Insider Media Limited

Midlands companies should prepare imminently if they are to avoid any negative impact of the new accounting standards provisionally due to take effect in 2012. That’s according to specialists at Grant Thornton in the Midlands.

Under the new International Financial Reporting Standards (IFRS) for small and medium sized businesses, there will “not only be presentational changes to companies’ accounts, but there will be potentially significant changes to the numbers as well”, said Ed Moore, senior manager in Grant Thornton’s audit team.

Moore said: “It is essential that companies understand what the changes are and how they might affect their business - and the sooner the better. They can then take action against any potential accounting difficulties which may have a detrimental effect on their tax position or financing options.”

The major difference in the IFRS is the absence of the option to revalue freehold property. Companies will also need to recognise the fair value of certain financial instruments such as foreign exchange contracts or interest rate swaps.

Moore said: “It’s absolutely vital to understand the ramifications of these changes and to begin working on a transition plan. Although there may be positive effects, such as the one-off opportunity to re-value freehold property on transition, finance directors will need to look closely at any loan covenants, bonus arrangements or earn-outs to ensure that these are not affected when the new regime is applied.

"For groups, now is the time to consider restructuring, particularly if there are any unnecessary companies within the group.”