Survey finds equity market unprepared for IFRSs

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30 May 2005

A survey of 12 leading investment banks and 30 rated investment analysts in London by financial communications consultants Citigate Dewe Rogerson has found that the investment banks are "largely adopting a 'wait and see' approach towards the reconciliation of IFRS changes in financial modelling and forecasting....

The risk is that market valuations and share prices may be affected by a prolonged period of volatility while analysts lack consensus and a consistent approach to the interpretation of financial data under IFRS." The survey found that:

  • Only two of the 12 investment banks have provided guidance for their analysts on how to integrate IFRSs into forecast models.
  • Three-fourths of the investment banks offered their analysts no formal training at all on the adoption of IFRS.
  • Half of the analysts surveyed have not made any changes to their forecast models for companies, while a further 23% have only made partial changes.
  • Almost a third of the analysts have received no communication whatsoever from companies on the implications of IFRS. Less than 20% of analysts surveyed stated that companies had provided sufficient data.
  • All agreed that the balance sheet and profit and loss account would be the financial statements most impacted by IFRS, thereby implying an increased focus on cash flows.
  • Half stated that they would not be changing their valuation methods as a result of the adoption of IFRS, even though many responses highlighted potential impact on EV ratios, 'sum-of-the-parts' analysis, and dividend payments.
The report cites a range of implications of the findings including the potential for large variations in earnings forecasts, increased emphasis on cash flows, and detrimental effects on macro data offered by investment banks. Click to Download Press Release (PDF 58k), which contains an active link to download an executive summary of the study.

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