Change and International Financial Reporting Stds

In 2005 International Financial Reporting Standards will be required in at least 65 countries for all of their domestic listed companies. Most importantly this includes companies in the 28 EU (Eurpean Union) and the EEA (European Economic Area). This change in reporting obviously may resuylt in some confusion and in difficulty comparing results from period to period. Take for example the following article concerning German Company Hochtief:

Hochtief AG, Germany's largest builder, said profit last year gained 17 percent, boosted by a change in accounting standards and by rising demand.

Pretax profit advanced to 187 million euros ($243.5 million) in 2004 from 159.5 million euros a year earlier, the Essen-based company said today in a statement.

The company gained from the International Financial Reporting Standards, which end the regular expensing of goodwill related to acquisitions.

One interesting piece in the article focuses on the question of whether the company's earnings really did improve as much as suggested:

Hochtief's earnings beat the 171.8 million-euro median estimate of six analysts surveyed by Bloomberg News.

The company wrote down 21.1 million euros of goodwill amortization in 2003. Pretax profit without this expense would have been 180.6 million euros instead of 159.5 million euros.

So without the expensing of goodwill earnings in the previous period would have been 180.6 euros and the improvement over the previous period would have been only 3.5% not 17%.

The changes that are occurring are just one more reason that it is important that accounting students be introduced to International Financial Reporting Standards.