All European Union companies with a public listing will be aware that they will have to prepare their accounts to International Accounting Standards from January 2005. The attention of the corporate treasurer will have been concentrated on the seemingly interminable debates over IAS 39 and, specifically, whether macro hedging will be allowed and how the rules will affect their company. These detailed issues are very important, especially because the accounting treatment may well alter a company’s risk management strategy.
The focus on detail has drawn attention away from the wider picture. Accounting standards are designed to provide a snapshot view of a company’s financial health. However, they are only of real benefit to investors and analysts when presented alongside comparative figures. In isolation, a single set of accounts are of less value, which is why many companies show several years’ figures. But will companies making the transaction to IAS recalculate all these comparatives?
Meeting the requirement to report to IAS for the first time will be hard enough. IFRS 1 states that companies also have to prepare comparative accounts for the previous year. In other words, companies have to be capturing the necessary data now for accounts to be prepared for 2005.
But, bear in mind that companies which have been preparing accounts to IAS for a while will have several years of comparatives for their investors to assess. When preparing accounts to IAS for the first time, a company will need to consider whether one year’s comparative information will be sufficient to satisfy investors and analysts.
It is possible that we will see some companies producing more comparatives, not for regulatory reasons, but rather to show they are being as open as their competitors with information.