EU Compromises on IAS 39

On 8 September 2004 EU Member States accepted the recommendations of the EU's Accounting Regulatory Committee to only partially endorse the introduction of proposals on financial reporting standards on derivative contracts, known as IAS 39. Some argue, this development could jeopardise an attempt to converge EU accounting standards with those in the US. In August 2004, The UK Institute of Chartered Accountants warned the Commission that partial implementation of IAS 39 would have adverse consequences for the credibility and quality of financial reporting in Europe.

The EU Commission formerly confirmed this position in November 2004. From 1 January 2005, 7000 listed companies will adopt new international accounting standards.This will have a major impact on business.

Banks and insurers in Europe had feared greater volatility in their balance sheets as a result of some of the new and proposed financial IAS 39 reporting rules from the International Accounting Standards Board (IASB).The changes related to the reporting of derivative contracts under International Accounting Standard 39 (IAS 39)and IAS 32.The IASB had wished to see derivative contracts valued at fair or market value in financial statements.The EU Commission will now endorse in November the provisions of IAS 39 minus the fair value option and the sections on core deposits.

These graphics deal with the issues associated with the proposed introduction of the revised IAS standards from 1 January 2005. There are many other graphics dealing with Financial Reporting matters.

See Paul Cummins' article dated 10 January 2005 on the UK Financial Reporting Council Strategy for 2005

Listed Companies

From 1 January 2005 all Listed Companies in the EU will be obliged to report their Financial Statements in accordance with International Accounting Standards( IAS). These are sometimes referred to as International Financial Reporting Standards (IFRS).This will assist convergence between systems of financial reporting of EU Member States , New EU Accession Countries to the EU and US Companies. This series of graphics depicts this process.

It was reported in the Financial Times on 8 December 2004 that Barclays Bank have indicated that its pre-tax profits this year might rise by £125M once it has adopted the new IAS standards.

See Paul Cummins' article dated 29 October on the threat of companies embellishing their results under the new rules.

International Accounting Standards
This series of graphics depicts International Accounting Standards (IAS/IFRS) as a set of "principles" for financial reporting whereas US GAAP is represented as a prescriptive set of rules. In 2005 US Listed Companies will continue to report under US GAAP while EU Listed companies will report under IAS / IFRS. Advocates for IAS /IFRS argue that to get more fair and realistic financial reporting, reporting under principles is better than rules; it is better to report within the spirit of a set of principles rather than literally report under a set of detailed rules.

IASB, the body that sets international accounting standards was reported on 22 February 2005 in the Financial Times as having replaced a number of its trustees at a time that the EU Internal Commissione,Charlie McCreevy has led attacks on the IASB as a body that lacks accountability and does not always pay due regard to the impact of its rules on users.

Financial Reporting and Key Performance Indicators

It was reported in the Financial Times on May 10th 2005 that the Accounting Standards Board is urging adoption of guidelines on the operating and financial reviews-tells companies to select new performance indicators like measures on employee morale, waste generation etc, in their financial reports, to be calculated transparently and reported consistently-to help exp[lain themselves to investors.

WE have prepared a series of graphics depicting the impact on business profits of Currency translations, costs and overheads.

Financial Reporting Terminology

Sometimes terminology used in financial statements and reports can be difficult to comprehend. These graphics attempt to simplify the understanding of a number of these terms.( This series is being expanded and more graphics will appear later)