John Charlton column

Sep 26 2007 by Iain Laing, The Journal

The move towards international comparability, however worthy in intent, has made things a whole lot more complicated for listed businesses.

While reacting to changes in reporting regulations isn’t always a priority for fast growing businesses, it’s got to be done no matter how tiresome. International Financial Reporting Standards (IFRS) are here to stay.

Regardless of the continued debate about the introduction of IFRS, companies at all levels are steeling themselves and dealing with the latest accounting regulations. Most recently, AIM listed businesses are coming to terms with the challenges of reporting under IFRS for the first time.

From now on AIM listed companies must produce IFRS compliant reports for accounting periods that started on or after January 1, 2007. From what we have seen not all businesses are compliant and those that have not got procedures in place now are under increasing pressure to do so.

Under IFRS, companies are required to apply different criteria and techniques in order to record and value certain assets, liabilities and equities. If the procedures were not in place at December 31, 2005, to capture the information required it could require significant additional work to retrospectively establish valuations. The absence of appropriate documentation isn’t just a theoretical problem for the finance team – it’s a very real problem for the company.

There is a benefit however. The requirement for AIM companies to move from the previous reporting regulations to IFRS is consistent with AIM now being a truly global market. IFRS is more prescriptive and rule-based than the old standards. This is necessary if they are to be applied across the world, including many countries where English is not the first language.

Despite the requirement to move to IFRS being announced over two years ago there is an issue for AIM stocks, largely due to the resources they have available to them to implement IFRS.

Overall I am optimistic that AIM businesses will hit their deadlines, albeit incurring variable time and cost in doing so. Conversion costs will include staff training, financial reporting systems, documentation and communication within and outside the company. The state of readiness of AIM companies, or those seeking a listing however, still remains moot.