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IFRS confusion could upset share prices

Equities

A majority of equity analysts believe that the switch to the new International Financial Reporting Standards (IFRS) on January 1 2005, which affect all EU-listed companies, could result in market turmoil. The share price of any company with significant treasury activities could be affected because of poor understanding of the new rules and inadequate communication about them.

According to a survey of 100 buy-side and sell-side analysts by Mori for KPMG, 53% of equity analysts believe that IFRS will have an impact on the valuations of company shares, but that this has not yet been reflected in market prices.

Turmoil

Many companies, however, have yet to explain how their results will be affected. Nearly half of all analysts have not been briefed by the companies they track and 69% of analysts have received no training from employers on the changes. As a result, nearly half the analysts surveyed doubt that they will be able to distinguish between changes that result from underlying business performance and those that are purely the result of the new accounting rules.

Over half of the respondents said that some market turmoil could result because of the confusion, with 35% saying that they would mark down companies that showed unexplained volatility in earnings.

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