When do International Accounting Standards (IAS) apply?
From 1 January 2005, reporting entities under
Australia's Corporations Act will be required to prepare their financial
statements according to the standards issued by the International
Accounting Standards Board (IASB). For comparative purposes, many
companies will be required to state or restate their accounts in
accordance with IAS on and from 1 July 2004.
Although Australia has been harmonising its
accounting standards with the IAS for some time, conversion to IAS will
have a major impact on many aspects of business.
theory, IAS should provide investors with greater clarity, transparency
and comparability of financial information.
reason for the change is that Australian government believes that a single
set of high quality accounting standards which are accepted in major
international capital markets, will greatly facilitate cross-border
comparisons by investors, reduce the cost of capital and assist local
companies wishing to raise capital or list overseas.
will adopting IAS impact organisations?
reporting will challenge the ways in which companies measure performance
and communicate with the markets.
Adoption of IAS will impact:
recognition and measurement of assets and liabilities;
financial instruments that are not currently recorded in Australian
financial statements will have to be recorded at fair values
changes to the requirements on the classification of financial instruments
may result in instruments that are currently classified as equity be
reclassified as debt instruments
goodwill will not have to be amortized, however will be subject to strict
impairment testing requirements
properties will be carried at cost and depreciated, or at fair value with
changes recognised in income
gearing and borrowing covenants;
EPS and net asset positions;
systems including management reporting, treasury, human
resources, training and forecasting;
compliance with contracts that are accounts based;
the form and content of the annual reports; and
will need to commence changeover strategies that will include the
alignment of internal reporting systems with the new external reporting
environment and the development of strategies to prepare analysts and
other stakeholders for potentially significant changes to financial
What is the
impact on insurance companies?
Many experts, including large accounting firms believe that the 2 staged
approach of adopting IAS by insurers will raise many issues including
increased volatility of reported results, varying financial stability,
higher cost of capital, additional workloads and they expect insurers to
incur significant costs. The impact of these will vary depending on the
Who regulates IAS?
Australian Securities and Investments Commission (ASIC) will be responsible
for enforcing compliance with the new standards.
If companies fail to meet the
January 1, 2005 deadline, they will be subject to penalties
imposed by the regulator.
Financial Reporting Council (FRC) and Australian Accounting Standards Board
(AASB) have specific responsibilities for ensuring that a strategy for
adoption is developed and communicated to stakeholders at an early stage,
and that stakeholders are kept fully informed of progress. The accounting
bodies also have a key contribution to make through their programs of
professional development and their influence on accounting education.
you need to do?
Companies must start planning their implementation of IAS now. As a
minimum, we recommend organisations the following IAS implementation
Analyse the impact of IAS - identify changes to accounting policies or
disclosures throughout the transition to IAS
· Start converting prior years numbers to new IAS
Inform the board & senior management of potential impact of IAS
Start early briefings for analysts and investors on the impact of the
conversion on your financial statements
Establish a project team to assist implementation
Set a realistic budget
Document all key areas, especially complex issues that need resolution
Consider impact of IAS on other reporting requirements
Align internal management reporting systems with the new rules
Re-engineer business processes & documentation
Assess staff training requirements and commence an appropriate training plan
European experience of IAS implementation has shown that the work involved
in the conversion process should not be underestimated. Therefore companies
need to allow sufficient time to be adequately prepared. Lack of time and
lack of trained staff were mentioned as the biggest barriers to conversion.
to ASIC and FRC, company preparedness is critical to a smooth transition and
represents the key risk in 2005 adoption.