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Insight – CFO Summit – The Wall Street reshuffle

The compulsory use of international accounting standards is a lot closer than many companies might think, warned Deloitte & Touche senior technical partner Ken Wild at the first CFO Summit, held at The Belfry golf resort in September. IASs are going to be required by the European Commission for 2005 financial years, but it will also be necessary to have comparatives – so the real deadline is 2004, Wild said.

But then, it will be necessary for companies to have a dry run with the new standards, running in parallel with current UK GAAP, so really 2003 will be the deadline – which means that next year, 2002, will be the last chance to prepare, Wild warned.

But despite the effort necessary, Wild sees that there will be real advantages to be had. Tongue only slightly in cheek, he said that the International Accounting Standards Board had but one aim: to take over the world. “I don’t mean that in any Machiavellian sense,” he said. “It makes sense for there to be one set of common standards, eventually.”

He told the FD delegates: “The only purpose for having accounting standards at all is to lower your cost of capital.” In 1990, non-US companies raised $8bn in capital on US securities markets. By 1998 that figure had risen to $170bn. “But it’s not just about raising capital,” Wild said. “It’s about mergers and acquisitions, too.”

Wild believes that the New York Stock Exchange is pushing the Securities and Exchange Commission to accept IASs so that it doesn’t lose new listings to other exchanges. The London Stock Exchange, for example, does not require non-UK listed companies to reconcile their financial statements to UK GAAP. The SEC seems unlikely, however, to accept IASs without at least some reconciliation to US GAAP.

Wild warned FDs of the difficulties ahead. In particular, IAS 39 “is probably as complicated as all the other international accounting standards put together. The impact on hedging reporting is huge.”

This isn’t just about how numbers are collated, he added. This is concerned with real cash. Tax is increasingly based on statutory accounts: “If the accounts change the tax changes.” Covenants, too, will be affected. Performance conditions relating to staff and management compensation and share awards may, under IASs, become impossible to achieve – or, indeed, impossible not to achieve. (See feature, page 49.)

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