Question

Switzerland is not a member of the European Union (EU). You are the Business Development Officer (BDO) of a successful medium-size Swiss company that has grown rapidly in recent years. The company has now grown to the point where the owners can no longer supply all the capital needed for further expansion. The owners have asked you to look into the option of the company raising capital in the EU capital markets. You have commenced discussion with banks and investors in Paris, Zurich and Frankfurt. You have spoken with several investment bankers about the possibility of an Initial Public Offering (IPO) on the Euronext. Currently your company prepares its financial statements in conformity with Swiss GAAP. Swiss law allows for the use of IFRS instead of Swiss GAAP. The owners of the company have been reluctant to switch to IFRS because of the cost involved to make such a change.

Present a compelling case to the owners of the company in favour of switching to IFRS.

Answer 1

1) IFRS focus on investor

A) The first factor is that IFRS promise more accurate, timely and comprehensive financial statement information that is relevant to the national standards. And the information provided by financial statements prepared under IFRS tends to be more understandable for investors as they can understand the financial statement without the necessity of other sources which makes investors more informed

B) Reducing international differences in reporting standards by applying IFRS, in a sense removes a cross border takeovers and acquisitions by investors.

C) This also helps new or small investors by making the reporting standards simpler and better quality as it puts small and new investors in the same position with other professional investors as it was impossible under the previous reporting standards. This also helps to reduce the risk for new or small investors while trading as professional investors can not take advantage due to the simple to understand nature of financial statements.

2) Recognising the loss immediately is one of the key features of IFRS as it is not only the benefit for the investors, but also for the lender and other stakeholders within the company

3) The convergence to IFRS has improved the comparability of financial statements in the EU. This has been achieved through having the same reporting standard under a single market, the EU

4) The most mentioned factor about the advantages of IFRS has been the standardization of financial reporting which eventually improves the comparability of financial statements in major financial markets. This also removes the trade barrier, as this was one of the key factors as why the EU has been trying to adopt single reporting standards.

5) Improved consistency and transparency of financial reporting factor can also be mentioned as one of the crucial advantages of converting to IFRS as it makes the EU member countries to be consistent not only on macroeconomic aspects, but also on financial reporting which improves relationship between investors and companies among member countries.

6) Better access to foreign capital markets and investments

7) Improved comparability of financial information with global competitors