First companies to see the effects of IFRS changes
Aim listed companies preparing interim financial statements for the 6 months ending 30 June 2009 will be among the first to be affected by recent changes to the presentation and disclosure rules under International Financial Reporting Standards (IFRS). These interim statements will need to be filed by 30 September 2009.
Full list companies should have filed their interim statements by 31 August 2009 and these could therefore be used as guidance for Aim listed companies.
Interim statements must be presented in a manner consistent with how the full year results will be presented so choices need to be made now on how to deal with the introduction of these new rules.
Indeed, those preparers who are not already aware of the changes and how they will affect their reporting requirements will need to act now in order to ensure that they produce compliant interim statements.
These changes to the presentation of interim statements come at a bad time for many finance functions, which are already stretched, thanks to the effects of the current economic crisis.
The following summary details those changes that are likely to be of most significance.
IAS 1 – Changes to primary statements
The introduction of the revised IAS 1 Presentation of financial statements includes changes both to the terminology used and the statements to be presented. These changes will change the focus of financial reporting, placing less emphasis on the widely understood notion of profit or loss and more emphasis on total comprehensive income. It is likely that many users of accounts (particularly non-accountants) will find these changes confusing.
An entity is expected to use the same titles in its interim financial report as are used in its annual financial statements, and as a result corresponding changes have been made to IAS 34 Interim Statements.
The primary statements that IAS 34 requires to be presented in an interim statement now consist of:
- A condensed statement of financial position (previously the balance sheet. Use of the new name is not mandatory, but it is the term that will be used in future new standards).
- A condensed statement of comprehensive income (a combination of the income statement and statement of recognised income and expense (SORIE).
- A condensed statement of cash flows (previously the cash flow statement)
- A condensed statement of changes in equity.
Aim listed companies are not required to prepare interim statements in accordance with IAS 34. However, many Aim listed companies do prepare their interim statements in compliance with IAS 34 as it enables them to state that their interim report is fully compliant with IFRS. Where Aim companies opt to prepare their accounts in accordance with IAS 34 they will have to provide the new primary statements listed above.
For Aim listed companies that do not prepare IFRS compliant reports, Aim rule 18 on half yearly reports requires only a balance sheet, an income statement, and a cash flow statement as primary statements. However, these regulations also require that the interim statements must be presented and prepared in a form consistent with that which will be presented in the annual accounts. Therefore, the new terminology for primary statements that is described in the revised version of IAS 1 should still be used by Aim companies.
Despite this Aim has confirmed that for interim statements it is acceptable to simply present an income statement (as that is all that is required by rule 18) whether or not the full accounts will contain the single or dual statement approach for the statement of comprehensive income.
IFRS 3 – New approach to business combinations
The new rules on business combinations, now endorsed by the European Union, apply to financial statements for periods beginning on or after 1 July 2009. If a company is considering early adoption of this standard for its full year financial statements, it will need to make this decision before preparing its interim statements to achieve consistency.
If the revised versions of IFRS 3 ‘Business combinations’ and IAS 27 ‘Consolidated and separate financial statements’ are being adopted early, entities will need to be aware that the accounting rules in a number of key areas, such as the calculation of goodwill and the treatment of acquisition costs, have radically changed.
IFRS 8 – Managerial approach to segmental reporting
The introduction of IFRS 8 has added new segmental disclosure requirements into IAS 34. It also requires that operating and reportable segments are determined on an entirely new basis, which is focussed on what is reported internally to management. The new standard applies for periods beginning on or after 1 January 2009.
This will result in radically different segmental disclosures in IAS 34 compliant interim statements, and it may also require previous segment information reported in the comparative interim financial report to be restated if it is materially different.
Even companies that are preparing interim statements that do not need to comply with IAS 34, should be aware that any segmental disclosures that they do give in their interims will need to be consistent with the IFRS 8 disclosures that they will be required to give in their annual accounts.
For further information contact:
Jo Tollow, director, Assurance and Business Services at Smith & Williamson
01483 407111
Email Jo Tollow
PR enquiries to:
Kate Harrison/ Jess Koslow: 020 7131 4228/ 4264
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
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