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Tuesday, 23rd April 2024
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IFRs – a boon for business Back  
Irish accountancy firms are overwhelmingly positive regarding the impact on their business of the implementation of International Financial Reporting Standards (IFRs) a survey on practice management trends in accountancy has revealed.
Of the 17 accountancy firms surveyed by FINANCE, all but one said they expect the move to IFRs to result in an increase in their fee income. The main reason behind expectations of business growth is that, according to Donal O’Connor, managing partner with PricewaterhouseCoopers (PwC), the transition to IFRs is the greatest change in accounting standards of the past 25 years, and will therefore require significant support services to enable clients convert their reporting methods.

Julian Caplin, managing partner at Caplin Meehan, said the imminent transition has already facilitated an increase in international business, while a number of other firms cited the increased level of audit work the new rules will require as a boon for business. Of the ‘Big 4’, KPMG sees the work involved in assisting companies to understand and implement IFRs as ‘significant’ over the next two years. The only firm to say it does not expect any benefit from IFRs, Brenson Lawlor, said that the new rules were targeted primarily at large companies and plcs, which are not among its client base.

While most firms believe that the new standards will be positive for business in general, rather than just short-term fee income, there were dissenting voices, with three expressing doubts about the long-term benefits. On the pro-side, Donal O’Connor said, ‘We welcome IFRs as a positive development for business. In converting to IFRs Irish companies will be adopting a global reporting language that will enable their company to be understood in the global marketplace.’

‘Communicating in one reporting language, IFRs, will enhance global investor confidence in Irish businesses and improve their finance-raising capabilities. It will also allow multinational groups to apply common accounting across their subsidiaries, which can improve internal communications, and the quality of management reporting and group decision-making,’ he added.

Paul Smith, managing partner with Ernst & Young, says that, ‘uniform accounting standards have to be good for business’

KPMG has taken a slightly more cautious approach, with managing partner Denis O’Connor, saying that while IFRs will ultimately be good for business, in the short-term it will not necessarily be quite so positive, ‘given the degree of change in IFRs, continued uncertainty regarding IFRs in some key areas, and a very substantial learning curve for preparers and users of financial statements.’ Among the pessimists, BDO Simpson Xavier sees IFRs as ultimately bad for business as it will place an ‘onerous’ compliance burden on companies.

While the imminent arrival of IFRs has put the spotlight on accounting standards at their most fundamental level, the industry is still coming to terms with the post-Enron environment, where firms’ business practices are increasingly under scrutiny.

Of Ireland’s top firms, for example, three said that they turned away business that they feel in the new climate would be negatively perceived as setting up a conflict of interest.

While the financial services industry is generally positive towards tighter standards, realising that the restoration and nurturing of trust with their clients will ultimately translate to more business, there is a groundswell of opinion, which feels that Irish companies are in danger of becoming over-regulated. Twelve of the largest accountancy firms in Ireland believe that the threat of excessive regulation is very real.

The chief concerns of the industry are highlighted by PwC’s O’Connor, who said that while the effort of regulators worldwide to secure high standards of corporate behaviour and to rebuild public trust are supported, regulation should not add significantly to the cost of doing business in Ireland or make Ireland less competitive in the Foreign Direct Investment (FDI) space.

‘Consequently, it will be for the Irish Government to strive for the best balance between regulation and over-regulation. In particular, it is important for the regulators to give appropriate and thorough guidance to company directors as to their increased obligations and this will be most required for the proposed Directors’ Compliance Statement,’ he said.

Most of the firm’s surveyed also feel that there will be an increased regulatory risk for auditors/accountants in the year to come. Of concern also is that the legislative environment does not support a liability environment for auditors proportionate to their responsibility/degree of culpability when there are corporate failures. However, not all are so fearful, with Mazars saying that there has been enough preparation by firms to ensure that they are in a position to practice and offer the best advice to their clients.

Nearly half of the main businesses expect the very structure of the industry to change due to merger and acquisition (M&A) activity over the coming year. PwC sees no further changes in the composition of the Big 4, but it does expect further consolidation among the smaller firms.

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