Is the adoption of IFRS successful or not?

The three countries selected for the purpose of this assignment are:

EU

New Zealand

UK

IFRS in EU

The response from EU countries to the requirement for listed companies to prepare their consolidated financial reports in accordance with IFRS from 2005 has generally been 37 positive. This requirement was not unexpected and is seen as a positive step toward a common European market, so it is not surprising that it was received positively. Not only has the accounting profession responded positively (Corcoran, 2002), but EU companies affected by the change also showed a positive response to the change (PricewaterhouseCoopers, 2002). This excludes the financial services industry who has responded unfavourably to some IFRS. Although the response was positive, research has shown that companies in the EU are not preparing as well as they should be for the change.

PricewaterhouseCoopers (2002) commissioned a survey of more than 650 chief financial officers across the 15 European Union member states to determine companies' views on the requirement to adopt IFRS by 2005. Overall the survey found that there was strong support for the use of IFRS. The survey found that most companies believed that the introduction of IFRS would help establish a common European market, and that this would be beneficial to Europe. The survey showed that a lot of the companies believed that IFRS would have direct benefits for their company. Also most companies wanted the regulation to be extended to individual company accounts. This is understandable because if they are preparing consolidated accounts under IFRS, then it would be easiest to also prepare their individual accounts under IFRS. This may not be possible in some EU countries. This is discussed in more detail below.

IAS 32 on disclosure and presentation of financial instruments, and IAS 39 on recognition and measurement of financial instruments have caused negative reactions in 38 the EU, especially among banks and insurance companies. Financial service companies are opposed to these two standards because of the level of volatility that they will introduce into their accounts. The EU has rejected these two standards and subsequently the IASB has issued ED 6 which deals with macro hedging (Chisnall, 2003).

ED 6 aims to make hedge accounting more accessible and reflects many of the suggestions made by banks. In particular it recognises hedge accounting based on interest rate risk and permits hedge effectiveness to be based on expected maturity (Chisnall, 2003). But the exposure draft also reflects the fact that it was not possible to reach any agreement in two areas: hedge ineffectiveness; and demand deposits. The latter is very important to banks. The IASB argues that the maturity of demand deposits must be based on their contractual on-call maturity and not their expected maturity. As a result banks will not be able to use fair value hedge accounting when it comes to the risk exposure arising in the period between the contractual maturity and the expected maturity. Banks dependant on demand deposits for a core part of their funding will have ...