The Convergence Project

The Convergence Project



The Convergence Project

1st part

Objectives And Progress To Date Of The Convergence Project

Companies around the world are facing one of the biggestever change in financial reporting. In Europe, from 2005 there is the requirement to publish consolidated financial statements prepared in accordance with international standards, instead of the old national accounting rules. The preparation of IASB based financial statements needs careful planning and good change management. Apart from the technical issues there is the need of Training & Recruitment, raise internal awareness, review contracts dependant on old accounting rules and finally prepare a good communication with the market. The first challenge in organizations is to ensure the staff has the knowledge to guarantee a smooth switch to international financial reporting standards and after the implementation they can do their jobs under the new system both at headoffice level and at local operating units.

The use of flexible resources with knowledge in IASB and the investment in training are two solutions adopted by most of the companies. The Big Four firms are playing a very important role, helping companies in this transition period by elaborating plans, building processes and training staff.

The training demand is wider than purely from finance functions, as several of roles are affected by the new IASB: the board members, credit and equity analysts, M&A teams, traders who buy and sell derivatives, tax and regulatory teams are just a few examples.( Donald, 2005 126)

Meeting IASB requirements means providing new data or present it in a different way for both 2005 and the comparative period, so identifying the new requirements also needs attention as the collection of this data may prove difficult. There is the believe that the most appropriate strategy for providing information of auditable quality is to fully embed IASB into the company's everyday systems, which means moving internal management reporting to IASB as well.

Decisions also need to be taken as to whether all subsidiary accounts should be IASBbased. As different countries will have different timing for adopting IASB this issue can have significant impact on multinationals. Tax implications for these companies must also be taken in consideration.

Attention will also focus on contracts and derivatives. If a company has a contract to buy products from a foreign supplier and to pay in foreign currency, then that will likely be interpreted as two separate elements a supply chain contract and a hedge against the exchange rate. Companies will therefore have to ensure that they have full knowledge of their existing contracts and, if necessary, restructure future contracts.

Other contracts with banks or with employees must be reviewed: Profitrelated bonuses, performancerelated share option schemes, banking loans, bond covenants may all have triggers related to old accountancy rules. All will have to be renegotiated and rewritten to provide for IAS figures so that companies won't have to carry two sets of books.

Some issues that have been proven to be certain are that capital and profits will be more likely to vary from one year to the other in IAS, ...