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

International Financial Reporting Standards (IFRS) are issued by The International Accounting Standard Board(IASB). They state how a particular transaction or event should be reported in the books of accounts. IFRS were established in order to have common accounting language, so business and accounts can be understood from company to company and country to country.

The following are benefits of switching to IFRS.

1. Financial statements prepared using IFRS help understand investors better investment opportunities as opposed to financial statements prepared using a different national accounting standards.

2. The industry is able to raise capital from foreign markets at lower cost if it create confidence in the minds of foreign investors that their financial statements comply with globally accepted accounting standards.

3. IFRS promise more accurate, timely and comprehensive financial statement information that is relevant for investors.