
time of ICAEW survey, it was expected that respondents would not only be fully aware of the timetable but
would have also started implementing changes in the reporting system.
Only 38 percent of respondents were aware of ASBs plan of convergence to IAS. It is not of much concern
as of now. It would have been better if more respondents knew about ASBs plan because then they could
have started working on changes right now rather than waiting for the moment when ASB announces them.
About 30 percent of respondents were not sure of any significant impact on their companies key
performance indicators due to a move from ASB to IFRS. This only confirms that companies have yet not
analysed fully the differences between IFRS and UK GAAP. It also shows that organisations are way behind
in developing an implementation, and internal and external communication strategy to their stakeholders.
Only 45 percent of respondents in business section were either on scale very good or good when asked
about their organisations understanding of the implications of IFRS. IFRS is not just re-formatting of
numbers. Organisations will have to look not only at the impact on performance indicators but also analyse
the way information is collected at various levels with in the organisation. Managers across different
divisions should also learn about how the changes would impact their performance measurement.
Only 39 percent of respondents noted that their organisation is prepared for the introduction of IFRS. This
number is very less and companies not ready for the change may find themselves in a fix when new
regulations come into force.
Another area of concern observed in the survey was the speed at which organisations were carrying out
their IAS implementation programmes. The survey noted that implementation rate was slower than predicted
in previous survey. About a quarter of respondents who mentioned that an implementation programme is
required for their organisation already had one in place and another 27 per cent said that they would have
one in place. About half of respondents who stated they need a programme didnt have any plans then. So
first of all not all respondents knew whether they need an implementation programme or not and even of
those who thought they need one, only half had concrete plans.
IFRS will also impact how investors perceive an organisations performance. Only about one-third of
respondents who thought that they need a communication plan to convey impact of IFRS to external
stakeholders had either put a plan in place or was going to put one in short time. Rest two-thirds had not
thought about formulating any communication strategy yet.
Accountancy Ages survey in the last quarter of 2004 showed that companies across European Union were well
short of being ready for the IFRS transition (AccountancyAge, 2004a). In a poll of 1000 companies, 42 % of the
respondents were yet to start their preparation for the impact of international accounting standards. Only 15% of the
companies reported that they have finished their preparations (AccountancyAge, 2004a). The level of
preparedness is so low that ultimately UKs Financial Services Authority agreed to give companies additional 30
days to report their financials in line with IFRS.
Among non-listed companies, only 5.9% said that their preparation for IFRS is good and almost one-third said that
their preparation is very poor (AccountancyAge, 2004b).
In a survey conducted by PricewaterhouseCoopers, 323 companies from 18 European countries and Australia and
New Zealand responded to their readiness to start reporting under International Financial reporting Standards by
2005 (PwC, 2004b). The survey reported that companies are finding change to IFRS is much more than what they
had anticipated. The change is not just reformatting numbers. Companies need to adopt systems and processes in
their organisations to make IFRS a part of business as usual rather than just data collecting exercise.
The survey reported that most of the companies have probably missed the chance of incorporating IFRS in their
internal reporting by the start of 2005 and progress to IFRS has been slow. Companies have a long path to travel
before IFRS becomes an integral part of their businesses. PwC had also conducted a survey in March 2004 on the
same topic and the latest survey in December 2004 showed that issues that were causing concern in the first survey
were still an area of concern.
Major highlights and findings of the PwCs December 2004 survey are (PwC, 2004b):
Larger companies better prepared than mid-cap companies. Larger companies are better prepared than
mid-cap companies on almost all issues relating to IFRS transition. 83 percent of companies with market cap
more than 10 billion euro had a training strategy in place where as the corresponding figure for companies
with market cap less than 1 billion euro was only 33 percent. This result comes as no surprise because
large companies probably have more resources than mid or low cap companies to be put on IFRS transition
project without having a significant negative impact on day to day operations. Also large companies are
more concerned about the capital market implications of non-conformity with IFRS. Additionally it also
highlights the lack of attention being given by low and mid cap companies to IFRS transition process an
area of grave concern for financial regulators and capital markets.
Scant communication of IFRS impact on businesses to the market. Only 4 percent of companies surveyed
had communicated any broad picture of IFRS impact on their businesses to the market and about 29
percent had completed and approved a communication strategy. A large number of companies had not yet
made any progress on external communication and the main reason could be that they themselves have yet
to fully analyse the impact of IFRS on their financial performance and position.
The above hypothesis is confirmed when survey reported that even near the end of 2004 only 88 percent of
companies were assessing the impact of IFRS on their reporting and key performance indicators. And only
about 45 percent of the sample have completed the assessment and reported the findings to their boards.
So though many companies have started the work, the percentage of companies where board is fully aware
of impact is still less. This means that many boards will end up with insufficient time to form a proper strategy
to respond to the changes.
IFRS conversion projects. Only 42 percent of respondents reported that their IFRS conversion project is up
and running. 30 percent had either made limited progress on setting up a project framework or have made
no progress at all. Small companies with one or few divisions could still squeeze through within deadline. But
bigger companies with many divisions and multinational locations would find it hard to complete IFRS
conversion if they havent started yet.
Shortage of resources. Only 19 percent respondents said that they are confident that they have sufficient
resources allocated to complete the conversion in time. It is the other 81 percent who now have to get
additional resources for IFRS projects. Many of such companies might have planned to procure additional
resources in house. But those who have plans for outside sourcing may find it difficult to get required
personnel due to shortage of such personnel.
Internal IFRS training. 39 percent of respondents were addressing the issue of internal IFRS training. Even
within that only 13 percent were implementing strategies and rest 26 percent were still analysing the needs.
Short-term fixes. Many companies were focusing only on a core group of people to implement necessary
changes that would see them through the transition phase. Improper understanding of new reporting
standards by other relevant personnel may result in errors or even much longer implementation delays. 45
percent of respondents said that their approach is based on short-term fixes rather than applying a more
company wide approach.
Poor company wide embedding of change requirements. Only about one-fifth of the companies had made
necessary IT system and process changes to make IFRS a part of normal business. Even fewer were the
companies who had put internal checks in place to ensure the robustness of data collection process.
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The results also showed that many companies were focused solely on short-term quick fix solution to data capture
and reporting. A half-hearted exercise like this could result in unintentional wrong reporting or even delayed
reporting. A miss or a wrong guidance could be costly. Wrong numbers will not only lead to wrong valuations but
would also reflect on the poor sate of internal systems a signal that wont be much appreciated by the capital
markets.
An interesting comparison would be to evaluate IFRS preparedness in different industries. Normally firms look at
their peers rather than at whole market when deciding their strategies and practices. This is due to higher
comparison within peer industry as compared to with whole of capital markets. In the survey conducted by PwC,
companies in the financial services, technology and entertainment were ahead of organisations in the consumer
and industrial products and services (PwC, 2004b). Financial and technology organisations were leading consumer
and industrial companies at almost all the stages of IFRS implementation with differences not huge but significant.
One probable reason for such cross-industry differences would be the level of globalisation in sectors. Companies
in more global sectors have to live up to international standards and some of their bigger customers are
international companies. IFRS would help them win more international credibility.
Another interesting but obvious observation was the attention paid by different sectors on different IFRS. PwC
reported that technology companies were ahead in terms of readiness in the areas of employee benefits, foreign
entities whereas financial services companies have paid more attention to IAS 32 and IAS 39 which deal with
financial instruments (PwC, 2004b).
Costs of IFRS transition
Retrospective application. Organisations would have to restate financial statements in line with IFRS
requirements. This would entail additional resources and costs to make necessary restatements. The
companies would have to prepare an opening balance sheet at the date of transition to IFRS. For
companies with one year of comparatives, the transition date would be 1 January 2004 and for companies
with two years of comparatives, the transition date would be 1 January 2003. First IFRS statement may also
need information that was not collected under previous national GAAP. First time adopters can choose from
some of the 10 optional exemptions available. This may reduce some transition costs.
Time spent in understanding and assessing the impact of IFRS on financial performance. As move to IFRS
is much more than plain reformatting of numbers, organisations would need to spend time on assessing the
impact of IFRS on their financial performance. New regulations on financial instruments, fair value may
significantly change income and balance sheets. Management as well as senior managers across divisions
would spend considerable time in understanding the implications of new regulations. Such process rarely
concludes in one meeting due to its contentious nature.
Communicating changes to stakeholders. Listed companies have to inform changes in accounting and their
implications to their external stakeholders, notably investors. The first statement with IFRS will probably
include a longer description of impact of changes. Any significant negative impact may lead to lower
valuation and so management would spend time on developing and executing a good communication
strategy to minimise negative impact.
Training of employees. Employees, mainly in the financial departments would need training to become
conversant with IFRS.
Regular costs. Annual impairment costs. Costs incurred in collecting more data and analysing it.
It may be noted from the above points that most of the costs are either applicable in the first year only or are more
significant in first year as compared to subsequent years. As companies adopt IFRS, regular costs of applying IFRS
may not be significantly different from the costs incurred under national GAAP.

Reasons for apprehension towards IFRS are as follows:
IFRS will increase the complexity of annual financial reports. This is an area of big concern for the preparers
of financial statements as it means more work. It may also result in potentially litigable financial statements.
There is confusion about applicable standards due to the constant revision of IFRS. EU is also constantly
reviewing and revising IFRS. UK companies have to keep a constant watch on revisions being issued by
IASB and European Commission. In the first adoption of IFRS, standards as on March 2004 would form a
stable platform for first implementation. Companies can also adopt further revisions of reporting standards.
So though two companies might both be IFRS compliant on a date, they might be reporting on different
versions.
Less use of summary reports. UK GAAP gives exemption to companies based on their size. Smaller
companies utilise such exemptions to prepare just summary reports using less resources, but at the same
time they contain most of the relevant information required by the readers of such reports.
US dominance. It is perceived that IFRS are underpinned by US interests. As an example of this, European
Commission has made some changes in IAS 39 before recommending it to its member states. European
banks and ministers had raised serious issues on the impact of IAS 39 on their balance sheet. The US bias
in accounting standards also comes from the view that International Accounting Standards Committee is
dominated by US. Charlie McCreevy, EU Commissioner, in charge of internal markets has demanded a
review of IASC (AccountancyAge, 2005c). McCreevy would like to see more number of Europeans at IASC.
Many people believe that UKs accounting standards are better than IFRS. UKs accounting standards
describe formats for income statement and balance sheet. IFRS has no such formats and companies would
be allowed to choose style that suits them. First of all investors and analysts would have to deal with multiple
formats which may make comparison difficult. Second, companies may vary their formats to suit their
purpose.
It is also believed that since IFRS had to take account of many accounting standards prevalent in late 90s
and develop a standard which takes care of variations, IASB may have compromised somewhat in setting
standards. UK may be made to sacrifice for the greater good of all.
A major rationale behind IFRS is that it will allow global markets to develop and companies can access
cheaper capital. But is there a big need for UK registered companies to raise international finance. Right
now international companies, especially those based in developing countries, look for financing in UK. IFRS
will certainly help such companies as more UK investors would now finance international companies. It may
then happen that UK based companies would be competing against foreign companies for the same basket
of UK funds. This may raise the cost of capital for UK based firms.
First time implementation costs. IFRS will also result in significant implementation costs, especially for
smaller companies.
The uncertainty around IFRS is highlighted in the annual financial reports presented by Alliance UniChem, a listed
UK based pharmaceutical company. While presenting a summary reconciliation from UK GAAP to IFRS, the
company said The financial information has been prepared on the basis of IFRS expectation to be applicable for
2005 reporting (Alliance UniChem).
UKs ICAEW has also said that current IFRS in its entirety is not suitable for smaller companies. ICAEW believes that
IFRS will cause too much cost and resources for smaller companies. Also maximum of them are single-person
owned and so the extra information and the efforts required to do that is not of any use. IASB is looking at ways to
introduce some exemptions for smaller companies.
Variation in IFRS, as applied in different nations may falsely lead investors and analysts to believe that companies
are following IFRS in the original and true form whereas they may not be doing so. As the enforcement of
accounting standards would still be with national bodies, the local auditors will look only in terms of local IFRS and
may not note the differences with the original IFRS as issued by IASB. Also investors and analysts may not be able
to take note of local changes coming out time to time.

Internal management reporting
The adoption of International Accounting Standards is more than a simple technical exercise of rearranging formats
and presentation of financial statements. The new formats and rationale behind them would throw up more
important questions about business models and reasons behind many subjective assumptions in past. Most of the
times new ways of analysing information challenges existing practices. The internal management reporting is now
going to be more significant.
The detailed internal management reporting will put more pressure on information gathering and it might uncover
hidden but important aspects of a business models in addition to increasing costs and time spent on information
accumulation. The new formats provide an opportunity to re-examine the importance and effectiveness of internal
management reporting.
But the companies have yet to make any significant change in internal controls and processes. PwC said the low
level of achievement [on IFRS processes and internal controls] at this stage of the change process should now be
ringing bells in boardroom (PwC, 2004b). Until companies implement full controls and procedures in line with IFRS
requirements, they wont be able to derive benefits from it.
New reporting requirements will allow external stakeholders, especially shareholders, a chance to re-analyse
business strategies and management decisions. The adoption of new accounting standards will bring in more
transparency for external investors in areas like segmental disclosures and recognition of derivatives on balance
sheets at fair value. Investors can then analyse management decisions and check whether the new investments are
being made from a strategic point like expanding business or just to earn some additional amount from derivatives.
Investors can invest in derivatives on their own and wouldnt appreciate such investments by companies unless they
are from a strategic point of hedging against unwanted currency fluctuations which can substantially harm
companies balance sheets.
The focus of International Accounting Standards is on better performance measurement and communication of the
same to internal and external stakeholders. Adoption of better and more transparent policies in reporting by a
company would most probably seep down through to other companies in the sector as they would not like their
peers to have an undue competitive advantage. Investors prefer more open companies and reward them by
increasing their price multiples, which will tempt other companies to soon join the bandwagon of new reporting
standards and formats.
It will be too early to say that new reporting standards will fundamentally change the businesses in the short run but
it will definitely change the way success is measured by external stakeholders and information sharing between
internal and external stakeholders. It will also have an impact on some of the related aspects how the companys
financial function is organised and how people are rewarded.

Shortage of skilled manpower
Companies would also face shortage of skilled human resources to not only see them through transition but also to
implement IFRS on a constant basis. Skilled staff, qualified enough to deal with IFRS, were in short supply. PwC
survey reported the acute shortage of skilled resources (PwC, 2004b). One of the participant said Finding and
retaining resources is proving a very significant issue (PwC, 2004b). This may be due to most companies focusing
on IFRS only in the last minute rather than implementing the change over time. PwC reported that shortage of IFRS
skilled resources is a market-wide phenomenon (PwC, 2004b).
Nearly 40% of the respondents reported that they were struggling to find staff with right skills (AccountancyAge,
2004a). This has resulted in higher wages for auditing staff. Auditors wages have gone up by 5.3% in the six
months to October 2004 (AccountancyAge, 2004a).
The scene is worse when we compare shortage of staff in large and small firms. 44 percent of the largest companies
as compared to 15 percent of the smallest companies in the PwC survey were confident that they have all the
necessary resources in place (PwC, 2004b). The shortage of skilled manpower might be a big issue for the
remaining 56 percent of largest companies. Though lower cap listed will probably need lesser amount of resources
as compared to mid or large cap listed firms, they may still find it difficult to locate skilled resources as most of them
would have been already grabbed by larger firms.
Transitional phase is always fraught with difficulties and confusion. A number of countries have adopted IFRS. But
there is still no single or commonly accepted way of employing IFRS. As of date, there is no single International
GAAP. A consensual International GAAP will only emerge after a few years of implementation by companies across
different countries. The journey is definitely not short and easy. Companies and auditors interpretation of new
financial reporting standards may differ across the cross-section and also may be with in same industry.
Will we see a single accepted International GAAP in short term? Looking at the variations in current national
standards and new standards being open to subjective interpretation, it would be nave to say yes. It would be an
ideal scenario to have a single International GAAP at some time but the more important issue is whether we need a
single accepted International GAAP immediately. As long as the individual countries commit to implementing IFRS in
true sense and allow their companies some time to navigate through the change process, it should be acceptable.

Auditors
Auditors are the links between IFRS and companies compliance with new accounting standards. Their role is vital in
ensuring compliance of IFRS by companies and becomes more in the initial years when there would be some
confusion on generally accepted accounting practices. But the things are not so rosy on that front. In a survey
carried out by International Accounting Standards in 2000, it was found that major audit firms issued unqualified
audit opinions on IAS financial statements that did not comply fully with IAS (Cairns, 2003). If this was the state of
major audit firms, it wouldnt be wrong to imagine that things would be similar or even worse in smaller audit firms. It
was also found that auditors sometimes limit their opinion to compliance with national GAAP even when the financial
statements of the company asserted compliance with IAS.
While both personnel from companies and accountants agree that IFRS will need more resources and result in
higher costs than the implied benefits of it, accountants are more favourable in their opinion about IFRS. It is the
companies that will have to incur all costs and on regular basis. Accountants will have to just learn once the
differences and they can recover learning costs by charging higher to their clients. Probably more complexities in
IFRS will result in higher work for accountants.

Impact on non-financial personnel
Finance personnel would have to learn new accounting standards being introduced under IFRS. They will have to
develop new formats for internal reporting. The changes and their impact would also be felt by operational
managers. The new formats may impact the profitability of divisions. Managers may be forced to look at the ways
business is carried out and explore new ways to maintain or increase profits.
Also since most of the employee bonuses are linked to profits, the application of new accounting standards will also
impact performance bonuses. The first year of transition may result in huge variations in bonuses. Employees of
insurance companies may find that their bonus packages have been severely impacted by new regulations on
financial instruments. Companies may be forced to come up with new bonus packages, an extra and costly burden
as bonus packages take long time to evolve.

Non-listed firms and IFRS
Non-listed firms are generally smaller, less diverse in terms of divisions and number of international locations as
compared to listed firms. All these factors mean that non-listed firms may find the IFRS transition process less
complex and hence can complete it with lesser resources and in lesser time as compared to listed firms.
METHODOLOGY
The central question in this research justification of IFRS and its implications means that it is an area dependent
upon peoples subjective opinion on various issues related to IFRS. The complexity of the issue means that this
research is better approached in an inductive way rather than deductive way. The world of business is too complex
and diverse to render itself to generalised assumptions and hence one approach for all should not be adopted. The
research collects and analyses both qualitative and quantitative data to see if IFRS is suitable for un-listed
companies.
The qualitative approach is a better starting point. It helps in developing a better understanding of the topic and
also to explore other issues related to the central question of this research. Quantitative approach lends credibility
to the whole approach and to conclusion, if any. To overcome the quality or bias in the quantitative data, the data is
analysed from statistical viewpoints also.
Both secondary and primary data such as questionnaires and interviews have been used in data collection. The
central question on justification and implications of IFRS is mostly explored using secondary resources like journals,
press releases and other documentary sources. The report analyses the views expressed in various publications. A
large number of publications and sources have been used to present a much boarder picture. The secondary
research also challenges the viewpoint expressed by different sources.
The results of secondary data analyses have been used in formulating a strategy for primary research. Primary
research covers the issue of IFRS from the viewpoint of un-listed UK companies. Most of the research on
applicability and usefulness of IFRS have been done on listed companies and much less resources have been
spent on analysing IFRS from the viewpoint of un-listed companies. This report and its findings deal primarily with
un-listed companies.
Primary data is collected through interviews with relevant personnel in un-listed companies and their accountants.
Most of the persons interviewed were either Finance Director or Group Financial Controller and in almost all cases
they were in charge of IFRS transition process. Interviews were conducted using a semi-structured format using the
insight gained from secondary data to initiate the topic and then exploring deeper into issues faced by un-listed
companies. Any interesting observations and insights of interviewees were further explored to gain better
perspective of a wider range of areas. Experience gained in the first few interviews was used to refine interview
questions and procedure for remaining interviews to obtain better results. Where possible, interviews were recorded
with the prior permission of interviewees to increase the reliability and validity of results. Interviewees were also
informed about the purpose of this research and their rights. As far as possible with in the time constraints in each
interview, same questions were asked to interviewees to statistically strengthen the results.
Interviewee selection was one of the key issues in research. A major limiting factor was the availability of time and
resources to conduct a much broader research. As such, the search was limited from a geographical area of 25
miles. It wasnt possible to cover all industry sectors and it was also essential to conduct more than one interview in
sectors to prevent synthesis of biased opinion.
A questionnaire is also used to obtain a larger set of primary data. Using questionnaire is an economical way of
reaching more information from a larger sample of UK un-listed companies and accountants and a larger
geographical area can be covered in relatively shorter time. A drawback of questionnaire is that only objective
information can be obtained and it is difficult to capture the unique experiences of respondents.
Another drawback of questionnaire is that one is not sure of number of responses. An initial estimate of response
rate was used in conjunction with the responses required to obtain the minimum number of postal questionnaires to
be sent. The following equation gives the relationship:
Actual sample size = Minimum sample size / estimated response rate
It is hard to estimate a response rate for such questionnaires and a 10% response rate was used. A 10 % should
result in 30 responses.
Responses from company respondents and questionnaire were compared with those from auditors. Auditors
responses to IFRS will be different from company respondents due to the nature of difference in jobs. Auditors will
have to work with IFRS and it is difficult to expect an opposition to IFRS. But it is useful to compare their view with
the view expressed by other respondents. Also being able to express their views unanimously, auditors will be more
candid and fair.

DATA ANALYSIS AND INTERPRETATION
The results of interviews with companies and accountants and questionnaires pinpoint in one direction only IFRS
in its current form is not suitable for unlisted and smaller companies.
We interviewed [34] people [20] were from company management and [14] were accountants with those
companies. Interviews with accountants were less in number than with management because of two reasons first,
some firms had same accountants and second, some interviews were cancelled.
Appendix I shows the questionnaire used along with the interviews. Interviewees were given the questionnaire to get
more objectives answers. Often interviews run short of time due to some change in plans of interviewees or due to
longer time taken to answer some specific issues. Appendix I questionnaire was also sent in postal survey.
Appendix III shows the interviewees response to the questionnaire. All interviewees answered all the questions,
probably because they had been personally interviewed.
Out of [20] companies interviewed, [8] had annual turnover less than 50m, [6] had turnover between 50m and
250m, and [6] with turnover more than 250m. The distribution is also skewed towards the smaller turnover
companies in the questionnaire surveys.
Companies surveyed were from a number of industries to avoid any kind of bias. IFRS will impact some industries
more than others and hence surveying a larger number of industries gives a broader perspective.
A total of [300] questionnaires were sent to different companies and a total of [52] responses were received at a
response rate of [18] percent, a percentage much higher than anticipated. Larger data set in questionnaire survey
has improved the quality of results.
Appendix IV shows the response to the postal survey. Unlike the questionnaire to interviewees, not all respondents
answered all the questions. A reason could be that they answered only in the areas they felt comfortable with.
On the timeline for implementing IFRS, most of the companies said that they would implement probably in 2007 only
and around the time when it becomes mandatory for them to do so. Only [2] of the companies interviewed and [6] of
those responded via postal questionnaire said they planned to implement IFRS in 2005. Interviewees were asked
the rationale for this decision. Most of them mentioned the uncertainty around IFRS as a major reason for delaying
the implementation decision. Interviewees said that they would wait for industry practices to be established over time
by listed and bigger companies before implementing IFRS. It also reduces their costs associated with multiple
changes in accounting standards.
On the question of whether they have made a decision on change in accounting policies due to IFRS, [50] percent
of companies interviewed said that they havent started the process yet. The response was also similar in case of
questionnaire. This shows that unlisted companies are way far behind in implementing IFRS. It is also in line with the
results of surveys done by PwC and ICAEW on listed companies. The good thing here is that unlisted companies
have still got time till 2007. But they shouldnt wait till the last minute to initiate the process.
It was also found out that those companies which planned to list in short or medium term were ahead in accounting
policies review process. They will have to comply with IFRS as and when they list. Additionally investors and analysts
will compare such companies with their listed peer group who now have to use IFRS and hence it makes sense for
companies planning to list soon to start adopting IFRS sooner.
On the aspect of evaluating impact of IFRS on companies financial performance indicators, the percentage of
respondents saying not yet started was even higher. [60] percent of interviewed companies said that they havent
yet started evaluating the impact of IFRS on financial performance indicators. This is not surprising because if they
havent started a review of accounting practices under IFRS, it is difficult to comment on impact of IFRS on their
performance indicators. The results were also similar in postal questionnaire survey. When the results of this
question were analysed with reference to the turnover of companies, it was found that the companies where no work
has started on impact assessment were mostly in the lowest turnover bracket.
But when respondents were asked what would be the general impact of IFRS on key financial indicators, the
response was mostly negative. [40] percent of companies interviewed said that they think IFRS will have a negative
impact on key financial indicators while [30] didnt have much idea. The negative general impact is higher than the
negative impact question on their specific companies. It is probably due to the wide-spread publicity given to IFRS
and the likely negative volatility in the annual reports of bigger companies. Also the news coming out on IAS 39 and
its potential negative impact on banks and insurance companies have helped form a general opinion that IFRS will
lower their results.
And as the companies had yet to finish or even start their review of accounting policies under IFRS and its impact
on their key financial performance indicators, the Board member were mostly unaware of the specific impacts. Some
of the interviewees did mention that the Board members have a fair idea of the impact and they have discussed the
issue in general even though no systematic approach has been adopted yet. About [40] percent of Board members
had no idea of IFRS impact. On correlating this with their annual turnover, it was found that the percentage was
much higher in case of lower turnover companies. Lower turnover companies normally have lesser resources to
spare for issues like review of accounting policies and they are the ones who didnt have plans for listing in near
future. So they have probably left the whole exercise of review and assessment until the date of mandatory
application.
One interesting difference observed between listed and unlisted companies is the need for external communication.
Listed companies, in the survey done by PwC and ICAEW, had either prepared their external communication
strategy or were in the process of doing so. But about [50] percent of the unlisted companies in this report said that
they dont feel a need to communicate changes to external environment. Interviewees said that changes, if any,
would only need to be discussed with their banks. And since they have a good communication with their bankers on
regular basis, they dont feel a need to develop a separate strategy to communicate with their bankers.
When respondents were asked if IFRS is better than UK GAAP, about one-third replied in negative. Only about [10]
percent said that IFRS is better than UK GAAP. About half of the respondents said that either they dont know it as
of now or both the standards were almost same. Once companies start applying IFRS on day to day basis, the
number of undecided respondents will come down and we will have a better comparison of two accounting
standards.
The response was even more critical of IFRS when asked with respect to smaller companies. About [50] percent of
respondents said that UK GAAP is better than IFRS for smaller companies. Though less than [50] percent of
respondents have done a proper assessment of accounting standards, yet many say that UK GAAP is better than
IFRS. This is mostly based on the perceptions they have gained from media and also from discussions with other
companies.
IFRS will increase the complexity of financial reports as compared to UK GAAP. [50] percent of interviewed
companies and [40] percent of questionnaire responses reported that IFRS financial reports will be more complex
than UK GAAP. UK GAAP allows smaller companies to avail exemptions in financial reports. Smaller companies dont
have to share their reports with a large audience and hence shorter version of financial reports is sufficient for
them. Under IFRS, no such exemptions are available right now. IASB is considering giving smaller companies some
sort of exemptions from full reporting but nothing is certain now.
Smaller and unlisted companies are also well behind in setting up IFRS conversion projects. Many companies have
yet to start a project implementation team. Many companies also said that they dont need a project team. The
responses were than tallied with companies turnover. It was found that companies with turnover less than 50m are
the ones that have mostly either not set up a project team yet or dont intend to do so. One more factor to bear in
mind is the unlisted companies have time till 2007 to implement IFRS.
On resources, companies were almost unanimous in saying that they dont have sufficient internal resources to
implement IFRS. More than [50] percent companies surveyed via both interviews and questionnaire said that they
dont feel confident in their in house abilities to implement IFRS. We saw before that how most of them feel that IFRS
financial reports would be more complex.
Companies would need to collect more data on segmental information. [50] percent of interviewed companies said
that IFRS will need more resources on regular basis. The implied costs on smaller companies would be high as
compared to listed companies.
IFRS financial reports demand a lot more data collection. Data collection is one thing but it should also be monitored
how data is collected and analysed. Smaller and unlisted companies normally dont have well laid out procedures to
monitor data gathering. Companies surveyed said that they will have to increase their internal process controls. [60]
percent of respondents said that IFRS will require either some or significant increase in internal control procedures.
Additional activity levels will increase costs for companies. Larger companies will probably wont feel the pinch of
more resources on internal controls. Most of the smaller companies are managed by a small set of close knit people
and it is doubtable whether the extra resources put on improving internal control procedures would result in any
better information for owners.
The high demands placed by IFRS on companies would mean their staff should be suitably trained to handle
transition to IFRS and to maintain proper financial records on regular basis. [60] percent of the respondents said
that their existing staff were either very or slightly inadequately trained to handle IFRS. If [60] percent of the
companies have this view then it implies that IFRS trained staff may be in short supply. Companies may face huge
bills for making their accounts and procedures complaint with IFRS. And they agreed on this. Respondents either
were not sure of how much it would cost them to train their staff or said that it may be a significant figure. Resources
like manpower spent on training may have a negative impact on business during the transition phase.
Not only finance personnel would have to learn new changes, the impact may also be felt by operational managers.
The divisional profits would be reported in under new formats and may impact the profitability of divisions. Since
most of the employee rewards are linked to profits, the application of new accounting standards will also impact
performance bonuses.
IT has become an integral part of businesses, even for smaller businesses. Bigger companies have more elaborate
IT systems to capture more data. IFRS reporting will mean that companies have to collect more data than under UK
GAAP. [60] percent of the companies surveyed said that IFRS will result in either in changing their IT systems
completely or making significant changes. Changing IT systems may also cause business problems.
All the above requirements training and IT systems change mean that companies have to incur a cost in
transition to IFRS. About [50] of the respondents said that the costs due to IFRS transition are significant. Significant
cost is also a major reason why unlisted companies are behind in IFRS implementation and have delayed it till it
becomes mandatory. Then smaller companies can gain from the experience of listed companies and reduce costs.
Also by then changes in IFRS would be occurring at a much lesser frequency and companies can avoid costs due to
each change.
Costs are major factor in most of the business decision. IFRS transition costs represent a significant burden for
smaller companies and they dont see any benefit coming in short term. Smaller companies dont have the luxury of
bigger companies in terms of long term investment because they are not sure how long they would be in business.
Moreover smaller businesses face more cash flow problems and would like to delay any costs that dont result in
immediate business.
This leads to the central issue whether IFRS is better than UK GAAP and if so, does the costs justify the transition.
Smaller companies think that costs of transition dont justify the benefits of transition. Only [20] percent of the
respondents said that the costs justify the change to IFRS a result not in favour of IFRS. ICAEW has also asked
IASB to look at giving some exemptions to smaller companies.
On question of whether IFRS will result in better internal management reporting, most of the respondents said that
were either not sure of the benefits or didnt think it will result in significant benefits. The answer is based more on
perceptions than experience as most of the companies have not yet put in place all controls and procedures in line
with IFRS. Once IFRS becomes mandatory for unlisted companies and is in place for some time, only then it would
be a better time to test whether IFRS compliant systems result in better management reporting.
Overall unlisted companies were not as receptive to IFRS as listed companies. Many raised concerns about the
complexity, applicability and benefits of IFRS for unlisted companies. Some even mentioned the exemptions
available under UK GAAP and how full IFRS will make their life tougher.
Respondents also mentioned about the costs associated with training of personnel and changing IT systems. As
compared to listed companies, these costs represent a significant portion. Respondents were not sure what benefits
the transition will bring to unlisted and smaller companies. And this made the decision to spend money all the more
difficult.
Respondents also mentioned that they might be forced to adopt IFRS even before the mandatory date due to
competitive forces. As listed companies adopt IFRS, smaller companies will also start implementing IFRS so as not
to give any undue competitive advantage to listed companies.
Variations due to turnover
The study also analyses the probable variation in IFRS approach and implementation because of company size.
The data obtained through questionnaires both through face to face interviews and postal is segregated based
on company annual turnover. The firms were divided into three categories large with annual turnover more than
250m, medium with annual turnover between 250m and 50m, and small firms with annual turnover less than
50m.
The results for main areas are
Assessing high level impact. The large firms were far ahead of small firms in terms of assessing high level
impact. The most likely reason could be that financial institutions will compare their performance with listed
firms and hence it would be better to analyse impact of IFRS right now to present a stronger case to
financial institutions.
Internal training. As above, larger firms had either started training their employees in IFRS or were mostly
planning to do so in near future. Successful training of employees is key to meaningful analysis of IFRSs
impact on companies balance sheets and earning statements.
System enhancements. Unlisted companies were more or less similarly distributed in enhancement of their
systems for data gathering and evaluation. Large firms are more advanced in their understanding and
desire to implement IFRS but they were also not yet preparing for major changes in systems.
Internal controls. The results were similar to what was observed in case of system enhancements though in
this case significant proportion of large firms had either put some thoughts to this or were planning to do so
in near future.
Variations due to listing in short or medium term
It was expected that companies with plans to list in near future would be more receptive to implementing IFRS. More
of such companies were ahead of their peers who had no plans to list in near future. The results, when analysed
with reference to companies desire to list in short or medium term, showed clear demarcation.
Assessing high level impact. Almost all companies that planned to list shortly were far ahead in assessing
and implementing IFRS as compared to those companies that had no plans to list in short or medium term.
[80] percent of companies with listing plans had either assessed or were assessing the impact of IFRS on
their financial position and performance measurement. Only [20] percent of companies with no listing plans
in near future were at assessment stage.
Internal training. [60] percent of companies with listing plans had either started internal training or were
putting a strategy to do so in near future. Only [10] percent of companies with no listing plans in near future
were at comparable stage.
System enhancements. [40] percent of companies with listing plans had started looking at their systems to
bring them at levels required with IFRS. For companies with no listing plans in near future, the comparable
figure was [10] percent only.
Internal controls. The results were similar to what was observed in above parameters. The evaluation and
setting up of commensurate internal controls was going on in [40] percent of near term listing desirable
companies as compared to [10] percent in case of companies with no listing plans.
The above results are not surprising and clearly demonstrate that unlisted companies with near future listing plans
were far ahead in terms of IFRS assessment and implementation. They know that when they will go for public
floatation, both investors and financial institutions will compare them with listed firms. And it would strengthen their
case as well as their credit ratings if they have IFRS systems in place for longer duration. It will also give potential
investors more confidence in their financial statements.

Auditors
Appendix II shows the questionnaire used along with interviews for auditors. The theme of the questionnaire is same
as that used for companies and auditors but was tailored to match different role of interviewees in companies and
auditing firms.
Appendix V shows the response of auditors to the questionnaire.
On the issue of implementation of IFRS, [50] percent of the accountant respondents said that the companies they
are working with will implement IFRS in 2007 only, when it becomes mandatory. This shows that either the
companies dont see much benefit in implementing IFRS right now or the costs are too high and dont justify the
early transition now. Also the uncertainty around evolving IFRS standards would be reduced by 2007.
As a consequence of the above decision, only [1] company out of [14] companies associated with the accountants
surveyed have completed IFRS implementation. And [10] out of [14] respondents said that the companies audited
by them have yet to analyse the impact of IFRS on their key financial performance indicators.
A major difference of opinion between auditors and companies is noticed on the question of impact of IFRS on key
financial performance indicators. [50] percent of accountants said that impact would either be same or positive
whereas corresponding figure in case of companies interviewed was only [30] percent. When accountants were
quizzed that general opinion is that impact would be much more like negative, many replied that the major issues
which will result in negative numbers, like hedging instruments, pension deficit wont arise in case of smaller
companies.
Accountants were also more positive about IFRS. When asked whether IFRS is better than GAAP, negative
responses were only [15] percent as compared to [35] percent in case of company respondents.
But accountants also confirmed that IFRS is not better when it comes to smaller businesses. In response to whether
IFRS is better for smaller companies, [5] auditors replied in negative as compared to [3] that had said that IFRS is
not better for companies. Auditors also broadly agreed that if smaller companies have to follow all regulations in
IFRS in the current form, the costs and resources required to do so would outweigh benefits. Plus the rationale for
IFRS international capital market and globalisation is not much applicable for smaller companies that only have
domestic markets and dont plan to list in near future.
Auditors were also less agreeable on whether IFRS will lead to more complex financial reports. Only [2] out of [14]
respondents said that IFRS will result in complex financial reports. Many auditors believe that though financial
reports would be more voluminous, they wont be more complex in case of smaller companies. Smaller companies
deal with lesser number of contentious issues and hence there is less scope of complexity. Smaller companies have
very few or no acquisitions, use less hedging instruments and have very few or no foreign subsidiaries.
On questions of whether the companies have set up IFRS project implementation teams, auditors responses were
similar to that of company respondents. Only difference was that no auditor said that the companies audited by
them dont need a project implementation team. They believed that even though implementation would be much
lesser in smaller companies, they would still need to set up a proper project team to implement the changes. This is
necessary so as not to miss finer points in IFRS.
Auditors were more critical on whether companies have sufficient internal resources to meet the IFRS transition
requirements. [9] out of [14] auditors believed that companies dont have enough resources for a successful
transition. This number in terms of percentage was even higher than what company respondents said. A reason
could be that companies might be thinking that their internal finance staff is capable of handling transition, a view
not shared by many auditors. Auditors believed that IFRS will require many changes than what looks from an
overview and first year IFRS statements would be the most difficult to prepare. They advised more companies to use
professional auditors for a successful transition.
Auditors response on additional resource requirement on regular basis was almost same as that of company
respondents. Most of them believed that companies may need only slightly more resources as compared to what
they are using now.
Though auditors didnt believe that companies would need significantly more resources, they were more unanimous
in saying that companies would have to significantly improve process controls. IFRS reporting needs more data and
hence good process controls would help in timely collection and analysis of data. Auditors also mentioned that it is
the first time of putting all controls in place that is much more resource intensive and needs technical guidance, but
once all procedures and controls are put in place companies can do most of it on regular basis without significant
addition in resources.
On the issue of trained staff in the companies, auditors said that staffs in smaller companies were inadequately
trained as of now to handle IFRS reporting. [6] out of [14] respondents said that staff in companies were very
inadequately trained to handle transition. But they also agreed that as of now it is not a big issue because unlisted
companies have time till 2007 to train their staff. Many also said that finance personnel themselves in those
companies may themselves go for training before that so that their professional learning is up to date.
This is an interesting observation as training needs might be forced by employees on the employers. So even
though employers might not implement IFRS before 2007, they may end up spending on training costs much
sooner.
Auditors also said that companies will have to make changes in their IT systems, either significantly or somewhat.
Only [3] out of [14] respondents said that the companies audited by them have IT systems that can handle all IFRS
requirements.
[3] out of [14] auditors said that costs of implementing IFRS were not significant. But a large number [5] said that the
costs would be significant for smaller companies. Also [6] said that dont know how much would be the costs. As
most of the unlisted companies have yet to start implementing IFRS, auditors were not a position to comment on
costs impact.
Auditors were equally split on the question whether costs of transition justify IFRS. [4] replied in affirmative and [4] in
negative. Also important to note that a significant [6] were yet to form any opinion on this.
We see a major deviation between company respondents and auditors on the issue of improvement in internal
management reports. More auditors believed that implementation of IFRS and subsequent new procedures and
controls would result in better management reports.
Introduction of The Companies (Audit, Investigations and Community Enterprise) Act 2004 has strengthened the
rights of auditors. Directors have to disclose more information in Directors reports and auditors can contact more
persons. When accountants were asked if they think that the new law has strengthened their rights, only [30]
percent said yes. Many agreed that it has improved things on paper now but good accountants were already
following those practices.
Auditors highlighted following two areas which will strengthen their rights:
Auditor of a parent company can now require the information directly from a wider group of individuals
Increase in penalty for knowingly making a false or misleading statement to the auditor
Auditors were more in favour of IFRS as compared to company respondents. They did agree on the cost implication
of making the changes but said that the benefits will justify the costs. But they also pointed out during interviews that
this was more of a case with listed and large companies than with smaller and unlisted companies.

Recommendations
IFRS is here to stay and unlisted companies would be forced to adopt it either by mandatory laws or
though competitive forces. But there is much scope in fine-tuning IFRS for unlisted companies.
IFRS, in its current form is not suitable for un-listed companies. It has been designed with listed companies
in mind and is too complex for un-listed companies to follow. IFRS should be relaxed for un-listed
companies.
IFRS should also allow use of smaller reports for un-listed companies. Such companies dont have to report
to a large audience and are annual reports are only for owners and its lenders, if any. Smaller reports, as
being currently allowed by UK GAAP under exemptions for smaller companies, would present almost all the
relevant information needed.
IFRS should only be applied to un-listed companies once international accounting standards have
stabilised. Right now there is a lot of uncertainty about different IFRS and smaller companies would find it
difficult to cope with numerous changes.
IFRS should also recommend some reporting formats for smaller companies that can be easily followed by
unlisted companies at lower costs. Unlisted companies dont have to gain much from disclosing all the
financial information and hence should not be asked to spend more on preparation of financial statements.

CONCLUSION
The adoption of international financial reporting standards across
the European Union from 1st January 2005 is a defining movement
which will have an immediate impact on 7000-plus listed European
companies who will have to implement new financial reporting
standards first. A common international financial reporting
standards could result in true global capital markets.
IFRS or IAS was supposedly developed with an eye for a larger audience. It is difficult to design an accounting
system that meets everyones demands. Whatsoever may be the outcome of these pressures, UK companies now
have to implement it. Unlisted companies have been given time till 2007 to implement IFRS. The standards that UK
listed companies will follow are not those issued directly by the International Accounting Standards Board, but are
those that have been endorsed by the European Commission.
Both IFRS and UK GAAP share broader level aims. But there are many differences at implementation level. IFRS
further enhances the concept of fair value and its regulations place stiff definitions on assets and liabilities. Pension
deficits would now also need to be on income statements. Financial instruments would also undergo finer scrutiny.
All this means that there will be greater volatility in financial statements.
Studies and research on listed companies with reference to IFRS has already highlighted many areas where UK
GAAP is better than IFRS. This research has highlighted additional areas where unlisted firms feel comfortable with
IFRS. The research confirmed the uneasiness and anxiety in the unlisted companies. First of all IASB is yet to
finalise all accounting standards and is issuing regular updates. Unlisted companies will find it difficult to cope with
regular stream of changes.
Firms feel that the costs that will be incurred in transition to IFRS are significant with reference to their size.
Companies will spend on training of their staff to meet IFRS requirements. It is also believed that not only financial
staff has to be trained but the non-financial staff has also to be made aware of the changes. The new regulation on
more detailed reporting on segments and products may result in some business changes.
Companies would also have to make significant changes in their IT systems. This would not only incur cost and
resources to do that but may also impact normal business during the time of change.
But the most concern was that the benefits of IFRS dont justify the costs incurred on IFRS. The benefits of IFRS are
more for listed companies and unlisted UK-based wont stand to gain much from that. Respondents said the benefits
in cheaper costs and international investor base dont apply to unlisted firms.
Smaller companies, even listed ones, will find it difficult to cope with extra work due to IFRS. They will lose the
exemption granted under UK GAAP and will have to report full financial reports.
The results show that there is definitely a much scope in improving International Financial Reporting Standards for
unlisted companies. Respondents were concerned about the costs associated with transition to IFRS and also the
additional burden that will come with regular enhanced reporting. That IFRS will help in globalisation of capital
markets and probably cheaper costs of capital is not of much significance for unlisted companies registered in UK.
More companies indicated that the impact of IFRS on key performance indicators would be negative than positive,
though most of the respondents were not sure of the impact. This highlights the fact that most of the companies
have not yet started analysing the impact of IFRS on their key performance indicators.
Even auditors feel that unlisted companies may pay more than what they will get in turn from IFRS. Auditors
responses were more in favour of IFRS as compared to companies responses. But auditors also agreed that
unlisted companies dont have necessary trained staff and IT systems and they would find it difficult to cope with the
changes.
Unlisted companies in general have a long way to go before they can become IFRS compliant. The studies
conducted on listed companies showed a higher IFRS compliance than this study. Listed companies were ahead in
analysing accounting policies and its impact on their financial performance. A reason for lower initiation of IFRS
procedures could be that unlisted companies have time till 2007 to implement IFRS.
But they should not delay the implementation process till the last date. Many listed firms have delayed the
implementation of IFRS till the last minute and are now finding it hard and more costly to implement the change.
Implementation of IFRS will definitely throw up minor issues that could prolong the implementation process.
The analysis also showed that unlisted companies with near future listing plans were far ahead in terms of IFRS
assessment and implementation. They know that when they will go for public floatation, both investors and financial
institutions will compare them with listed firms. And it would strengthen their case as well as their credit ratings if they
have IFRS systems in place for longer duration. It will also give potential investors more confidence in their financial
statements.
The study also analysed the probable variation in IFRS approach and implementation because of company size.
The large firms were far ahead of small firms in terms of assessing high level impact. The most likely reason could
be that financial institutions will compare their performance with listed firms and hence it would be better to analyse
impact of IFRS right now to present a stronger case to financial institutions.
As above, larger firms had either started training their employees in IFRS or were mostly planning to do so in near
future. Successful training of employees is key to meaningful analysis of IFRSs impact on companies balance
sheets and earning statements. Unlisted companies were more or less similarly distributed in enhancement of their
systems for data gathering and evaluation. Large firms are more advanced in their understanding and desire to
implement IFRS but they were also not yet preparing for major changes in systems. The results were similar to what
was observed in case of system enhancements though in this case significant proportion of large firms had either
put some thoughts to this or were planning to do so in near future.
Mostly accounting standards have been framed with an eye for listed and large companies. But unlisted companies
have much lesser resources to spend on large regulatory requirements and hence should have different reporting
requirements that match the benefits obtained from such reporting. IFRS in its present form would not be a good
thing for unlisted companies and should be modified before it can be used by unlisted companies in 2007.
Appendix I - Questionnaire for interviewees and postal survey
Name (optional):
Designation (optional):
Company (optional):
1. What is the annual turnover of your organisation?
1. Less than 50m
2. 50m to 250m
3. More than 250m.
2. What is the nature of your industry? (Kindly use common sector name) If your company doesnt fall into any
one of the commonly used sector names, write Others and if possible give a little description of your
industry.
3. When do you plan to implement IFRS?
1. In 2005
2. In 2006
3. In 2007
4. Not sure
4. Does your organisation plan to list in short or medium term?
1. No
2. Not sure
3. Yes
5. Has your organisation made decision on change in accounting policies needed due to IFRS?
1. Not yet started
2. In process
3. Completed
4. Not required
6. Has your company analysed the impact of IFRS on financial performance indicators?
1. Not started yet
2. Preliminary analysis only
3. Assessment completed
7. What would be the general impact of IFRS on key performance indicators?
1. Dont know
2. Negative
3. Nothing significant
4. Positive
8. Is your board of directors aware of the impact of IFRS on your companys key financial performance
indicators?
1. No
2. Partially aware
3. Fully aware
9. If so, have they formulated a communication strategy to convey the same to stakeholders?
1. Dont need to communicate
2. Not started yet
3. In the process of formulating one
4. Already formulated
10. Is IFRS better than UK GAAP?
1. No
2. Dont know
3. Almost same
4. Yes
11. Is IFRS better than UK GAAP for smaller companies?
1. No
2. Dont know
3. Almost same
4. Yes
12. Will IFRS increase the complexity of financial reports?
1. No
2. Dont know
3. To some extent
4. Substantially
13. Have your organisation set up an IFRS conversion project ream?
1. Dont need one
2. Not yet
3. Looking for resources
4. Project fully staffed and running
14. Does your company have enough internal resources to run IFRS conversion project?
1. No
2. Dont know
3. Yes
15. Will IFRS need additional resources, as compared to UK GAAP, on regular basis?
1. Not significant
2. Dont know
3. Yes, but only slightly more
4. Yes, much more significant
16. Does your organisation need to put more internal process controls?
1. Not significant
2. Dont know
17. Is your staffs suitably trained to handle the transition to the IFRS?
1. Very inadequate
2. Slightly inadequate
3. Can manage through
4. Fully trained
18. If your staffs need training, how much would be the training costs?
1. Dont know
2. Insignificant
3. Significant
4. Very high
19. Can your IT systems handle the transition to the IFRS?
1. No, will have to change them altogether
2. Need substantial change
3. Need some change
4. Fully capable
20. Will extra resources for IFRS cast a negative impact on the business?
1. Not significant
2. Dont know
4. Yes, Much more significant
21. Are the costs of IFRS change significant?
1. No
2. Dont know
3. Yes
22. If IFRS is better than UK GAAP, does change cost justify the transition?
1. No
2. Dont know
3. Yes
23. Will extra efforts result in better internal management reporting?
1. Not significant
2. Dont know

Note: This survey is being conducted to do research on the justification for and impact of IFRS on smaller
companies. No information revealed by answering this survey will be revealed to external sources without the prior
permission of respondents.
Appendix II - Questionnaire for accountants
Name (optional):
Designation (optional):
Company (optional):
1. When do you think most of the unlisted companies plan to implement IFRS?
1. In 2005
2. In 2006
3. In 2007
4. Not sure
2. How far are the organisations on change in accounting policies needed due to IFRS?
1. Not yet started
2. In process
3. Completed
4. Not required
3. Has this company analysed the impact of IFRS on financial performance indicators?
1. Not started yet
2. Preliminary analysis only
3. Assessment completed
4. What would be the general impact of IFRS on key performance indicators?
1. Dont know
2. Negative
3. Nothing significant
4. Positive
5. Is IFRS better than UK GAAP?
1. No
2. Dont know
3. Almost same
4. Yes
6. Is IFRS better than UK GAAP for smaller companies?
1. No
2. Dont know
3. Almost same
4. Yes
7. Will IFRS increase the complexity of financial reports?
1. No
2. Dont know
3. To some extent
4. Substantially
8. Do you think that this company needs to set up an IFRS conversion project ream?
1. Dont need one.
2. Not yet
3. Looking for resources
4. Project fully staffed and running
9. Does this company has enough internal resources to run IFRS conversion project?
1. No
2. Dont know
3. Yes
10. Will IFRS need additional resources, as compared to UK GAAP, on regular basis?
1. Not significant
2. Dont know
11. Does this organisation need to put more internal process controls?
1. Not significant
2. Dont know
12. Is the current staffs suitably trained to handle the transition to the IFRS?
1. Very inadequate
2. Slightly inadequate
3. Can manage through
4. Fully trained
13. Can this companys IT systems handle the transition to the IFRS?
1. No, will have to change them altogether
2. Need substantial change
3. Need some change
4. Fully capable
14. Are the costs of IFRS change significant?
1. No
2. Dont know
3. Yes
15. If IFRS is better than UK GAAP, does change cost justify the transition?
1. No
2. Dont know
3. Yes
16. Will extra efforts result in better internal management reporting?
1. Not significant
2. Dont know
17. Has the new Companies Regulation strengthened the rights of auditors?
1. Not significant
2. Dont know
Note: This survey is being conducted to do research on the justification for and impact of IFRS on smaller
companies. No information revealed by answering this survey will be revealed to external sources without the prior
permission of respondents.
Appendix III Results of questionnaire for interviewees
Question Options Total
responses
A B C D
1 8 6 6 20
2 N/A
3 2 6 8 4 20
4 6 4 10 20
5 10 7 3 0 20
6 12 6 2 20
7 6 8 4 2 20
8 8 7 5 20
9 11 5 4 0 20
10 7 5 5 3 20
11 9 4 4 3 20
12 4 5 2 9 20
13 3 9 5 3 20
14 11 6 3 20
15 3 4 10 3 20
16 3 3 11 3 20
17 7 5 5 3 20
18 8 3 3 6 20
19 4 10 3 3 20
20 4 7 7 2 20
21 9 6 5 20
22 7 7 3 3 20
23 7 10 3 20
Appendix IV Results of questionnaire for postal survey
responses
A B C D
1 22 19 11 52
2 N/A
3 6 13 22 11 52
4 13 16 13 42
5 22 17 7 0 46
6 26 14 11 51
7 13 20 9 8 50
8 19 13 16 48
9 23 14 12 0 49
10 17 12 10 9 48
11 23 9 8 8 48
12 8 14 7 21 50
13 9 18 15 7 49
14 24 14 9 47
15 9 14 19 8 50
16 10 12 20 8 50
17 19 12 10 9 50
18 18 13 9 10 50
19 16 14 11 8 49
20 14 17 13 6 50
21 19 21 10 50
22 17 13 8 10 48
23 15 23 12 50
Appendix V Results of questionnaire for auditors
responses
A B C D
1 2 5 7 14
2 9 4 1 14
3 10 3 1 14
4 2 5 4 3 14
5 3 3 5 3 14
6 5 3 4 2 14
7 4 3 4 3 14
8 0 8 4 2 14
9 9 3 2 14
10 2 4 6 2 14
11 1 1 8 4 14
12 6 3 3 2 14
13 2 7 2 3 14
14 5 6 3 14
15 4 6 4 14
16 2 3 5 4 14
17 4 3 5 2 14

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ICAEW [2004a]; http://www.icaew.co.uk/viewer/index.cfm/AUB/TB2I_67022
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Accounting Dissertations - IfRS

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Accounting Dissertations - IfRS

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6/6/2014 Accounting Dissertations - IFRS

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