This year's preliminary results season has been something of a landmark. Last year was to be the last reporting period where listed companies presented their results according to UK generally accepted accounting principles (GAAP). After that, they would be required to use international financial reporting standards (IFRS) to prepare their consolidated financial statements for accounting periods commencing on or after 1st January 2005 (http://search.ft.com, 2004). The requirement to adopt IFRS applies only to those companies that are active direct participants in the capital market (i.e. those that have securities that are publicly traded on recognised stock markets). There are estimated to be about 7,000 such companies in the EU, of whom 2,500 are in the UK (www.accountancyage.com, 2004).
The rules are changing for two main reasons. The investors chronicle seeks to explain this first by suggesting that ?in the wake of accounting scandals in both Europe and the US, regulators want greater convergence between standards. Listed company accounts in the UK and US exist primarily for the benefit of shareholders. Conversely, in parts of Europe, the banking system has historically been the main provider of finance to industry, so company accounts have evolved with creditors in mind. In some European countries it will bring fundamental change, particularly where medium-sized companies have traditionally had closer relationships with their banks than with their shareholders. As a result, their financial statements have tended to be more conservative, and placed greater emphasis on assets. Harmonising the two systems so that there is greater convergence between European and non-European conventions is what IFRS is partly about.' (http://search.ft.com/, 2004) The other aim i ...