The European Union has issued guidelines to help companies grapple with the biggest accounting change in decades, which is aimed at bringing uniformity to the reporting practices of the 7,000 listed companies in what is soon to be a 25-country bloc.
The guidelines, which were anxiously anticipated by affected companies, advise companies to phase in the new rules over the next year to be ready for full adoption in 2005. The new rules do not include a restatement of accounts for years prior to 2004. The new rules will make it easier for investors to compare the performance of companies and some think the change over could later result in stock market consolidations.
The guidelines are not mandatory but the rule change is. The EU has required all 7,000 listed companies to begin using international financial reporting standards (IFRS) beginning in 2005. The standards, which differ from U.S. standards, are due to be adopted by many European countries and Australia in an effort to achieve uniformity.
Companies are being required to prepare a set of 2004 accounts under IFRS so they can be compared against the 2005 figures when they are released.
The change over is expected to be costly, with the average United Kingdom company spending as much as $638,000 to comply.