13 June 2002

FT article: Warning on single capital market plans

Excerpt
A majority of listed companies in the European Union are unprepared for the switch from national to international accounting standards and wrongly think the change will not have an impact on their stated profits, according to a survey published today.

Most EU listed companies will have to use international standards from 2005, as part of efforts to create a single capital market by 2005, but 85 per cent of companies have yet to make the switch.

PwC, the professional services firm that commissioned the survey, found that most companies were making the 'dangerous assumption' that the switch would not have a substantial effect on the way shareholders and analysts view the performance of their companies.

In the survey of 650 chief financial officers across the EU, PwC noted: 'Market confidence in reported information and in the management of the business is everything, and that confidence can be destroyed in a moment if not properly managed.'

'A high percentage of non users [of international accounting standards] do not think international accounting standards will make a big difference to their reported profits or net assets,' said PwC.

'But our experience is that the differences can at times be very significant and can extend to the whole annual report including key business measures and the management discussion and analysis.'

National and international accounting standards can vary significantly. The survey found 61 per cent of EU listed companies that do use international standards said their financial statements were either very different or showed noteworthy differences in key elements.

Chief financial officers thought accounting for financial instruments was the most marked difference between national and international standards, followed by reporting on deferred taxation, business combinations and pensions.

More than 60 per cent of companies have yet to start transition planning from national to international standards, which is regarded as the single most important barrier to the switch.

Peter Holgate, UK senior technical partner at PwC, said: 'Planning needs to start now, given the work involved in training staff, preparing internal and external stakeholders and aligning management reporting systems.'

FT article: Warning on single capital market plans

© Financial Times