News

For the attention of: news and business editors

Tuesday, June 14 2005 [PR5027]

International Financial Reporting Standards impact on UK listed companies

A research study of the annual reports of FTSE 100 companies indicates that companies expected a wide range of effects on their financial statements from the introduction of International Financial Reporting Standards (IFRS) in 2005.

The Open University Business School study – the first to undertake a systematic review of the FTSE 100 in this area – shows that accounting for financial instruments was expected to have the greatest impact, closely followed by pensions and share-based payments. Deferred tax was also frequently cited as a probable source of difference.

Dr Sally Aisbitt, of the School’s Accounting and Finance Research Unit, led the research, which collected the annual reports of the FTSE 100 companies published in 2004. The researchers extracted the companies’ disclosures about the probable impact of IFRS in the future. After excluding companies involved in takeovers, the study utilised a sample of 97 companies.

Of those, the research team rated 26 as making “perfunctory” disclosures. A further 34 were rated as “adequate” and 21 were rated as “detailed”. In 16 reports, there was no disclosure about the impact of IFRS. The researchers considered that if the length of the disclosure could be taken as an indicator of preparedness, only 55 of the 97 companies appeared to have the transition under control when publishing their 2003 results.

Dr Aisbitt said: “The differences in disclosure between one company and another are quite wide. The nature of the disclosure suggests that while some companies had appointed project teams and were apparently well advanced, others had seemingly not started to evaluate the impact of IFRS.

“We are looking forward to the results of our ongoing study into the 2005 disclosures which quantify the effects of adopting new accounting standards. We plan to extend both studies to other European countries.”

The Open University Business School has launched an MSc in International Finance and Management, which includes a specialist accounting course, Issues in International Financial Reporting. For more information about this course, visit the Qualifications and Courses section of the School’s website at www.oubs.open.ac.uk

Preparing for IFRS: disclosures from FTSE 100 Companies by Dr Sally Aisbitt and Professor Peter Walton is available from the Accounting and Finance Research Unit at the Open University Business School – email

Editor’s Notes

This table shows the frequency distribution of accounting issues of concern in transition to IFRS:

Accounting issue / Number of companies / Percentage of companies with relevant disclosures
GROUP 1
Financial instruments / 43 / 78
Pensions / 35 / 64
Share-based payment / 30 / 55
Deferred tax / 26 / 47
Goodwill / 25 / 45
Hedge accounting / 21 / 38
Employee benefits / 17 / 31
Intangible assets / 16 / 29
Presentation and disclosure / 11 / 20
Leasing / 11 / 20
Impairment / 10 / 18
Proposed dividends (no longer accrued) / 9 / 16
Business combinations / 8 / 15

The Open University Business School is one of Europe’s leading business schools and the major provider of management development programmes delivered by supported open learning. It is one of an elite group of UK and European business schools to hold the prestigious triple of:
l accreditation from the US-based AACSB International;
l the EQUIS quality kitemark from the European Foundation for Management Development (efmd);
l and accreditation from the Association of MBAs (AMBA) for its MBA.

The OU Business School has 30,000 students in the UK and more than 40 countries.

Since its inception in 1983, more than 150,000 managers have studied an OU Business School course at Certificate, Diploma or MBA level; of those, 15,000 have successfully completed their MBA and joined one of the three largest alumni associations for MBA graduates outside the United States.

The School is among the largest schools and faculties of The Open University, itself the largest university in the UK. The university is ranked fifth of all UK universities in the table for teaching quality published in the Sunday Times University Guide 2004.

Resources

Web

OU Business School website: http://www.open.ac.uk/oubs

Media contact

Neil Coaten OU Media Relations +44 (0)1908 652580

Academic contacts

Dr Sally Aisbitt
Prof Peter Walton

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