There are two main reason why FDs have been apathetic about the euro.First, the current international crisis is making even momentous eventsappear slightly irrelevant. (You can decide for yourself whether thearrival of a new currency in one of the world’s largest trading blocks isactually momentous or not).
Second, we want to think the introduction of the euro is simply an ITscare, a kind of Y2K Mark II. We’re quite familiar with this kind ofevent. There’s scaremongering, doom and gloom from IT experts andjournalists, and then we all carry on as before. Of course, this theory isa simplification. It could be argued that the hype actually forcesbusinesses to do just enough to cope.
The IT industry is certainly playing its traditional hand-wringing part inthe introduction of euro notes and coins. It says anyone who trades in anyway with Europe has a new crisis point – so-called e-day. And maybe thereis good reason to worry. The euro note and coins are arriving in uncertaineconomic circumstances. This is not a point in the business cycle whencompanies are keen to splash out on another new IT project, so there isgreat temptation to get ready for the euro on the cheap.
But the real difference between e-day and other IT changeover dates isthat this one is about cash. If businesses are not clear about how theywill get by after 1 January 2002 then they are exposing themselves to therisk that they may be lengthening their payment cycle. The idea of cashflow slowing and debtors days going further out is not a welcome thoughtat any time, but that prospect is even less attractive at the moment.
The most comprehensive statistical data about UK corporate readiness forthe euro comes from a study carried out for financial software house CODA,which was published earlier this autumn (The Coda Euro-Readiness Study).Perhaps the most striking aspect of the survey, which was conducted among67 UK-based mid to large corporates, was the fact that 38% claimed thatthey had no need to be euro compliant. Yet, the idea that four in everyten medium-sized or large UK companies will remain unaffected seems highlydubious.
Obviously, all companies with parents or subsidiaries in Europe shouldhave realised they will have to update their IT and accounting systems.However, other companies that currently receive invoices denominated ingood old pounds sterling from suppliers many soon find that that they arebeing requested to handle payments in euros. On 9 February, the Irish Puntwill cease to be legal tender – and you don’t have to be a global playerto have connections with the Republic of Ireland, probably just businessin Northern Ireland would do. There are even rumours that some supplierswill insist their customers take payment in euros – even though the billwill still be invoiced in sterling.
Of the 62% of companies in the CODA survey that believe they will beaffected by the 1 January deadline, over half at the time of questioninghad not yet made the necessary changes to their accounting systems or datafor euro compliance. Yet the Level 2 euro standard developed by theBritish Accounting Software Developers Association requires software to becapable of accurately handling multiple currencies and triangulation, plusa comprehensive base currency conversion routine that produces accurateconversion of all monetary amounts held in financial ledgers, that allowsfor rounding adjustments to be posted to a separate account and will showa full audit trail of the conversion. Companies that don’t get up to speedwill have to rely on manual workarounds and cope with a queries fromcustomers, suppliers and auditors.
There is also a need for companies to talk to suppliers and customers. EMUis designed to reduce costs and the administrative burden on the sales andpurchase ledger. However, there is much risk associated with changing fromindividual currencies to euros. Outstanding ledger balances at 31 Decemberin, say, francs, will have to be switched to euros. In discussing withcustomers when they are going to be invoiced in euros, it should bepossible to find a logical time in the business cycle to make the switch,perhaps when the outstanding balance is negligible. If a large number ofcustomers need converting, then a phased programme should be implemented.All of this may not be the strategic stuff FDs like to deal with but itdoes need sorting – and now.
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