To IFRS, or not to IFRS?
IFRS may not apply to your company. You are a small company, and have some ambitions about being listed somewhere in the future, but don't see that happening anytime soon. "Great," you think. I can still use good, old garden-variety Polish GAAP, and ignore IFRS. All that complexity does not apply to me.
But beware. Even though technically you do not have to adopt IFRS, there may be many reasons to go ahead and do so. Even though the current wave of IFRS applies to stock exchange-listed companies only, that does not mean that your non-listed company will never be forced to change its accounting standards.
Australia bit the bullet and now applies IFRS to all companies large and small; there is no more Australian GAAP. In the UK, tax accounting is becoming more and more aligned with UK GAAP accounting (IFRS was primarily modeled after UK GAAP). All experts agree that having multiple standards, while necessary in the interim, will be costly and sometimes confusing (note that Polish tax accounting at present differs from IFRS). Sooner or later, IFRS or IFRS style standards will apply to all companies, large or small, private or public, which are required to audit financial statements, or that may wish to have audited reports prepared. Should you come to terms with it now, and not wait?
Are you ready?
Most experts shy away from a simplistic formula, but all agree that there are many issues that determine whether and when you should start examining IFRS. If you are planning a listing in the future, adoption of IFRS should be a secondary, not a primary issue when planning on listing your company.
"The decision should be driven by determining IPO readiness. You ask the question: 'Am I ready to go to the stock market?' Whether you have IFRS would be very much a secondary criterion. Because the decision is based on other issues, such as 'is anyone going to buy my shares,' all that needs to be taken care of before you make the decision. An adviser would work with the company and say, conclude that they are not ready for three years. Maybe under that scenario, you can start considering it," says PricewaterhouseCoopers' Aleksander Domaradzki. But even if you have no plans of listing, there may be other good reasons for adopting IFRS.
Do you plan to go to a bank or a private equity investor for financing? Despite claims to the contrary, most professionals in practice prefer to work off one standard, as it makes things easier (witness the universal use of Microsoft Windows, despite constant criticism from users, and the success of VHS over Betamax in the 1980s). Once a new way of doing things is introduced, people prefer to do it that way. Bankers and private equity investors will soon become more comfortable reading and interpreting financial statements that are prepared in line with IFRS.
Impressive move
Just as it was once considered impressive for a small company to have audited financial statements, because nobody expected them to do so, so your company may gain a few points of advantage, in terms of creditworthiness and overall credibility in the eyes of bankers and investors, if it has financial statements which are prepared consistently with IFRS.
Are you now or would you like to be the supplier of goods or services to a large European conglomerate? The corporation may want to understand the financial condition of its supplier. In this case, having IFRS-compliant financial statements could give you a competitive edge in winning the contract.
Simpler solution
There are no hard and fast rules. According to Joe Smoczyński, a partner at Moore Stephens Smoczyński i Partnerzy, you should examine adopting IFRS pragmatically, "if you have a need because it will help your business." The IASB is now examining the possibility of organizing a simplified IFRS for small- to medium-sized enterprises (a similar standard exists in the UK), which will allow SMEs to prepare IFRS-compliant financial statements. The cost of adopting the current version of IFRS may prohibit the current smaller company from doing so. But forewarned is forearmed. Those executives, both managerial and financial, that familiarize themselves with the requirements of IFRS now will have an easier time later on when they wish to adopt IFRS, or more importantly, when they might be obliged to adopt IFRS.
By Robert Michaels
But beware. Even though technically you do not have to adopt IFRS, there may be many reasons to go ahead and do so. Even though the current wave of IFRS applies to stock exchange-listed companies only, that does not mean that your non-listed company will never be forced to change its accounting standards.
Australia bit the bullet and now applies IFRS to all companies large and small; there is no more Australian GAAP. In the UK, tax accounting is becoming more and more aligned with UK GAAP accounting (IFRS was primarily modeled after UK GAAP). All experts agree that having multiple standards, while necessary in the interim, will be costly and sometimes confusing (note that Polish tax accounting at present differs from IFRS). Sooner or later, IFRS or IFRS style standards will apply to all companies, large or small, private or public, which are required to audit financial statements, or that may wish to have audited reports prepared. Should you come to terms with it now, and not wait?
Are you ready?
Most experts shy away from a simplistic formula, but all agree that there are many issues that determine whether and when you should start examining IFRS. If you are planning a listing in the future, adoption of IFRS should be a secondary, not a primary issue when planning on listing your company.
"The decision should be driven by determining IPO readiness. You ask the question: 'Am I ready to go to the stock market?' Whether you have IFRS would be very much a secondary criterion. Because the decision is based on other issues, such as 'is anyone going to buy my shares,' all that needs to be taken care of before you make the decision. An adviser would work with the company and say, conclude that they are not ready for three years. Maybe under that scenario, you can start considering it," says PricewaterhouseCoopers' Aleksander Domaradzki. But even if you have no plans of listing, there may be other good reasons for adopting IFRS.
Do you plan to go to a bank or a private equity investor for financing? Despite claims to the contrary, most professionals in practice prefer to work off one standard, as it makes things easier (witness the universal use of Microsoft Windows, despite constant criticism from users, and the success of VHS over Betamax in the 1980s). Once a new way of doing things is introduced, people prefer to do it that way. Bankers and private equity investors will soon become more comfortable reading and interpreting financial statements that are prepared in line with IFRS.
Impressive move
Just as it was once considered impressive for a small company to have audited financial statements, because nobody expected them to do so, so your company may gain a few points of advantage, in terms of creditworthiness and overall credibility in the eyes of bankers and investors, if it has financial statements which are prepared consistently with IFRS.
Are you now or would you like to be the supplier of goods or services to a large European conglomerate? The corporation may want to understand the financial condition of its supplier. In this case, having IFRS-compliant financial statements could give you a competitive edge in winning the contract.
Simpler solution
There are no hard and fast rules. According to Joe Smoczyński, a partner at Moore Stephens Smoczyński i Partnerzy, you should examine adopting IFRS pragmatically, "if you have a need because it will help your business." The IASB is now examining the possibility of organizing a simplified IFRS for small- to medium-sized enterprises (a similar standard exists in the UK), which will allow SMEs to prepare IFRS-compliant financial statements. The cost of adopting the current version of IFRS may prohibit the current smaller company from doing so. But forewarned is forearmed. Those executives, both managerial and financial, that familiarize themselves with the requirements of IFRS now will have an easier time later on when they wish to adopt IFRS, or more importantly, when they might be obliged to adopt IFRS.
By Robert Michaels
