Free Accounting Dissertations - Any Company That Has Makes An Acquisition Will Have To Do Annual Goodwill
Any company that has makes an acquisition will have to do annual goodwill impairment analysis and most of them would like to explain the results also.
Comparable formats. IAS 1 is less prescriptive than the UK GAAP when it comes to the format of the balance sheet and income statement. It just distinguishes current and non-current assets and liabilities. Investors, when faced with different formats, may find it difficult to compare companies.
Modify organisation structures. Meall (2003) suggested that the additional burden of more financial reporting along different segments may force companies to modify their existing organisational structures within their financial systems to collect and analyse data.
Impact of IFRS on different industries
IFRS will have different impact on different industries. For some, most of the applied UK GAAP is almost same as IFRS and won’t feel the difference. But for some industries, the difference in accounting standards may have a substantial impact. Financial services and insurance companies are among them. Financial services companies would be affected by substantial change in recognition and measurement of financial instruments under IAS 39. UK GAAP has no equivalent to IAS 4 which deals with insurance contracts. Insurance companies would now have to account for this in their financial statements.
Under IFRS, insurance companies would have to book financial instruments such as derivatives at market value rather than historical value allowed under UK GAAP. Many insurers have said that this will distort their earnings (Reuters, 2005a). IFRS will put more stringent criteria for classification of insurance products and this may lead to reclassification of some insurance products as investment products.
Other industries that might face higher impact are the ones that heavily use hedging instruments in their day to day operations. Mostly companies using commodity materials like oil as a significant part of their input costs use hedging to smooth over the volatile changes in commodity markets.
New accounting standards will reduce Tesco’s projected annual profit of £2,000m by £30m only, a reduction of 1.5%. But for some companies the impact would be much more. Royal & Sun Alliance said that new accounting rules would reduce its net assets by £400m (Reuters, 2005a). This is a big number by any standards and shareholders of Royal & Sun Alliance would surely be concerned. Even though the company may classify it just an accounting issue, it casts certain doubt on the business practices and assumptions followed in past by the company.
The movement in assets and profits is not unidirectional for all companies. ICI, the chemicals company, said that its 2004 year profits were boosted by 6 per cent due to the changes introduced by new accounting standards (Smith, 2005).
