All stock-market listed companies in the European Union must prepare their accounts under International Accounting Standards by 2005 at the latest. This will make it easier to compare companies throughout the Continent.
Isn’t 2005 still a long way off?
Annual reports for 2005 must contain IAS-compliant comparative figures for 2004. So companies need to convert their accounting practices by the end of 2003.
How will it affect the construction sector?
Contracts will be governed by standard IAS 11, which will replace the existing SSAP 9. Companies will have to disclose less information on their balance sheets. However, their profit-and-loss accounts will have to provide a more detailed breakdown of revenue.
What about joint ventures?
Under IAS, companies can account for joint ventures in two ways. They can use proportional consolidation, which details their share of every item on the joint venture balance sheet. Alternatively, they can use opt for equity accounting, which merely requires them to state their net assets, thus giving much less information away.
What’s the advice from accountants?
Peter Campbell, a construction specialist at Ernst & Young, says: “Our message to clients is, ‘you need to plan soon’. For all listed companies, especially those with operations in Europe, this is a major conversion and will take 18 months.”