Borrowers and lenders will already be very well aware that the application of International Accounting Standards by all EU listed companies may have a significant effect on the numbers reported in a group’s or an entity’s financial statements. If not already planned or completed companies will need to communicate sufficiently with their lenders and the credit rating agencies so that the implications of IFRS are properly understood. If need be this can form the basis of any negotiation over waivers or variations in financial covenants.
This note summarises some of the crucial elements required in such a communication programme. The exact needs will depend on individual circumstances. Over time actions taken by leading companies should help establish best practice in this area, and a selection of cross references are provided to companies that have already reported their IFRS position.
Communications with equity analysts will also concern the treasurer not least because from a lender’s perspective some credit default models incorporate the current share price as a significant factor. Adverse share price movements could contribute to slippage in ratings, even triggering immediate increases in margins on debt in many instances and thus actual increases in cash outflows and the cost of all capital.
