From January 2005, all companies listed on a EU regulated Stock Exchange will
have to prepare their consolidated financial statements based on IAS/IFRS. This
is expected to impact some 7,000 companies, including over 1,500 UK companies
listed on The London Stock Exchange. At the same time IAS/IFRS will also become
mandatory for all entities in Australia and many other countries are moving
towards adoption of or harmonization with IAS/IFRS.
Studies into the impact of IAS/IFRS on the presentation of the accounts of
organizations, such as Volkswagen in Germany and others, have shown that dramatic
changes in presentation can result when numbers are compared to the same numbers
in pre-IAS/IFRS reports. While at the macro level IFRS is designed to improve
the transparency of financial reports for easier comparison across organizations,
initially at the micro level for an individual organization it creates a need
to communicate how certain numbers have changed post-IAS/IFRS adoption.
Publishing the first IAS/IFRS report packs creates a communication event for
every organization to clearly explain how performance appears to have changed
due to changes in the way numbers are prepared and presented. This communication
should include references to other organizations IAS/IFRS reports to compare
specific numbers and reassure corporate investors that the performance of your
organization is not out of line with others in your peer group.
Recommendation
Performance management involves managing performance expectations and communicating
clearly if and when those expectations may change. Ventana Research urges all
organizations subject to IAS/IFRS to pay attention to communicating early-on how
the adoption of IAS/IFRS may drive changes in the performance profile of an organization
as reflected in its financial statements. This communication should benefit all
organizational stakeholders and ensure that adoption of IAS/IFRS progresses more
smoothly in terms of market perception of the company.
