Areas to consider - financial and technical issues

IFRS 1

Key issues to address
IFRS 1 'First time adoption of IFRS' requires you to retrospectively adopt policies complying with the standards in force on the reporting date. A number of exemptions are available and you should consider carefully the options available to you as they may have strategic implications.

How can we help?
We can work with you to develop your approach to transition, and to determine the best choices you can make under IFRS 1. This means considering technical issues, but also practical conversion possibilities, systems capability, taxation implications and the wider business environment.

Broad technical issues

Key issues to address
Conversion to IFRS affects every part of your financial statements.

Even in areas where the standards appear similar to current local GAAP there are often technical differences so you need to thoroughly review all your policies..

How can we help?
We can give you advice and assurance on your policies, and the differences in moving to IFRS. We can help you ensure that your policies meet the rules and regulations, and conform to best practice and industry standards.

Impact of EU and Company Law

Key issues to address
Although the EU Company Law Modernisation Directive no longer requires EU-listed companies to present an operating and financial review, a business review is still a requirement. Most companies will choose to present a detailed analysis of a range of financial and non-financial key performance indicators, plus information on environmental and employee matters. All this information must comply with IFRS.

How can we help?
We can help your board and audit committee meet their wider regulatory obligations. We'll help you determine the required disclosures, develop a plan and assess the reliability of the information you provide.

Taxation

Key issues to address
For non-listed companies, including individual companies in a listed group, IFRS is optional for statutory reporting. The Inland Revenue has indicated that if a company files IFRS-compliant financial statements these will be the starting point for computing its tax liability. Businesses may see either an increase or decrease of their actual cash tax liabilities as a result, including the tax impact of the transition adjustments, and a thorough analysis of the tax implications is required. Deferred tax liabilities are also likely to increase and the impact on distribution policies will need to be evaluated.

How can we help?
We work to give you control over the tax aspects of the conversion process: identifying risks and opportunities; raising awareness of pertinent issues; assessing the impact of changes in your effective tax rate; and helping you with disclosure and documentation requirements. We can also work with you to consider the tax treatment at both group and subsidiary level.

Employee benefits and remuneration policy

Key issues to address
IAS 19 'Employee benefits' results in more prescriptive treatments for short-term benefits, and requires you to bring pension scheme assets and liabilities onto your balance sheet. In addition, IFRS 2 means higher charges in the income statement relating to employee share plans. So you should look carefully at your remuneration policies.

How can we help?
We can carry out initial studies to evaluate the impact of applying IFRS to employee benefits and remuneration structures. They can identify data management and system issues, and set out a plan for the implementation process. Our experts help you manage and reward your workforce while minimising tax and accounting implications and costs.

Financial instruments and treasury

Key issues to address
IAS 39 introduces the need to fair-value both simple and complex financial products – including derivatives and embedded derivatives – and bring these onto the balance sheet. In addition, the requirement to achieve hedge accounting will require careful analysis and detailed process changes. Adding to the complexity of recognising and measuring financial instruments, IFRS 7 has introduced more onerous disclosure and reporting requirements.

How can we help?
We have extensive experience in identifying and implementing the changes to financial risk policies and processes. We ensure that you can manage economic risks effectively while still minimising earnings volatility and other accounting risks.

Distributable reserves

Key issues to address
There are clear potential benefits of harmonising accounting at a group and entity level. However, the repercussions of this decision may adversely affect distributable reserves as, somewhat surprisingly, a number of GAAP differences exist which could significantly reduce distributable profits under IFRS.

How can we help?
PwC's specialists are well placed to advise directors on the impact on distributable reserves on the company as a whole. Given the uncertainties, potential implications, and general complexities of this area, PwC can help directors identify the long-term and short-term drawbacks and benefits.

IFRS in subsidiaries

Key issues to address
A major benefit of adopting IFRS in the parent company accounts is that groups will be able to prepare their consolidated financial statements in a similar manner to the previous year under UK GAAP. This will allow the parent company balance sheet and group balance sheet to be presented together on one page, and the parent company profit and loss account disclosure exemptions retained.

How can we help?
PwC can help companies understand the important implications that must be understood and explored.