Decision time for private equity backed businesses

The plans of the Accounting Standards Board (ASB) to replace UK GAAP by 2012 leaves private equity backed companies with a major decision to make. Should you wait and adopt the new International Financial Reporting Standards (IFRS) for SMEs or does it make more sense to choose full IFRS now?

Companies have a unique choice. They can select the set of standards to best suit them and in the case of full IFRS, the timing of transition. The decision for PE backed companies is much more than just an accounting one. The biggest consideration is your most likely exit route. If it is likely to be via an initial public offering (IPO) or trade sale to a company using full IFRS, then adopting full IFRS makes a good deal of sense.

Other impacts to consider include;

•       Distributable reserves

•       Cash tax payments

•       Covenants and guarantees

These factors, along with the company's vision and stakeholders’ wishes are key to driving the decision. These impacts need to be assessed properly and considered carefully as part of any financial forecasting process to effectively conclude which set of standards and what timing, is right for you.

As with listed companies in 2005, we expect many companies to wait until the last minute until making their transition. However, delaying the decision may be detrimental.

Several PE backed companies have voluntarily adopted full IFRS, preparing themselves for the expected IPO markets re-opening in 2010. This also allows them to take advantage of beneficial taxation or distributable reserves positions. Previously, these companies concluded the upheaval of implementing a new basis of accounting outweighed the benefits. However, now this change is definitely going ahead, be it now or in 2012, companies are taking full advantage as soon as they can.

The process of determining the right choice for your company need not be difficult, and we can help you through the decision-making process. Whether the choice is IFRS or IFRS for SMEs, planning early is essential.

Contact details
Email: Andrew Hammond
Tel: +44 (0)121 265 5352

Email: Rebecca Cooke
Tel: +44 (0)121 232 2287