Are Polish firms ready for the new accounting regime?
A report by auditor PricewaterhouseCoopers suggests that a great deal of domestic listed companies are not prepared for the International Accounting Standards they will have to adopt by 2005. The new rules could affect smaller businesses as well.
By Timothy Sifert
Warsaw Stock Exchange-traded companies seem to be procrastinating in their efforts to have their books comply with International Accounting Standards (IAS), a task they must complete by 2005 as per the order of the European Commission.
The 192 concerns traded on the WSE tend to comply with local accounting law as well as standards set by the exchange itself, but the fast-approaching European Union membership brings with it another accounting challenge: all WSE companies will be required to prepare their financial statements in accordance with IAS.
"Most companies have a problem with IAS because they have not read it yet," said Joe Smoczyński, partner at Moore Stephens Smoczyński i Partnerzy.
Smoczyński's sentiment is highlighted in a recent report by PricewaterhouseCoopers (PwC) entitled "2005 - Ready or Not," in which the firm surveyed the views and opinions of 51 managers of WSE-quoted companies on the readiness of local companies to comply with IAS.
Among other findings, it concluded that two-thirds of companies have not yet conducted an analysis of the extent of the changes necessary for conversion to IAS. And it added that most of the companies that did have admitted they've conducted only "preliminary analyses."
Furthermore, it said that 74 percent of managers polled thought that the introduction of IAS would not affect the perception of their companies - a higher level than those questioned in a similar survey conducted for western Europe.
Despite the study, it is also clear that some companies seem not to be too worried about the impending accounting task, saying that they would just outsource their appointed bean counters.
"As far as I know we have not made any moves to do this," said Grzegorz Wójcik, vice president and planning director at WSE-listed Internet company Interia. "If we will be forced to do it then we will do it. I don't think it's a huge problem. Our company has a very (simple) structure so it won't be difficult to make the changes."
He explained that Interia would more or less leave the bulk of the task up to its accountants.
"We have a company doing our accounting," Wójcik said. "We will either change the contract with them, or change the firm."
He did not name Interia's accounting firm.
KGHM executives, for their part, believe that much of the work in compliance with IAS is already done.
"Polish accounting standards have changed over the years to address IAS," said Andrzej Kowalczyk of the investor relations department at KGHM. "And our company changed according to Polish law to implement as much IAS as possible."
Michał Michalski, spokesman for ComputerLand, said the software integrator would be up to scratch by 2005.
"Our account books and financial reports in many aspects are compatible with IAS," he said. "So we are ready to show our financial results are according to international law."
Nonetheless, in general Smoczyński thinks that smaller companies, not the larger WSE-quoted ones, will be forced to bear the brunt of the new standards.
"Many companies will find that it won't have a major effect on them," he said. "(But) what PwC looked at was the top 10 percent-15 percent of companies. What it doesn't consider is the other 85 percent of the rest of the economy," he said.
Smoczyński pointed out that the trouble extends well beyond those traded on the exchange.
"In Poland those companies, not even on the WSE, have a problem with Polish accounting law," he said.
If these companies are unfamiliar with IAS they could find business difficult, as banks will begin requiring these new standards when any company seeks to raise capital. Smaller companies could then have even higher hurdles set for them when they seek loans or other financing options.
Smoczyński added that even companies with sound bookkeeping would not necessarily steer clear of the dilemma.
"Also, it's important that all companies practice IAS because we do need more unification in the economy," he added. A business environment in which publicly traded companies file reports one way and privately held companies file in another way would create an unnecessary divide, Smoczyński said.
He proposed a solution.
"I am in favor of adopting IAS countrywide," Smoczyński said. "But small companies should have a more simplified way of reporting," he said. He explained that the United Kingdom, which at present employs U.K. Generally Accepted Accounting Principles (GAAP), offers a simplified structure for smaller companies.
