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Study has IFRS implementation tips

A comprehensive report on the implementation of IFRS in three EU member states, has made a series of policy recommendations that could assist companies adopting IFRS in the future.

The project, led by academics from Dundee University in Scotland and the University of Brescia in Italy and published by the Institute of Chartered Accountants in Scotland, examined the annual reports of 175 companies in the UK, Ireland and Italy.

The main economic impacts on the annual reports of companies switching from local GAAP to IFRS were found to be increased reported profits and reduced net equity.

In the UK, reported profits were 51 percent higher under IFRS than those reported under national GAAP. In Italy, the increase was 18 percent and in Ireland, 12 percent.

In the UK, net equity under IFRS was 35 percent lower compared to that reported under national GAAP. In Ireland the IFRS equity was 6 percent lower. In Italy, equity was 3 percent higher under IFRS.

The report’s authors made a series of recommendations on how to ease the IFRS adoption process. These included the suggestion that shorter, simpler annual reports that highlight management performance and could be used for assessing the future prospects of companies could be a helpful way to counter annual reports increasing in size and, in many cases, complexity.

Due to the large reduction in net equity for UK companies, the report suggested companies should communicate openly to ensure stakeholders understand the financial strength of their operations has not been affected by the change in the accounting standards per se, although the changes may bring to light situations that had not previously been disclosed or recognised.

The report also suggested language and cultural issues contributed to the greater effect IFRS had on Italian companies and users than those from the UK and Ireland. It suggested the timely availability of IFRS translations could help mitigate this.

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