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Introduction

“From 2005 UK listed companies must use IFRS for their consolidated statements” (Nobes and Parker, 2006, p.103). Therefore all companies listed in the UK, and whose financial statement date commences after this date, are required under European Union law to prepare consolidated financial statements upon the provisions of the international accounting standards. Among these standards is IFRS[1] 1, which will therefore also be applicable. IFRS determines that in the first year of reporting, a organisations complying with these regulations must include within their financial statements previous years figures compiled using the IFRS system for comparative purposes.

Following such major changes, it is important to understand the reasoning behind the EU’s adoption of these standards; the critical objectives of IFRS and to evaluate how their use has impacted upon the financial statements of a company in comparison with previous methods of reporting.

EU Adoption of international accounting standards

Historically, the member states of the European Union has been subjected to many different political and market structures, including those that prevailed in fledgling states that were formerly part of communist bloc of the Soviet Union. As Nobes and Parker’s (2006) earlier publications (1980 and 1998) have shown over the years, this has resulted in differing reporting classes of nations, between those who are driven by business or state and who have weak or strong equity markets.

This diversity of national reporting standards has previously led to difficulties in terms of the international flow of capital because of the problems that arise in understanding the complexities of financial statements prepared under numerous national standards (Blake and Amat 1993). At this time, the EU was reluctant to accept IFRS, being concerned with the dominant of the US, and preferred to attempt harmonisation through raising its own legislation. However, when these failed to address the problem, the EU changed its stance and became a vigorous supporter for change (Nobel and Parker, 2005, p.105), within the single market.

There are several benefits to aligning reporting standards in EU member states with the IFRS, which has already been adopted internationally by a number of other countries, including the US. Primarily, within the EU itself, it will considerably reduce the problems of cross border trade between countries with differing standards, thereby making trade more secure. Secondly, it will facilitate increased free-flow of capital between nations (Armstrong et.al. 2002) and thirdly, it will make the Union as a trading bloc more competitive on the international stage.

Despite adopting most of the IFRS standards in 2002 (Mirza et.al. 2006, p.1), there were still some which it was reluctant to accept. Similarly, there were areas where reporting differences between member states still existed, as identified by Ann Tarca (2002) and, more recently, by Nobes and Parker (2006, p.19). However, the EU adopt