Fraud

• Let�s talk standards
• Planning for the worst

Let�s talk standards

CESR - the Committee of European Securities Regulators - has issued a warning that listed companies must carefully manage their communication of the impact of implementation of international accounting standards. It is advising members to require listed companies to adopt a phased transition process.

In their 2003 annual reports, companies should explain how they intend to conduct the transition to international standards, says CESR. They should explain in their reports the key differences between existing standards and new international standards. As soon as a company is able to reliably express its financial situation in accordance with international standards it should do so, preferably by explaining the impact on its 2004 financial statements. Companies which publish interim financial statements should, from 2005, prepare these if possible in accordance with IAS 34, Interim Financial Reporting, and if this is not possible then by using international standards� recognition and measurement principles. Companies should also publish corresponding previous periods, prepared in accordance with international standards. Annual financial statements for 2005 must be prepared in accordance with international standards.

It is essential, says CESR, that companies only provide information on international standards where they have sufficient knowledge of final standards that will apply from 2005. Any communication must be reliable and must not mislead. Companies are recommended to make clear which information has been audited.

The Federation of European Accountants, FEE, has said that CESR should have a key role in an European enforcement co-ordination body, which FEE says is necessary for effective implementation of international standards in Europe. FEE adds that although the international standards� adoption should be a key step towards a fully integrated European capital market, it is concerned that the benefits of increased market efficiency will be undermined unless there is consistent enforcement of IFRS throughout Europe.

In addition to its proposed enforcement co-ordination body, FEE says there needs to be a wider consultation mechanism to provide an opportunity to all stakeholders to contribute to the continuous development of the enforcement system.

FEE President, David Devlin, explained: �Clearly enforcement must take place at national level. Likewise it is clear that achievement of a fully integrated European capital market requires consistency in enforcement processes used and decisions reached across Europe.�

Concerns were given added weight when Sir David Tweedie, chairman of the International Accounting Standards Board, warned that the 10-candidate countries which are to become European member states at the beginning of May would have particular difficulty in complying with international standards.

In a separate development, FEE issued a warning that the introduction of the Societas Europaea (SE), or European Company, from October 2004 - for companies to operate cross-border within Europe while complying with a single legal framework - was likely to be undermined because no decision had been taken on the taxation treatment of SEs.

David Devlin said: �Individual and corporate shareholders may face additional tax liabilities on dividends received from an SE and, potentially, there may be a taxation of unrealised capital gains on exchange of assets and shares when the SE is being created. These issues will seriously restrict the use of the SEs by existing and future shareholders.�

A survey conducted for the European Commission, published last September, revealed major variations between EU member states in their legal treatment of SEs. Several member states are treating SEs differently from domestically formed companies in terms of their tax situation, in breach of European law.

Planning for the worst

Research from Compass Management Consulting has found that despite 98% of surveyed companies having a business continuity plan in preparation for potential disasters, less than half actually implement the plans in the event of a crisis. Just 38% invoked their plans after an IT crisis. Nor did planning apparently prevent IT failures, as 58% of the companies still suffered a serious IT failure. Even where disaster continuity plans were acted on, some 71% of businesses still suffered serious impacts.

Weaknesses in business continuity plans included inflexibility, both in terms of options within a plan and the failure to adapt it to changing circumstances. The consultants say that in view of the much higher risk of terrorist attack - which might coincide with May Day rallies, or financial year ends - all companies should urgently review their plans.

�When you consider that large companies spend small fortunes on implementing a business continuity plan, these results are very surprising and, indeed, very worrying,� said Debbie Rosario, senior consultant at Compass Management Consulting. �The fact that a high proportion of companies are still being affected, despite having a business continuity plan in place, is of great concern. This suggests that these companies are misunderstanding the reasons behind developing such measures and aren�t considering vital aspects, such as malicious intent or security breaches, when developing their BCP. Additionally, they are not ensuring that their BCP is aligned with the business requirements by conducting a business impact analysis.�

A report from the London Chamber of Commerce and Industry - whose members are some of the most likely targets in the world for a terrorist attack - suggests a range of basic precautions for a variety of security threats. The Chamber�s own survey of local SMEs revealed that the vast majority - 83% - had no written security policy or contingency plan. The Chamber urged more SMEs to produce plans, pointing out that 90% of businesses that lose data due to disaster shut within two years.

The Chamber issued a key points warning to SMEs to put together their own disaster plan.

• Staff with medical training should be identified, with records kept up-to-date and including temporary workers.
• Fire hazards should be minimised by a �clear desk� policy.
• Business critical activities should be identified, with key applications protected through fall-back plans.
• An inventory of business assets should be compiled. This should contain not only physical assets, but also a company�s intellectual capital including staff skills.
• An alternative location should be found, which is a reasonable distance from the main premises. All staff must be aware of the location. These facilities should preferably be serviced by different utility and telecom providers than the main premises.
• A realistic timetable for recovery from disaster should be drawn-up.
• There needs to be an emergency strategy in the event of failure of IT and/or telecom systems.