Which companies will be affected and when?

• Which companies will be required to comply with IFRS?

• Which financial year will first have to comply with IFRS?

• Will IFRS financial information need to be provided in advance?

• When will IFRS data need to be collected?

• What issues should be considered if there is the option to adopt IFRS before 2005?

• Who uses IFRS at present?

• Can IFRS be adopted early?

• Should IFRS be adopted early?

• What will be the requirements for first time adoption of IFRS in 2005?

Which companies will be required to comply with IFRS?

The EU regulation applies directly to companies incorporated in a member state where their securities have been admitted to trading on a regulated market of any member state or which have been offered to the public. The regulation requires all such companies to prepare their consolidated accounts in accordance with International Financial Reporting Standards for financial years beginning during 2005.

Which financial year will first have to comply with IFRS?

The EU regulation applies for accounting periods starting on or after 1 January 2005. Thus for those with 12 month accounting periods covering the calendar year, IFRS will first apply to periods ending on 31 December 2005. This means that companies will first publish IFRS financial information as at 31 March 2005 (if they report quarterly) or as at 30 June 2005 (if they report semi-annually).

Will IFRS financial information need to be provided in advance of 2005?

Many companies are likely to provide additional IFRS financial information in advance of 2005 to manage the expectations of shareholders, market analysts, regulators and other stakeholders.

Preparing such data, even for internal use, will be crucial in advance of 2005 if there is to be an orderly transition. Euronext (Amsterdam, Brussels, Paris) has introduced rules to require companies included in the NextEconomy and NextPrime segments to comply in full with IFRS or provide a reconciliation to IFRS for interim and annual financial information commencing 1 January 2004. Other exchanges may follow suit.

The Commission has also identified that additional requirements may be necessary for those that are seeking a new listing in the period before IFRS becomes mandatory. Detailed proposals have not yet been made and may be left to the individual exchanges. However, it would be impractical to list a company during 2005 on the basis of Irish accounting standards if the first annual results will be significantly different.

When will IFRS data need to be collected?

To comply with IFRS, companies must apply the standards to the earliest comparative year presented in their statutory (audited) financial statements. Most companies will therefore have to obtain IFRS-compliant data going back to 1 January 2004.

Those companies that show two years of comparatives will need to collect IFRS data from 1 January 2003.

What issues should be considered if there is the option to adopt IFRS before 2005?

The option to adopt IFRS in advance of 2005 depends upon the necessary legislation being in place in Ireland. Provided that this is introduced, a decision on when to first adopt IFRS will depend upon whether:

	Adopting IFRS will reduce the current cost of capital
	There is a significant acquisition, disposal or share issue into a market that has knowledge of IFRS, but not of Irish GAAP
	The internal cost of adopting IFRS earlier will be less than waiting until 2005
	The IFRS track record will give a clearer view of the underlying economics and the company's expected future value, than Irish GAAP

Who uses IFRS at present?

IFRS is widely used in various parts of the world. Many large listed companies from Switzerland and Germany have already adopted these standards, as have a significant number of the largest companies from Eastern Europe. Elsewhere, IFRS are being adopted as national standards or are being used as the basis for national standards in locations such as the Caribbean, Russia, Australia, Malaysia and Singapore.

Can IFRS be adopted early?

The PricewaterhouseCoopers survey, "2005 - Ready or not", showed that CFOs strongly support having the ability to adopt IFRS early. However, the ability to use IFRS instead of Irish accounting standards is regulated by legislation.

Companies are not prohibited from producing supplementary IFRS financial statements, but this is costly and may lead to confusion when two sets of data are presented to the market.

Should IFRS/IRS be adopted early?

IFRS should be adopted early if this will reduce the cost of capital, or enable a transaction that is being contemplated, or improve the ability to resist a hostile takeover.

A company may enjoy a positive re-rating by the market and rating agencies if it adopts IFRS. This is because of the increased confidence in the information provided which comes from greater transparency of reporting and an increased understanding of IFRS by analysts. A re-rating could be particularly beneficial if a share-based transaction is being contemplated such as a proposed acquisition, or when trying to resist an offer from an acquirer.

If such opportunities or threats are not present, early adoption of IFRS may be beneficial to smooth the transition to IFRS which is becoming increasingly complex. However, some of the proposed changes to IFRS could encourage a short delay. In particular, the proposal to reduce the burden of revisiting old transactions on first time adoption of IFRS and some improvements to IAS 39 may make transition less of a challenge in the future.

What will be the requirements for first time adoption of IFRS in 2005?

The International Accounting Standards Board has issued an exposure draft - First Time Adoption of IFRS - intended to simplify how companies apply IFRS for the first time and achieve some comparability between these entities.

In outline, the existing and proposed options are as follows:

Existing requirement: Each IFRS in force in the relevant historical accounting period is applied to each historical transaction depending upon when it originally took place. The transitional provisions in each new or revised standard are then applied to arrive at the opening balance.

Companies are given the option to continue with this approach or use the new alternative below.

Proposed option: Each IFRS in force at the date of the closing balance sheet in the first IFRS financial statements will be applied for the whole of the period covered by those financial statements, i.e. including all comparative years. These are applied to restate all transactions and balances. No account is taken of standards that were in force in earlier periods. The proposed option is intended to relieve the extensive burden that can arise from restating old business combination transactions and recovering old records of the historical costs of fixed assets in particular.

Companies must now make the critical decision whether to take advantage of the exemptions proposed (in their entirety) or stick to the existing requirement and go for comparability with existing preparers. After that, planning for the preparation of the opening IFRS balance sheet will be a priority issue.