Operations Strategy at Galanz

Galanz’s Competitive Strategy Galanz is a company that is based in China. Its main business is the manufacture and sale of microwaves. The company faces a lot of competition from other established companies, such as LG, Panasonic, Toshiba, and Samsung, among others. The company has had a long way en route establishing itself as a competitive organization considering the major players in the industry are few, but well established organizations.Advertising We will write a custom case study sample on Operations Strategy at Galanz specifically for you for only $16.05 $11/page Learn More Initially, the company was only producing microwave ovens for sale in the domestic market. It used to purchase key components and production technology from Japan. The company then started its own Original Equipment Manufacturing (OEM) business. This attracted foreign brand owners to outsource their production to Galanz. The company then transformed into an Original De sign Manufacturing firm. The combination of OEM and ODM facilitated its brand being recognized in the overseas market. The other competitive strategy that the company applied is low cost production. It had cheap labour and land, both of which facilitated in lowering the production cost. This was the major strategy that led to a large volume of sales as the company is able to offer its products at a relatively low price compared to the competitors (Thompson and Frank 552). In addition, the company had an RD department that had undisputed capabilities of developing highly competitive and innovative products. Finally, the company has a brand name that is well recognised, both in China and abroad. The competitive strategies of Galanz are successful for a number of reasons. First, the low cost production enables the company to sell its products at a low cost. Second, the RD facilitates quality production. Third, its strong brand has won the loyalty of customers across the globe. The thre e aspects combined have contributed to a successful competitive strategy for Galanz. Galanz’s Operation Strategies The company also worked towards changing and improving its operational strategies in its bid to succeed in the global market. The aim was to make the operations more effective and efficient and lower the cost of operation. This would be effective in boosting the competitiveness of the company. The operations manager was responsible for following up the company’s operation strategy. The operations manager makes decisions to manage the transformation process that converts inputs into finished goods or services that are ready for consumption. The manager also oversees the supply chain, which is also effective in ensuring a successful operation strategy. Initially, the company was buying magnetrons from its competitors.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn Mo re However, the competitors cut their supply of magnetrons to Galanz as its growth continued to escalate, prompting Galanz to start its own manufacture of magnetrons. This was one of its operational strategies that propelled the company to succeed. The company then started its own OEM and later transformed it to an ODM. It could, therefore, be able to produce Galanz microwave ovens with its own brand, rather than purchasing some components from competitors. The company had operations in the Original Brand Manufacturing firm in the domestic market. The company was able to develop and produce its own magnetrons with the Original Design Manufacturing. This ensured that the company was able to deal with the previous shortage of magnetrons. It also ensured constant supply of microwave ovens. The operational strategy of Galanz was successful because the company was able to meet the market demand that was increasing as the company’s growth continued. Galanz was able to produce suf ficient magnetrons enough for its microwave oven production. At home, the Original Brand Manufacturing (OBM) facilitated brand recognition in the domestic market. The operational strategy further helped in the production of quality microwave ovens. The company’s operations manager has control over the quality of magnetrons. He or she is able to ensure the magnetrons are of the desired quality. Therefore, the end product is of desired quality as the whole production line is managed by the organization’s operations manager. How Galanz operation strategies support its competitive strategies For an organization to be successful in the market, the operation strategy should be able to support the competitive strategy. At Galanz, the operation strategy has been successful in supporting the competitive strategy of the company. First, it is important to note that the major competitive strategy of the company is low cost production, which enables it to sell products at highly co mpetitive prices compared to those of its close competitors. Secondly, its RD has also been instrumental in increasing the competitiveness of the company by facilitating innovation. Its operation strategy, on the other hand, has seen the formation of the OEM business and then transformation into the ODM. This has boosted the company’s production of magnetrons. The company also has its own OBM in China, which has helped in domestic brand recognition.Advertising We will write a custom case study sample on Operations Strategy at Galanz specifically for you for only $16.05 $11/page Learn More The ODM and the OBM have helped in further reduction of the production costs for Galanz. Producing its own magnetrons is much cheaper compared to purchasing them from other companies. Further, the production development of ODM has also facilitated RD and innovation, consequently supporting its competitive strategy. OBM, on the other hand, helps in increasing bra nd recognition as a competitive strategy. â€Å"How the company should set priorities and utilize its resources and capabilities to gain competitive advantages in the marketplace† The company has achieved breakthrough in the market by selling its products at low prices. This has led to some of its competitors withdrawing from the market following the stiff competition it provided them. It claimed that price wars were a defence of the company and the objective was to destroy its competitors. Galanz had succeeded in this strategy. However, the business world is said to be dynamic. An organization only survives in the long run following its ability to cope with the changes that occur daily. The company started to experience challenges for its future growth and development after years of market domination by Galanz, both in China, as well as in the overseas countries. There are worries on whether its current low cost strategy will still be successful in the future. It is clear th at there are some changes that have to be implemented to keep the company in the competition. Galanz is supposed to take a competitive position in the market by setting its priorities right. First, the world is trending towards technology and most products over the past few years are produced based on technology. The future of business organizations is highly dependent on their ability to embrace technology and utilize it effectively. Galanz should prioritize its resources by investing in technology. In doing so, the company should also be keen not to deviate from its low cost strategy. The differences between OEM/ODM versus OBM in terms of production, design, marketing, distribution, and customer service The OEM and the ODM firms were the two business strategies that Galanz turned to after its supply of magnetrons was cut by its previous suppliers, who also happened to be the company’s major competitors. Therefore, the OEM and the ODM production were aimed at producing magne trons for the manufacture of microwave ovens for sale in the overseas market (Bonaglia 38). The two production modes produce and design the magnetrons, but the branding and distribution is done by another company. The two modes helped the company to produce magnetrons at a low cost that facilitated its low cost strategy in the global market. In terms of design, the OEM and ODM helped the company design its own brand that helps it switch to a business direction of, â€Å"Created in China†, rather than â€Å"made in China.† The OEM and ODM further marketed and distributed the company’s products in the international market. The OBM model was targeted to the domestic market. It produced and designed its own brand, instead of outsourcing to the competitor companies. The OBM further marketed and distributed its products in China. The customer services it offered were all meant for the domestic market. The aim of OBM was to strengthen the brand in the domestic market. Galanz was successful in using the models in that each of them specialized in its market targets, thus they produced efficiently to satisfy the market needs.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Galanz’s strategy of introducing OBM in international market Currently, the OBM is purely targeted at the domestic market. It is aimed at strengthening the company’s brand in the domestic market and winning its competitive advantage in China. An original brand manufacturer refers to a company that sells a product that has been produced by another company or that includes a component of another company as its own brand. This is a strategy that is seen as able to add an extrinsic value to the product (Bonaglia 39). In the case of Galanz, the brand has already established itself in the international market. Therefore, the company does not need to introduce its OBM in the international market. Galanz should continue with its OEM and ODM business strategies. The two businesses have proven to be successful in the international market. They have facilitated the growth and development of Galanz and its competitiveness. It should be noted that business strategy is a factor that facilities the success of the organization. Facility strategy, on the other hand, considers the amount of capacity, among other factors. Facility strategy would, therefore, consider the capacity of Galanz to manufacture microwave ovens. The company manufactures microwave ovens and then sells them to the international market through the brand name of another company (Bonaglia 38). However, the selling company always refers to the manufacturing company, which is Galanz in this case. The ODM mode allows a firm to make products, but the products are branded and sold by a different firm. With any of the two models, the original manufacturing company will always get credit for the manufacture. Therefore, the brand name for Galanz under ODM or OEM will be maintained and there is no need to change the models. Advantages and disadvantages of technology in Galanz’s success Galanz started to invest in RD in the year 1995 with the aim of facilitating new design and development in the or ganization. It focused on new technologies to improve and boost its marketability. Galanz realised a number of advantages out of the technology. New technology helped Galanz cut down the cost of production. This was beneficial in that it helped the company produce at lower costs. Secondly, the new technology helped Galanz produce more differentiated products. This added to the quality of its products, as well as the marketability and competitiveness of the organization. Quality control systems should be put in place to ensure quality production. The systems should be developed on technological knowledge. The products that a company makes should satisfy customer needs fully. Factors that add up to constitute quality include availability, field service, quality of design, and quality of conformance. Third, the company started to receive more orders for its products as a result of the new technologies (Panneerselvam 60). However, the technology did not come without any disadvantages. F or instance, the company had to spend a significant amount of its fortunes to invest in the RD. It was approximated that the company spent about 3% of its annual revenues to invest in the new technologies. This reduced its income in the short-run. How technology affected Galanz Technology affected Galanz in that the total sales in the long-run increased following an increase in demand for its products. The technology also helped Galanz localize the design of its products to suit its target market. Technology played the role of increasing and improving the quality of its production and lowering the cost of production, leading to the success of Galanz. The challenges that faced Galanz and how it overcame the challenges The road to success for Galanz was not an easy one. Galanz encountered several challenges on its way to its current position. First, the company was initially not producing its own magnetrons. Instead, it was buying them directly from its competitors, such as LG and Pan asonic. The supplier companies cut the supply of magnetrons because of fearing the threat that Galanz was setting in terms of competition. In dealing with this challenge, Galanz established an OEM with the aim of manufacturing its own magnetrons. Galanz was initially named as Guizhou down Product Factory and it was in the business of producing down leather products and selling them to abroad markets. On joining the microwave market, the company faced a challenge in that there were already established companies in the market. The microwaves at the moment were expensive and unaffordable to many people. In addition, the technology for producing microwave ovens, as well as the technical expertise was not available in China. This presented a big obstacle for the company in its bid to start the microwave business. Liang Senior went a step further to ensure that the production of microwaves took place in China, instead of importing the microwaves by bringing in the technology and expertise needed for the job. This saw enabled him set up a factory in China. Mr. Liang’s achievements that lead his company to greater success The current success by Galanz can be traced to the contributions of Liang Senior, who is the Vice Chairman and CEO of the company. In fact, the credit for the company’s success can be given to him. He made a number of achievements in securing this success. The first achievement by Mr. Liang was to start up the microwave ovens manufacturing company in China. Initially, there was no technology and technical expertise in China to manufacture microwaves. Mr. Liang purchased the equipment for this manufacture and brought in people who had the expertise to carry out the manufacture. This was the first and the most important achievement. Mr Liang carried out the initial project planning and scheduling. He did all the necessary controls to ensure that the equipment was installed successfully. Among the scheduling activities he carried out were bringing in experts and assigning them tasks, as well as developing a work breakdown structure for them. Another achievement by Mr. Liang was his successful efforts to sign a contract with overseas companies to outsource the designing and branding of magnetrons. There was no technology for such production in China at the time the company was entering the microwave ovens market. Mr. Liang outsourced this production, a step that was very successful in starting up the growth of Galanz. He also created an Original Equipment Manufacturing model whereby the company would be manufacturing its own magnetrons, instead of outsourcing the production. Suggestions Galanz can be considered a successful company since the entry of Mr Liang Senior. The company has been able to establish a low cost strategy that has seen it edge out most of its rivals, even forcing some to leave the market completely. However, there is a chance that the organization can still improve and achieve greater success in th e future. However, the company has to be in a good position to face the future market challenges, some of which it is already encountering. In terms of strategy, the organization should hold on to its low cost strategy. However, it should adopt a differentiation strategy and market focus strategy at the same time. Under differentiation, Galanz should be producing microwaves that have improved features compared to those of its competitors. On market focus strategy, the company should be focusing on different markets and their requirements. In turn, Galanz should produce microwave ovens that meet the market demands of the different focus markets to be able to penetrate more markets (Christensen, Antony, and Roth 218). In terms of management, the Mr Liang should ensure that the operations managers have the full control of the company’s production activities. This will enable them to track and realise any default that may compromise the quality of the microwave ovens in time. The managers should also be highly skilled and have the relevant knowledge to enable them cope with the market conditions now and in the future. The management structure should be flat to facilitate communication across the organization. Capacity planning should also be considered by Mr Liang in his bid to achieve greater success for the organization. The organization should position itself such that it will be able to produce enough microwaves to meet the increasing demand (Christensen, Antony, and Roth 218). This will be important in preventing the customers from walking away to rival companies. The operational diagram should be made as effective as possible and less hierarchical to increase production efficiency. The customer service at the organization is good. However, it can still be improved to enhance customer satisfaction further. To do this, Mr Liang can increase the number of customer representatives in the organization and ensure that they have sufficient knowledge to addre ss all the issues raised by the customers. Works Cited Bonaglia, Federico. Meeting the Challenge of Private Sector Development: Evidence from the Mekong Sub-Region. Paris: OECD, 2006. Print. Christensen, Clayton M, Scott D. Anthony, and Erik A. Roth. Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change. Boston, MA: Harvard Business School Publishing Corporation, 2004. Print. Panneerselvam, Ranganathan. Production and Operations Management. New Delhi: PHI Learning Pvt. Limited, 2012. Print Thompson, John L, and Frank Martin. Strategic Management: Awareness Change. Hampshire, UK: Cengage Learning EMEA, 2010. Print. This case study on Operations Strategy at Galanz was written and submitted by user Anya Kirby to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

True Class in America

True Class in America Free Online Research Papers As children, we are taught that there are no social or economic classes in the United States. We are prompted to believe that everyone is equal in nearly every way and that no one type of person has an advantage over another. As we grow older, we begin to realize that the doctrines that have been given to us are not true. Americans separate themselves into unequal social class. Whether or not we will admit this or not is does not matter. Although it would be nice if there were not, there are many social classes in America, whether people will admit it or not. Each and every individual in society belongs to one of many established social classes. Classification into the class structure does not take into account one’s ignorance or disbelief. Plainly; one will be classified with or without one’s knowledge. It is important to understand that there is a class system in American society because its presence creates a blueprint or structure for each of our lives. In order to better understand the class system in America, one must first understand its components. There are many social classes in the United States; many Americans will not consider themselves as anything other than â€Å"middle class†. Logically speaking, in order to have a class system, there must be people in the Upper and Lower Classes, as well as the Middle Class. We as Americans do not want to be classified as Lower Class, even if we are â€Å"dirt poor†. In general, most American’s also do not want to be considered as Upper Class, even if we have more money than we know what to do with. The idea of being Upper Class, or even being around someone who is, seems to make people uneasy. The social class structure in America can be represented with a triangle or pyramid. The smallest segment, which is at the top, is the Upper Class. The Upper Class contains the supposedly rich, cultured, and sometimes self proclaimed socially adept people. Below the Upper Class, lies the Middle Class. The Middle Class contains intelligent, hopeful, hard working people. Some in this class hope to one day reach a success (and ultimately, monetary) level in which they would become part of the Upper Class, while others are perfectly happy in the social class that they are in. Finally, at the base of the triangular illustration, is the Lower Class. This class, as expected, contains more people than both the Middle Class and Upper Class. This class contains mostly hard working individuals who get by and make do with what they have to work with. Some of these people have less than desirable situations, somewhat due to poor decision making a hard way of life. Although this is the case for so me, most are faced with unfair opportunities and unequal representation in society. One thing about the Middle Class that differentiates it from the Lower and Upper Classes it’s ability to facilitate aspirations. Middle Class citizens are able to aspire to be more than what they are born into. They are able to dream for success and luxury. Unlike the Middle Class, the Lower Class is not capable of possessing the same aspirations. This is due to the fact that things that would be desired by the Middle Class may seem somewhat out of reach, but not unattainable. These same objectives are more unattainable and even more out of reach for the Lower Class because of their point of view. They have less to start out with than higher classes. They also do not have the same opportunities as higher classes that would enable them to reach these goals. Those people, who would logically be placed in the Upper Class, are not always offended by that categorization. Some Upper Class occupants hold the beliefs that they do belong there and that certain other people, or types of people, do not. The Upper Class can be loosely defined as an elite club. This club is very hard to get into if one is not already a member by way of one’s family or social favors. Unfortunately, some members of the Upper Class do look down upon those in the middle class and even more upon those who belong to the Lower Class. This can create some tensions between the classes Lower Class Americans have a bad stereotype. In general, when we as society think of Lower Class people, we envision ragged old people pushing shopping carts down the side of the road. This stereotype is not usually the case. Most people who can be categorized as Lower Class are not homeless, unemployed, or completely poor. The majority of people in this class work minimum wage jobs which give them a yearly salary sometimes below the poverty level. Many times Lower Class people cannot get out of their class standing due to the fact that they were part of the Lower Class. Lower Class people due not always have an education, therefore, they cannot get a decent job, thus, they cannot make any money to improve their lifestyle. Ultimately, Lower Class people, for the most part, cannot â€Å"get out†. To be fair, not all Lower Class citizens are Lower Class for their entire life. There are many stories of people who were born into poverty and a Lower Class society who ended up as so cial leaders. Finally, there is the Middle Class. This is the class that society has labeled as the class in which â€Å"true Americans† belong. As stated earlier, Americans are reluctant to think of themselves as anything other than middle class. Being in the Middle Class brings a sense of security to one’s self. Being a part of the Middle Class means that one is â€Å"doing all right†. One does not have to worry about being perceived as lush, as they might if one were Upper Class. While at the same time, one doesn’t have to worry about being labeled as a lazy, bum with no money. Unfortunately, this might happen if one were considered as Lower Class. Being Middle Class means that there is something to aspire to be (Upper Class), and there is always a situation worse than the one at hand (Lower Class). Unfortunately, in America, social class is a derived form of economic class. Thus â€Å"poor† people end up being classified as lower social class Americans, while the â€Å"rich† are classified as upper social class Americans. This is due to the fact that one cannot be cultured and socially active without money. Money provides a facade about one’s self both literally and figuratively. Money buys clothes and make-up which give off first impressions to people. In addition, money also allows one to be socially active. A socially active and cultured person is most likely not going to be labeled as Lower Class. Understanding of social classification has plagued society for many years. The Communist Manifesto by Karl Marx and Fredrich Engels described a society where people had a place in society, but were unable to digress from that which they were born into. During the 1840’s 50’s, the controlling class was the bourgeoisie. Members of this class had sole ownership of all means of production. Today this class, the Upper Class, would consist of the elite 1% of our population and would contain high society members such as CEO’s and the like. Marx and Engels also described the Proletariat. This class would be simply dubbed: the workers. They would provide the physical labor needed by the Bourgeoisie until the introduction of machinery into factories. Today, people belonging to this class are considered the working poor. These people work low wage jobs and are constantly on the verge of falling into poverty. This class exemplifies a previous statement that there is always a worse situation in life than the one at hand. Why does society feel the need to label or classify people into classes? This is a question that still remains in our society. People have a need to feel like they know where they belong in life and society. Having a label gives one the comfort of being something. Many are hypocritical in this sense because people often express a want for everybody to be equal, but no one can be equal if they are put into a class structure like what has been done in society. To be equal is to be the same, and no one is the same as another. Research Papers on True Class in AmericaStandardized Testing19 Century Society: A Deeply Divided EraPETSTEL analysis of IndiaHip-Hop is ArtMarketing of Lifeboy Soap A Unilever ProductCapital PunishmentWhere Wild and West MeetBionic Assembly System: A New Concept of SelfAnalysis Of A Cosmetics AdvertisementThe Effects of Illegal Immigration True Class in America Free Online Research Papers As children, we are taught that there are no social or economic classes in the United States. We are prompted to believe that everyone is equal in nearly every way and that no one type of person has an advantage over another. As we grow older, we begin to realize that the doctrines that have been given to us are not true. Americans separate themselves into unequal social class. Whether or not we will admit this or not is does not matter. Although it would be nice if there were not, there are many social classes in America, whether people will admit it or not. Each and every individual in society belongs to one of many established social classes. Classification into the class structure does not take into account one’s ignorance or disbelief. Plainly; one will be classified with or without one’s knowledge. It is important to understand that there is a class system in American society because its presence creates a blueprint or structure for each of our lives. In order to better understand the class system in America, one must first understand its components. There are many social classes in the United States; many Americans will not consider themselves as anything other than â€Å"middle class†. Logically speaking, in order to have a class system, there must be people in the Upper and Lower Classes, as well as the Middle Class. We as Americans do not want to be classified as Lower Class, even if we are â€Å"dirt poor†. In general, most American’s also do not want to be considered as Upper Class, even if we have more money than we know what to do with. The idea of being Upper Class, or even being around someone who is, seems to make people uneasy. The social class structure in America can be represented with a triangle or pyramid. The smallest segment, which is at the top, is the Upper Class. The Upper Class contains the supposedly rich, cultured, and sometimes self proclaimed socially adept people. Below the Upper Class, lies the Middle Class. The Middle Class contains intelligent, hopeful, hard working people. Some in this class hope to one day reach a success (and ultimately, monetary) level in which they would become part of the Upper Class, while others are perfectly happy in the social class that they are in. Finally, at the base of the triangular illustration, is the Lower Class. This class, as expected, contains more people than both the Middle Class and Upper Class. This class contains mostly hard working individuals who get by and make do with what they have to work with. Some of these people have less than desirable situations, somewhat due to poor decision making a hard way of life. Although this is the case for so me, most are faced with unfair opportunities and unequal representation in society. One thing about the Middle Class that differentiates it from the Lower and Upper Classes it’s ability to facilitate aspirations. Middle Class citizens are able to aspire to be more than what they are born into. They are able to dream for success and luxury. Unlike the Middle Class, the Lower Class is not capable of possessing the same aspirations. This is due to the fact that things that would be desired by the Middle Class may seem somewhat out of reach, but not unattainable. These same objectives are more unattainable and even more out of reach for the Lower Class because of their point of view. They have less to start out with than higher classes. They also do not have the same opportunities as higher classes that would enable them to reach these goals. Those people, who would logically be placed in the Upper Class, are not always offended by that categorization. Some Upper Class occupants hold the beliefs that they do belong there and that certain other people, or types of people, do not. The Upper Class can be loosely defined as an elite club. This club is very hard to get into if one is not already a member by way of one’s family or social favors. Unfortunately, some members of the Upper Class do look down upon those in the middle class and even more upon those who belong to the Lower Class. This can create some tensions between the classes Lower Class Americans have a bad stereotype. In general, when we as society think of Lower Class people, we envision ragged old people pushing shopping carts down the side of the road. This stereotype is not usually the case. Most people who can be categorized as Lower Class are not homeless, unemployed, or completely poor. The majority of people in this class work minimum wage jobs which give them a yearly salary sometimes below the poverty level. Many times Lower Class people cannot get out of their class standing due to the fact that they were part of the Lower Class. Lower Class people due not always have an education, therefore, they cannot get a decent job, thus, they cannot make any money to improve their lifestyle. Ultimately, Lower Class people, for the most part, cannot â€Å"get out†. To be fair, not all Lower Class citizens are Lower Class for their entire life. There are many stories of people who were born into poverty and a Lower Class society who ended up as so cial leaders. Finally, there is the Middle Class. This is the class that society has labeled as the class in which â€Å"true Americans† belong. As stated earlier, Americans are reluctant to think of themselves as anything other than middle class. Being in the Middle Class brings a sense of security to one’s self. Being a part of the Middle Class means that one is â€Å"doing all right†. One does not have to worry about being perceived as lush, as they might if one were Upper Class. While at the same time, one doesn’t have to worry about being labeled as a lazy, bum with no money. Unfortunately, this might happen if one were considered as Lower Class. Being Middle Class means that there is something to aspire to be (Upper Class), and there is always a situation worse than the one at hand (Lower Class). Unfortunately, in America, social class is a derived form of economic class. Thus â€Å"poor† people end up being classified as lower social class Americans, while the â€Å"rich† are classified as upper social class Americans. This is due to the fact that one cannot be cultured and socially active without money. Money provides a facade about one’s self both literally and figuratively. Money buys clothes and make-up which give off first impressions to people. In addition, money also allows one to be socially active. A socially active and cultured person is most likely not going to be labeled as Lower Class. Understanding of social classification has plagued society for many years. The Communist Manifesto by Karl Marx and Fredrich Engels described a society where people had a place in society, but were unable to digress from that which they were born into. During the 1840’s 50’s, the controlling class was the bourgeoisie. Members of this class had sole ownership of all means of production. Today this class, the Upper Class, would consist of the elite 1% of our population and would contain high society members such as CEO’s and the like. Marx and Engels also described the Proletariat. This class would be simply dubbed: the workers. They would provide the physical labor needed by the Bourgeoisie until the introduction of machinery into factories. Today, people belonging to this class are considered the working poor. These people work low wage jobs and are constantly on the verge of falling into poverty. This class exemplifies a previous statement that there is always a worse situation in life than the one at hand. Why does society feel the need to label or classify people into classes? This is a question that still remains in our society. People have a need to feel like they know where they belong in life and society. Having a label gives one the comfort of being something. Many are hypocritical in this sense because people often express a want for everybody to be equal, but no one can be equal if they are put into a class structure like what has been done in society. To be equal is to be the same, and no one is the same as another. Research Papers on True Class in AmericaStandardized Testing19 Century Society: A Deeply Divided EraPETSTEL analysis of IndiaHip-Hop is ArtMarketing of Lifeboy Soap A Unilever ProductCapital PunishmentWhere Wild and West MeetBionic Assembly System: A New Concept of SelfAnalysis Of A Cosmetics AdvertisementThe Effects of Illegal Immigration

Half the Sky Essay Example | Topics and Well Written Essays - 750 words

Half the Sky - Essay Example The single fact that the documentary uses real life experiences is justification enough of its validity. The authors and directors took upon themselves to visit the real â€Å"ground†. Here, they get to interview women who have encountered the experiences first hand. This is as opposed to relying on second hand information from others who do not know what it feels like. Endorsements by world renowned leaders have also cemented the support the documentary has achieved. Bishop Desmond Tutu and Hillary Clinton are some of the leaders who have a great portfolio and have supported the mobilisation. Celebrities such as Eva Mendes have also taken upon themselves to work at improving the living conditions of the women featured there in. With such a backing, the film is definitely on the right trend in as far as reaching more afflicted women is concerned (Half the sky, 2012). The need for a global awakening is the common ground for all these celebrities and they all feel a major change can be experienced if everyone who is willing would make a deliberate effort to improve the life of women. The reliance on women in most parts of the world is especially a driving force of the move. As it is, women (especially in the afflicted regions) have to take care of their children; almost alone. This then makes it a trend with infinite possibilities as children are not exempted from the struggle and pain (Half the sky, 2012). Without connecting with the audience, the need to have more people learn about the suffering women are subjected to can only be a dream. The need to bring the situation just as it is, is a necessary measure in ensuring that the intended objective is achieved. As it is, any age group, race, gender can view the documentary. Its universal viewership is meant to go a long way in ensuring that the message goes all over (Half the sky, 2012). By making it an

Argumentative Research Essay Example | Topics and Well Written Essays - 500 words

Argumentative Research - Essay Example They include harsh treatment of the minor offences, engaging the offender’s family, and failure to protect the innocent. The sex laws in America are unjust. Small and large offences are treated the same way, which is not fair. For example teenagers who engage in sex, they are legally allowed to be punishable by law. In addition, those sharing revealing photos get the same punishment with those who have committed the rape offence. The law puts their names in their registry (The Economist, 2009). The teenagers do not have the knowledge about the sex laws but they undergo the same treatment as if they were acquitted with the law. It is not fair to treat the cases the same. In the end, this ruins their lives and this is an issue per se to punish and publish their names in the registry of sex offenders. The American sex law punishes both the offender and their families. Not anyone with the offence is allowed to interact with other people directly. An example is a man who once slept with their girlfriend is not allowed to take his children to the playground or any public place (The Economist, 2009). The children are likely to suffer because of the offence committed by their dad thirty or so years ago. Notably, this is an unfair treatment of the innocent children. In addition, restraining the sex offenders from finding a job a home makes likely to reoffend. The police are not able to identify and trace the dangerous offences due to the registration of pretty offenders. Some of the serious offenders go unrealized and un-convicted. It is unfair because, those with mere cases get severe punishment and leaving those with serious offences (The Economist, 2009). It is hard to get the most dangerous offenders due to the large number of offenders. They operate under very tight budget to sustain the huge and swelling sex-offenders. The law is unfair and it makes it difficult to re-design America’s sex laws. The state must take a hand in assessing each of the

Questions on Psychology of Aging Essay Example | Topics and Well Written Essays - 2250 words

Questions on Psychology of Aging - Essay Example The SOC theory "involves an orchestration of selection, optimization, and compensation." When an individual decides on the path or goal he wants to achieve, this process is called selection. "During ontogeny, there are several additional sources for selection: individuals and societies sample from a population of possibilities or opportunities (.), limited individual capacity in time and resources, incompatibility of goals and outcomes, and age-related changes. The activities he will do to hit the target is optimization. If the individual can no longer keep his goal he resorts in goal-relevant means to maintain success - this is compensation. An aging journalist who used to go on field for a daily beat applies the theory of SOC in continuously writing news stories (selection), he ensures that he meets with the right sources to beat his deadline and be able to deliver a good output (optimization), but old age hinders him from doing field work everyday, hence, he opted to have a bi-weekly column in a broadsheet to maintain his keenness and visibility in the world of news (compensation). 2. Schaie (1994) asked whether there are differences in life-course patterns for various intellectual abilities with age (i.e., whether different abilities show different trajectories with age). Briefly discuss the answer to this question based on his results (6 points). Also note when reliable decrements in intellectual ability are detectible (2 points) and what role cohort effects might play (2 points). Answer: In his study, K. Warner Schaie (1994), have shown that "there is no uniform pattern of age-related changes across all intellectual abilities, and that studies of an overall index of intellectual ability () do not suffice to monitor age changes and age differences in intellectual functioning for either individuals or groups." The uniqueness of human mind, as well as, cohort, and gender are among the factors that makes the non-uniform pattern of age-related changes in the IQ. The age of 60 is the usual retirement age in most countries. Schaie's study shows "decrements in most psychometric abilities" mostly occur at the age of 60 onwards. Regardless of the individual pathology or genetic factors, "reliable average decrement can be found for all psychometric abilities by age 74. Cohort, generation, or peers also affect an individual's intellectual ability. Although "() patterns of socialization unique to a given sex role is specific historical period may be a major determinant of the pattern of change in abilities." 3. Imagine that you are asked by congress to develop a nation-wide training program that would enhance older adults' cognitive functioning. Based on the results from the Schaie and Willis (1986) study, where they trained reasoning and spatial ability in older adults, would you tell congress that a training program would work (5 points) Why or why not (5 points) Answer: I would be very glad to recommend to the Congress a training program to enhance adults' cognitive functioning. Based on Schaie and Willis (1986) study, "inductive reasoning training help improve everyday problem solving ability, particularly for older adults in their late 70s or early 80s. In the present time where a lot of concerns arise, that even a primary pupil encounter various perplexing matters (classroom and family politics), a cognitive training would be of help. It will boost the future, as well as the present generation's

Attitude of Unlisted Companies Towards IFRS

Attitude of Unlisted Companies Towards IFRS SECTION I INTRODUCTION The adoption of international financial reporting standards across the European Union from 1st January 2005 is one of the biggest events in the accounting history. This is especially important after the capital markets were rocked by some big accounting frauds in recent years. In the first phase, 7000-plus listed European companies will have to implement new financial reporting standards from January 2005 (Fuller, Jan 2005). When European Union moved towards one market across Europe, it faced the prospect of different financial reporting regimes across EU participants. To achieve true scale of financial integration, it has become necessary to adopt common financial reporting standards. In June 2002, the European Commission adopted a regulation requiring all listed EU companies in regulated markets to prepare their financial statements in accordance with International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS). The regulation is applicable only on consolidated accounts and companies are free to choose their national GAAPs for subsidiaries and associate companies. The regulation came into force from January 2005. Companies Act 1985 governs the use of UK GAAP by UK based companies. Similarly other EU states have their own laws for accounting standards. The EU states have now modified their national laws to include IFRS regulation to offer a common financial reporting standard. Companies Act 1985 (International Accounting Standards and Other Accounting Amendments) Regulations 2004 has extended the application, on a non-compulsory basis, of the EU IFRS regulation to all non-charitable organisations. In the last quarter of previous century, the world economies have moved towards globalisation. Multinational companies are manufacturing and selling across the world and many of these firms are listed at foreign stock exchanges. Globalisation of markets and establishment of multinationals led to increased desire and awareness about international markets. This was soon followed by globalisation of financial markets which increased the value of understanding of international financial results and reporting formats. Rapid improvement in communication technologies and easy access through internet has further spread the profile of international investor. Now a day international investors are not limited to some portfolio managers in big banks. International investors are now as diverse as sophisticated equity manager to a small investor in a remote town. Investors too have diversified their portfolio by international equities and bonds. This rapid globalisation has fuelled the desire to h ave common international standards that could be understood and followed across nations. The ever increasing network of investors has not only opened new financing sources to countries, it has also put some pressure on the financial regulatory authorities to design and improve their financial reporting systems in a manner that is easily understood by wider audiences. The regulatory authorities have on one hand evolve the financial reporting system to match the ever increasing demands of international investors and on the other hand make sure that companies in their countries are not faced with sudden increase in time, resources and knowledge needed to cope with new regulations.   In 1973, 9 countries included UK formed International Accounting Standards Committee (IASC) with an aim to develop common accounting standards. The membership has now grown well over hundred countries with each country, especially bigger economies, bringing in their own perspectives of accounting standards. IASC had to deal with accounting conflictions in coming up with common acceptable accounting standards. One would immediately think whether IASC has been successful in resolving all the conflicts with all member countries and the answer would easily be no. To fully satisfy more than hundred accounting bodies from across the world is almost an impossible task. Yet IASC has done a commendable job and from 1 January 2005, International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) is applicable in more than 90 countries. In EU, IFRS is compulsory only for listed companies. The standards that UK listed companies will follow are not those issued directly by the International Accounting Standards Board, but are those that have been endorsed by the European Commission. EU has now endorsed IFRS, except for IFRS 6 and some of the IFRIC interpretations, and some changes in IAS 39 relating to the fair value of financial instruments (PwC, 2005a). While the EU regulation is only enforceable on listed companies, it also says that a member state has an option to extend the use of IFRS to unlisted companies within their jurisdiction. Department of Trade and Industry (DTI), the government trade body responsible for company regulation in UK, has said that while there is no mandatory move to IFRS for unlisted companies, the unlisted companies would still be allowed to adopt IFRS over UK GAAP from 2005 onwards. The basic aim of new financial reporting standards is same as that of existing standards – to provide information about financial performance and position of a company to different stakeholders. Internal stakeholders – management – normally have a good grip of what’s going in the business. It is external stakeholders like investors, auditors, suppliers and creditors who need to be informed in a succinct and clear manner about financial implications of business decisions. The IFRS would aim to present a more complete picture of a business by making operating income a more encompassing number. As an example, the financial implications of stock options were kept out of income statements. Companies merely mentioned the number of stock options granted. But now onwards, companies will have to incorporate the fair costs of granting stock options in their income statements. This will allow investors to assess the true costs of executive remuneration. Though the overall aim is same, the differences in implementation and financial reporting do occur due to social, economic and political backgrounds of different nations. Will it be a good policy to allow two different accounting standards in UK – one standard for listed companies and another for unlisted companies. UK’s Accounting Standard Board clearly sees there is no merit in having two separate standards. ASB issued a Discussion Paper in March 2004 highlighting its strategy for convergence with IAS and says that convergence of UK accounting standards to IAS is a foregone conclusion. It has already introduced many changes in recent past to bring UK’s GAAP in line with IFRS. Smaller companies, even listed ones, will find it difficult to cope with extra work due to IFRS. Alternative Investment Market (AIM) realises that most of its companies won’t be in a position to meet IFRS requirements soon. So it changed its regulatory status in October 2004 and is now an â€Å"exchange regulated market† and out of purview of European Commission regulation on regulated markets. Now companies listed on AIM have time until January 2007 to implement IFRS. Accounting Standards Board is also sensitive to the needs placed on business in making a transition from UK accounting standards to IFRS. Big businesses probably have sufficient resources to cope with the change in one year. But the smaller businesses will find it difficult to make all required changes in one year. ASB has proposed a series of changes that would be implemented in 2005 and 2006 which will bring UK financial reporting standards more in line with IFRS. Thereafter ASB will carry out a series of step changes by replacing one or more UK standards. So by the end of 2005-2006, UK standards will almost be in line with IFRS and unlisted companies transition to IFRS in 2007 would be smooth. This research analyses the attitude of unlisted companies towards IFRS. Many research and surveys have been carried out on the acceptance and readiness of listed companies for transition to IFRS. But the issue has not been explored in depth with respect to unlisted companies. The research is based on primary and secondary data. Primary data is collected via interviews and questionnaires with companies and their auditors. A total of [34] interviews – [20] with companies and [14] with their auditors – were conducted to obtain primary data. [52] questionnaire responses by postal survey were also analysed. The results show that there is definitely a much scope in improving International Financial Reporting Standards for unlisted companies. Respondents were concerned about the costs associated with transition to IFRS and also the additional burden that will come with regular enhanced reporting. That IFRS will help in globalisation of capital markets and probably cheaper costs of capital is not of much significance for unlisted companies registered in UK. This research would be useful for institutes and associations framing accounting standards for unlisted companies. Mostly accounting standards have been framed with an eye for listed and large companies. But unlisted companies have much lesser resources to spend on large regulatory requirements and hence should have different reporting requirements that match the benefits obtained from such reporting. The time limitation and resource constraint mean that the primary data via interviews and questionnaire surveys could only be collected through a limited number of respondents. It would be useful to cover a larger data base before implementing the changes. Also more users of data in unlisted companies like banks and creditors should be contacted before policy formulation. The remaining paper is divided in the following sections. Section II is a literature review on justification and applicability of IFRS, and state of readiness in companies. Section III discusses the methodology used in this research. Section IV covers analysis of data obtained through the primary data collection and its interpretation. The paper concludes with section V. SECTION II LITERATURE REVIEW In June 2000, the European Commission proposed a new directive requiring that all publicly traded companies in the member states to adopt International Accounting Standards Board (IASB) standards by no later than January 2005. On 19 July 2002, the European Parliament and the Council approved the IAS regulation (EC) 1606/2002 which said ‘For each financial year starting on or after 1 January 2005, companies governed by the law of a Member State shall prepare their consolidated accounts in conformity with the international accounting standards adopted †¦ if, at their balance sheet date, their securities are admitted to trading on a regulated market of any Member State’ (EU, 2002). Rationale for EU’s adoption of International Financial Reporting Standards The main aim of International Financial reporting Standards is to bring convergence among different national financial reporting standards. Over time, the evolution of different national financial reporting standards has been influenced by local social, political and economic environments. Some of the major reasons for differences in accounting standards are: Political – Capitalist or Communist. Capitalist and communist countries have almost contrasting fundamental economic approach and their accounting standards reflect the same. Stage of economic development. Developed countries generally have better accounting standards in terms of transparency and clarity. Corporate finance – debt or equity. Companies in continental Europe are financed more by debt than the companies in UK. Accounting standards have over time evolved to reflect the importance placed by different sources of financing on different aspects of financial statements. Legal and taxation systems. Convergence will help investors and analysts to compare companies across borders in a better way. But it also implies that either member countries will lose their independence to make national accounting standards that reflect local economic conditions or if they start introducing some changes, IFRS may slowly lose its main strength of common standard. Local, political and economical conditions may force national accounting bodies to introduce variations in IFRS. EU has already introduced some changes in the IAS 39 dealing with financial instruments. It is beyond the scope of this research to see which member countries have introduced variations in IFRS. Convergence between UK GAAP and IFRS ASB has declared its intention to converge UK GAAP with IFRS. It has issued a number of new standards in December 2004 to speed up the convergence of UK GAAP with IFRS. So sooner, even unlisted companies would be following a substantial portion of IFRS due to this convergence. Comparison of UK GAAP and IFRS Similarities The ultimate goal of UK GAAP and IFRS is same – to present information about financial performance and position to all concerned stakeholders. If the aim is same, then should be the main approach adopted by both accounting standards. The UK’s Accounting Standard Board’s Statement of Principles for Financial Reporting is a vital contributor at macro level standard setting. It plays almost same role as International Accounting Standards Committee’s ‘Framework for the Preparation and Presentation of Financial Statements’. ‘It is a description of the fundamental approach that the Accounting Standards Board (ASB) believes should, in principle, underpin the financial statements of profit-oriented entities’ (ASB, 1999). The Statement of Principles has true and fair concept at its core, much like the focal point in International Accounting Standards. Also like IAS, Statement of Principles insists on financial information being relevant and comparable. It is beyond the scope of this research to highlight each and every similarity between UK GAAP and IAS. Differences Though the overall aim is same, the differences in implementation and financial reporting do occur due to social, economic and political backgrounds of different nations. Main concepts behind UK GAAP and IFRS are same, but when we look at micro level, we see many differences at the individual standards level. Following are the main differences between UK GAAP and IFRS: The Statement of Principles allows use of both historical cost and current value approaches in measuring balance sheet categories. The dual use of historical and current value methods is known as modified historical cost basis (ASB, 1999). Under historical cost, the carrying values of assets and liabilities are stated at the lower of cost and recoverable amount. This approach is more conservative as compared to IAS approach which uses fair value method. Also the choice of historical or current value method is based on subjective analysis of a company’s management and hence it is open to some manipulation. Fair value. If we look at global level, both UK GAAP and IFRS have adopted fair value method as the foundation of their accounting standards. IFRS takes fair value adoption even higher when it says that income statement will include the changes in the fair value of items that have not been yet traded like derivatives. The emphasis in new accounting standards is on mark-to-market fair value of assets and liabilities rather than on actual market price based fair values. Now both realised and unrealised changes in fair values would be incorporated in income statements. The first year of transition will see high volatility in earnings and balance sheet statements. Though this brings higher volatility, it will also test the management skills in proper presentation and explanation of changes. It may also change the benchmarks of success for managements. Acquisitions. Acquisition accounting will change under new accounting standards. Under UK GAAP, companies can choose between purchase and merger accounting. Under IFRS, companies will have to account under purchase method only. Goodwill. UK GAAP allowed amortisation of goodwill and companies had the option of not segregating intangible assets from goodwill. Under IFRS, intangible assets have to be separated from goodwill. Goodwill can not be amortised now but companies will have to undertake annual impairment tests to justify the value of goodwill on the balance sheets. BAT’s profits for year 2004 increased by  £454m because it no longer had to amortise goodwill of that amount (AccountancyAge, 2005b). Consolidation of accounts. Under new accounting rules, companies may have to consolidate certain additional subsidiaries into group accounts. On the other hand companies will have to exclude certain subsidiaries or special purpose vehicles which were not included till now. Research and development costs. Under IAS 39, research costs can’t be carried on the balance sheet and would have to write them off as incurred. Companies would still be allowed to capitalise development in line with UK GAAP. Stock options. Internet and share market last boom in late 1990s led to rapid increase in share options as a way to reward employees. The new requirements to record an expense on income statement for the value of share options granted to employees could have a significant impact on earnings. AstraZeneca said in its pro forma 2004 IFRS numbers that new accounting rules on stock options has made it re-consider the use of stock options in rewarding its employees (Tricks, 2005). Distributable profits. Organisations ability to pay dividends is dependent on their distributable profits. Following are some of the major impacts of IFRS on distributable profits Inability to discount deferred tax liabilities, higher provisions for deferred tax when companies move from historical costs to fair value and inclusion of pension deficits in income statement. All of the above will reduce distributable profits. Many companies would have to financially restructure themselves in order to have sufficient distributable profits to meet dividends paid in last year. Deferred tax credit. Deferred tax credit is available under UK GAAP but not under IFRS. GlaxoSmithKline’s restated its 2004 earning per share by (1.9p) due to non-availability of deferred tax credit under IFRS (AccountancyAge, 2005a). Inclusion of business disposals gains in profits from operations. BAT’s profits for year 2004 increased by  £1.3bn after it included gains from disposals to operating profits (AccountancyAge, 2005b). Adding disposal gains to operating profits will make it harder for investors and analysts to separate the earnings from continuing businesses. Derivative contracts. Under IFRS, some derivative contracts will not qualify as hedges as they wont meet the criteria. UK GAAP allowed deferment of such contracts until transaction took place. IFRS won’t allow the deferment of such contract and would impact the profit and loss account even before the transaction took place. It is better in a way that investors will know the current value of the firm as on date rather than historical costs of such instruments, especially if the duration of financial instruments was long. At the same time, it would increase the burden on the company to calculate the fair value of all such transactions. Agricultural. UK GAAP allowed companies to use a cost model for biological assets and all agricultural produce. But under IAS companies would have to use mark to market method for valuing such assets. Now companies would have to use market valuation even for assets in far off countries. Advantages of IFRS over UK GAAP Common financial language. Adopting common financial reporting standards will open up a company to more markets and investors. The growth in telecommunications has made it easier for smaller investors to invest across physical boundaries. Such investors are normally not as financially sophisticated as some big financial institutions. They would also not like to understand more than one accounting standards as they don’t have required resources in hand to do so. With one common accounting standard, more investors would like to explore companies across nations. Acquisitions. IFRS 3 is more open and transparent than UK GAAP on acquisitions. It will allow investors and analysts to judge faster the success of an acquisition. Many of the companies that have relied on acquisition as a key cornerstone for growth would now come under intense scrutiny and may have to develop a new strategy for growing business.    Consolidation. In IFRS, all entities will have to provide a cash flow statement. Additionally there would be more transparency within the group companies and this should make the consolidation process more straight-forward. Securitisation by businesses is likely to be impacted by the new ways governing how companies can show assets and liabilities on their financial statements. Companies have used securitisation to cash in assets like trade receivables sitting on their balance sheets. Securitisation helps companies to slim down their balance sheets and hence allows companies to show higher return on assets at same earnings. And it was one of the reasons why companies went for securitisation. But stringent criteria for moving assets and liabilities off balance sheet will threaten securitisation. Sue Harding, chief accountant at Standard Poor’s in Europe said that new international accounting standards were sweeping a lot of securitised assets back on to balance sheets (Jopson, Feb 2005). This will help investors compare like to like and avoid companies that have used securitisation only to make-up their balance sheets. There is no harm in using securitisation if used in a proper way and not to deceive stakeholders. But we have seen how corporations like Enron had used securitisation to disguise their true financial position. Annual impairment review. Annual impairment review will benefit investors because the companies then won’t like to take big goodwill cuts in one year and not do anything for years. Annual reviews would help investors judging whether the amount paid by companies in acquiring other company was justified or not. Access to cheaper capital. Increase in investor profile diversification would most probably lower the cost of capital for most of the companies. This is especially true for smaller companies which don’t have financial muscles and resources to tap international investors. Expensing research costs gives better information to investors and other stakeholders because at research stage the chances of success are quite uncertain. Investors can only be sure of development costs bringing in some returns in future. Also by segregating research and development costs, external stakeholders will now have a better chance to differentiate the suitability of costs incurred in developing new products. Multiple listings. Many companies now have multiple listings across different countries. Companies need to prepare financial statements as per each local accounting standard to meet listing requirements. With one accounting standard only it will save a lot of botheration for companies with multiple listings. Dividends. Under IFRS dividends are not provided for until the dividend recommended by the Board is approved by shareholders. This move will bring more convergence between accounting profits and cash flows. Disadvantages of IFRS Fair value. While fair value in a way conveys more up to date value of a company as compared to historic costs, it also puts a question mark on the methods used and the reliability of fair value. Derivative instruments which are commonly traded on various stock exchanges can be easily assigned value. So while valuing some of the assets or liabilities may not be difficult, the question still remains what impact such valuations will have on companies’ business models. Many companies use hedging instruments as a strategic tool rather than for intentional gains. Any short-term swings in such instruments may have a significant impact on income statement and probably adverse market reactions may deter companies’ from using such instruments. Then comes the more important issue of valuing assets and liabilities that don’t have a proper market. The companies may use some valuation model, which itself may not be the right way, to value an asset or liability. The model will incorporate some subjective assumptions. An example would be brand value. A same brand can have two different values for two different companies because of its strategic importance. So at one hand, investors and other external stakeholders are getting more objective information about a companies’ assets and liabilities, they are also getting valuation based on more subjective assessments. Only time will tell whether some individuals or companies will use it to manipulate results. An interesting thing to observe would be the treatment and importance given by analysts to unrealised fair value of assets and liabilities. Some investors may try to separate unrealised gains and losses from other operational performance. It may also prompt companies to issue adjusted earnings excluding unrealised gains and losses. An important point to note about fair value principle is that the financial statements should not be seen as perfect prediction of things to come. That depends on the strategic and business decisions management will take in future. Just having a fair value of assets and liabilities doesn’t mean that the company will be able to extract those values in future.    Dividend. New accounting standards promote payment of dividend from distributable reserves. With the inclusion of unrealised gains and losses and pension deficits, the first few years of new accounting standards may not leave enough of distributable reserves for dividend payments. Securitisation. Securitising assets into special purpose vehicles and re-financing them through had also helped companies raise funds at lower costs. The new accounting standards by restricting the use of special purpose vehicles, would diminish some sources of cheap financing. It is question yet to be fully tested in the practical world that since the assets are same, change in financing options shouldn’t change the returns on total assets. By refinancing at lower rates through securitisation should result in higher financing cost for remaining assets such that the overall costs remain same. But examination of this hypothesis is beyond the scope of this dissertation. But what is mostly observed in capital markets is that when companies announce refinancing, the share price rises. How much of the rise is from relief that company will survive and how much from the fact that the overall costs have lowered is not known. Annual impairment tests. Annual impairment tests are easier said than done. Companies would not only have to devote substantial resources to do that first would have to train its personnel to do that. Assessing true value of a goodwill is not easy. If there is a comparable market then companies can easily value it. Even then it may differ from case to case as it would be very unusual to see exactly two similar companies. Goodwill is very different from tangible assets or technologies and depends a lot on market perception and strategy. Companies would have to review the whole process of valuing goodwill and would have to review the valuation process at constant intervals. Net pension liability. The inclusion of net pension liability on the balance sheet may have severe impact on the shareholders funds. Companies will be required to have annual actuarial valuation of their pension liabilities and the same would be reflected in financial statements. Most of the pension funds invest in equity markets, which have been quite volatile in the recent years. So though over a longer period, the movements in pension liabilities may even out but in short to medium term, it may have a dramatic effect on balance sheets and earning statements. Segmental information. IAS 14 requires companies to report information on their business segments and on a scale more detail than UK GAAP. As of date, no agreed accounting practices have emerged on how much should be disclosed because companies may end up revealing sensitive information to its competitors. If companies disclose the turnover, earnings and expenditure for each segment, its profitable operations may come under intense competition. Ian Dilks of PwC said that â€Å"some companies have found they’re giving much more information than they’re comfortable with on sales and the profitability of product areas† (Tricks, 2005) Expensing research costs may result in listed companies focusing more on products in development stage than in research stage. This will keep their balance sheets healthy but may harm long term prospects. Complex and long IFRS compliant reports. PricewaterhouseCoopers estimates that an IFRS compliant financial report for insurance companies could be up to twice as long as those prepared under existing UK GAAP (Finn Zoon, 2004). The requirement for other industry sectors though may not be as intensive as for insurance sector, their IFRS compliant financial may also be longer and resource intensive than under UK GAAP. Any company that has makes an acquisition will have to do annual goodwill impairment analysis and most of them would like to explain the results also. Comparable formats. IAS 1 is less prescriptive than the UK GAAP when it comes to the format of the balance sheet and income statement. It just distinguishes current and non-current assets and liabilities. Investors, when faced with different formats, may find it difficult to compare companies. Modify organisation structures. Meall (2003) suggested that the additional burden of more financial reporting along different segments may force companies to modify their existing organisational structures within their financial systems to collect and analyse data. Impact of IFRS on different industries IFRS will have different impact on different industries. For some, most of the applied UK GAAP is almost same as IFRS and won’t feel the difference. But for some industries, the difference in accounting standards may have a substantial impact. Financial services and insurance companies are among them. Financial services companies would be affected by substantial change in recognition and measurement of financial instruments under IAS 39. UK GAAP has no equivalent to IAS 4 which deals with insurance contracts. Insurance companies would now have to account for this in their financial statements. Under IFRS, insurance companies would have to book financial instruments such as derivatives at market value rather than historical value allowed under UK GAAP. Many insurers have said that this will distort their earnings (Reuters, 2005a). IFRS will put more stringent criteria for classification of insurance products and this may lead to reclassification of some insurance products as investment products. Other industries that might face higher impact are the ones that heavily use hedging instruments in their day to day operations. Mostly companies using commodity materials like oil as a significant part of their input costs use hedging to smooth over the volatile changes in commodity markets. New accounting standards will reduce Tesco’s projected annual profit of  £2,000m by  £30m only, a reduction of 1.5%. But for some companies the impact would be much more. Royal Sun Alliance said that new accounting rules would reduce its net assets by  £400m (Reuters, 2005a). This is a big number by any standards and shareholders Attitude of Unlisted Companies Towards IFRS Attitude of Unlisted Companies Towards IFRS SECTION I INTRODUCTION The adoption of international financial reporting standards across the European Union from 1st January 2005 is one of the biggest events in the accounting history. This is especially important after the capital markets were rocked by some big accounting frauds in recent years. In the first phase, 7000-plus listed European companies will have to implement new financial reporting standards from January 2005 (Fuller, Jan 2005). When European Union moved towards one market across Europe, it faced the prospect of different financial reporting regimes across EU participants. To achieve true scale of financial integration, it has become necessary to adopt common financial reporting standards. In June 2002, the European Commission adopted a regulation requiring all listed EU companies in regulated markets to prepare their financial statements in accordance with International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS). The regulation is applicable only on consolidated accounts and companies are free to choose their national GAAPs for subsidiaries and associate companies. The regulation came into force from January 2005. Companies Act 1985 governs the use of UK GAAP by UK based companies. Similarly other EU states have their own laws for accounting standards. The EU states have now modified their national laws to include IFRS regulation to offer a common financial reporting standard. Companies Act 1985 (International Accounting Standards and Other Accounting Amendments) Regulations 2004 has extended the application, on a non-compulsory basis, of the EU IFRS regulation to all non-charitable organisations. In the last quarter of previous century, the world economies have moved towards globalisation. Multinational companies are manufacturing and selling across the world and many of these firms are listed at foreign stock exchanges. Globalisation of markets and establishment of multinationals led to increased desire and awareness about international markets. This was soon followed by globalisation of financial markets which increased the value of understanding of international financial results and reporting formats. Rapid improvement in communication technologies and easy access through internet has further spread the profile of international investor. Now a day international investors are not limited to some portfolio managers in big banks. International investors are now as diverse as sophisticated equity manager to a small investor in a remote town. Investors too have diversified their portfolio by international equities and bonds. This rapid globalisation has fuelled the desire to h ave common international standards that could be understood and followed across nations. The ever increasing network of investors has not only opened new financing sources to countries, it has also put some pressure on the financial regulatory authorities to design and improve their financial reporting systems in a manner that is easily understood by wider audiences. The regulatory authorities have on one hand evolve the financial reporting system to match the ever increasing demands of international investors and on the other hand make sure that companies in their countries are not faced with sudden increase in time, resources and knowledge needed to cope with new regulations.   In 1973, 9 countries included UK formed International Accounting Standards Committee (IASC) with an aim to develop common accounting standards. The membership has now grown well over hundred countries with each country, especially bigger economies, bringing in their own perspectives of accounting standards. IASC had to deal with accounting conflictions in coming up with common acceptable accounting standards. One would immediately think whether IASC has been successful in resolving all the conflicts with all member countries and the answer would easily be no. To fully satisfy more than hundred accounting bodies from across the world is almost an impossible task. Yet IASC has done a commendable job and from 1 January 2005, International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) is applicable in more than 90 countries. In EU, IFRS is compulsory only for listed companies. The standards that UK listed companies will follow are not those issued directly by the International Accounting Standards Board, but are those that have been endorsed by the European Commission. EU has now endorsed IFRS, except for IFRS 6 and some of the IFRIC interpretations, and some changes in IAS 39 relating to the fair value of financial instruments (PwC, 2005a). While the EU regulation is only enforceable on listed companies, it also says that a member state has an option to extend the use of IFRS to unlisted companies within their jurisdiction. Department of Trade and Industry (DTI), the government trade body responsible for company regulation in UK, has said that while there is no mandatory move to IFRS for unlisted companies, the unlisted companies would still be allowed to adopt IFRS over UK GAAP from 2005 onwards. The basic aim of new financial reporting standards is same as that of existing standards – to provide information about financial performance and position of a company to different stakeholders. Internal stakeholders – management – normally have a good grip of what’s going in the business. It is external stakeholders like investors, auditors, suppliers and creditors who need to be informed in a succinct and clear manner about financial implications of business decisions. The IFRS would aim to present a more complete picture of a business by making operating income a more encompassing number. As an example, the financial implications of stock options were kept out of income statements. Companies merely mentioned the number of stock options granted. But now onwards, companies will have to incorporate the fair costs of granting stock options in their income statements. This will allow investors to assess the true costs of executive remuneration. Though the overall aim is same, the differences in implementation and financial reporting do occur due to social, economic and political backgrounds of different nations. Will it be a good policy to allow two different accounting standards in UK – one standard for listed companies and another for unlisted companies. UK’s Accounting Standard Board clearly sees there is no merit in having two separate standards. ASB issued a Discussion Paper in March 2004 highlighting its strategy for convergence with IAS and says that convergence of UK accounting standards to IAS is a foregone conclusion. It has already introduced many changes in recent past to bring UK’s GAAP in line with IFRS. Smaller companies, even listed ones, will find it difficult to cope with extra work due to IFRS. Alternative Investment Market (AIM) realises that most of its companies won’t be in a position to meet IFRS requirements soon. So it changed its regulatory status in October 2004 and is now an â€Å"exchange regulated market† and out of purview of European Commission regulation on regulated markets. Now companies listed on AIM have time until January 2007 to implement IFRS. Accounting Standards Board is also sensitive to the needs placed on business in making a transition from UK accounting standards to IFRS. Big businesses probably have sufficient resources to cope with the change in one year. But the smaller businesses will find it difficult to make all required changes in one year. ASB has proposed a series of changes that would be implemented in 2005 and 2006 which will bring UK financial reporting standards more in line with IFRS. Thereafter ASB will carry out a series of step changes by replacing one or more UK standards. So by the end of 2005-2006, UK standards will almost be in line with IFRS and unlisted companies transition to IFRS in 2007 would be smooth. This research analyses the attitude of unlisted companies towards IFRS. Many research and surveys have been carried out on the acceptance and readiness of listed companies for transition to IFRS. But the issue has not been explored in depth with respect to unlisted companies. The research is based on primary and secondary data. Primary data is collected via interviews and questionnaires with companies and their auditors. A total of [34] interviews – [20] with companies and [14] with their auditors – were conducted to obtain primary data. [52] questionnaire responses by postal survey were also analysed. The results show that there is definitely a much scope in improving International Financial Reporting Standards for unlisted companies. Respondents were concerned about the costs associated with transition to IFRS and also the additional burden that will come with regular enhanced reporting. That IFRS will help in globalisation of capital markets and probably cheaper costs of capital is not of much significance for unlisted companies registered in UK. This research would be useful for institutes and associations framing accounting standards for unlisted companies. Mostly accounting standards have been framed with an eye for listed and large companies. But unlisted companies have much lesser resources to spend on large regulatory requirements and hence should have different reporting requirements that match the benefits obtained from such reporting. The time limitation and resource constraint mean that the primary data via interviews and questionnaire surveys could only be collected through a limited number of respondents. It would be useful to cover a larger data base before implementing the changes. Also more users of data in unlisted companies like banks and creditors should be contacted before policy formulation. The remaining paper is divided in the following sections. Section II is a literature review on justification and applicability of IFRS, and state of readiness in companies. Section III discusses the methodology used in this research. Section IV covers analysis of data obtained through the primary data collection and its interpretation. The paper concludes with section V. SECTION II LITERATURE REVIEW In June 2000, the European Commission proposed a new directive requiring that all publicly traded companies in the member states to adopt International Accounting Standards Board (IASB) standards by no later than January 2005. On 19 July 2002, the European Parliament and the Council approved the IAS regulation (EC) 1606/2002 which said ‘For each financial year starting on or after 1 January 2005, companies governed by the law of a Member State shall prepare their consolidated accounts in conformity with the international accounting standards adopted †¦ if, at their balance sheet date, their securities are admitted to trading on a regulated market of any Member State’ (EU, 2002). Rationale for EU’s adoption of International Financial Reporting Standards The main aim of International Financial reporting Standards is to bring convergence among different national financial reporting standards. Over time, the evolution of different national financial reporting standards has been influenced by local social, political and economic environments. Some of the major reasons for differences in accounting standards are: Political – Capitalist or Communist. Capitalist and communist countries have almost contrasting fundamental economic approach and their accounting standards reflect the same. Stage of economic development. Developed countries generally have better accounting standards in terms of transparency and clarity. Corporate finance – debt or equity. Companies in continental Europe are financed more by debt than the companies in UK. Accounting standards have over time evolved to reflect the importance placed by different sources of financing on different aspects of financial statements. Legal and taxation systems. Convergence will help investors and analysts to compare companies across borders in a better way. But it also implies that either member countries will lose their independence to make national accounting standards that reflect local economic conditions or if they start introducing some changes, IFRS may slowly lose its main strength of common standard. Local, political and economical conditions may force national accounting bodies to introduce variations in IFRS. EU has already introduced some changes in the IAS 39 dealing with financial instruments. It is beyond the scope of this research to see which member countries have introduced variations in IFRS. Convergence between UK GAAP and IFRS ASB has declared its intention to converge UK GAAP with IFRS. It has issued a number of new standards in December 2004 to speed up the convergence of UK GAAP with IFRS. So sooner, even unlisted companies would be following a substantial portion of IFRS due to this convergence. Comparison of UK GAAP and IFRS Similarities The ultimate goal of UK GAAP and IFRS is same – to present information about financial performance and position to all concerned stakeholders. If the aim is same, then should be the main approach adopted by both accounting standards. The UK’s Accounting Standard Board’s Statement of Principles for Financial Reporting is a vital contributor at macro level standard setting. It plays almost same role as International Accounting Standards Committee’s ‘Framework for the Preparation and Presentation of Financial Statements’. ‘It is a description of the fundamental approach that the Accounting Standards Board (ASB) believes should, in principle, underpin the financial statements of profit-oriented entities’ (ASB, 1999). The Statement of Principles has true and fair concept at its core, much like the focal point in International Accounting Standards. Also like IAS, Statement of Principles insists on financial information being relevant and comparable. It is beyond the scope of this research to highlight each and every similarity between UK GAAP and IAS. Differences Though the overall aim is same, the differences in implementation and financial reporting do occur due to social, economic and political backgrounds of different nations. Main concepts behind UK GAAP and IFRS are same, but when we look at micro level, we see many differences at the individual standards level. Following are the main differences between UK GAAP and IFRS: The Statement of Principles allows use of both historical cost and current value approaches in measuring balance sheet categories. The dual use of historical and current value methods is known as modified historical cost basis (ASB, 1999). Under historical cost, the carrying values of assets and liabilities are stated at the lower of cost and recoverable amount. This approach is more conservative as compared to IAS approach which uses fair value method. Also the choice of historical or current value method is based on subjective analysis of a company’s management and hence it is open to some manipulation. Fair value. If we look at global level, both UK GAAP and IFRS have adopted fair value method as the foundation of their accounting standards. IFRS takes fair value adoption even higher when it says that income statement will include the changes in the fair value of items that have not been yet traded like derivatives. The emphasis in new accounting standards is on mark-to-market fair value of assets and liabilities rather than on actual market price based fair values. Now both realised and unrealised changes in fair values would be incorporated in income statements. The first year of transition will see high volatility in earnings and balance sheet statements. Though this brings higher volatility, it will also test the management skills in proper presentation and explanation of changes. It may also change the benchmarks of success for managements. Acquisitions. Acquisition accounting will change under new accounting standards. Under UK GAAP, companies can choose between purchase and merger accounting. Under IFRS, companies will have to account under purchase method only. Goodwill. UK GAAP allowed amortisation of goodwill and companies had the option of not segregating intangible assets from goodwill. Under IFRS, intangible assets have to be separated from goodwill. Goodwill can not be amortised now but companies will have to undertake annual impairment tests to justify the value of goodwill on the balance sheets. BAT’s profits for year 2004 increased by  £454m because it no longer had to amortise goodwill of that amount (AccountancyAge, 2005b). Consolidation of accounts. Under new accounting rules, companies may have to consolidate certain additional subsidiaries into group accounts. On the other hand companies will have to exclude certain subsidiaries or special purpose vehicles which were not included till now. Research and development costs. Under IAS 39, research costs can’t be carried on the balance sheet and would have to write them off as incurred. Companies would still be allowed to capitalise development in line with UK GAAP. Stock options. Internet and share market last boom in late 1990s led to rapid increase in share options as a way to reward employees. The new requirements to record an expense on income statement for the value of share options granted to employees could have a significant impact on earnings. AstraZeneca said in its pro forma 2004 IFRS numbers that new accounting rules on stock options has made it re-consider the use of stock options in rewarding its employees (Tricks, 2005). Distributable profits. Organisations ability to pay dividends is dependent on their distributable profits. Following are some of the major impacts of IFRS on distributable profits Inability to discount deferred tax liabilities, higher provisions for deferred tax when companies move from historical costs to fair value and inclusion of pension deficits in income statement. All of the above will reduce distributable profits. Many companies would have to financially restructure themselves in order to have sufficient distributable profits to meet dividends paid in last year. Deferred tax credit. Deferred tax credit is available under UK GAAP but not under IFRS. GlaxoSmithKline’s restated its 2004 earning per share by (1.9p) due to non-availability of deferred tax credit under IFRS (AccountancyAge, 2005a). Inclusion of business disposals gains in profits from operations. BAT’s profits for year 2004 increased by  £1.3bn after it included gains from disposals to operating profits (AccountancyAge, 2005b). Adding disposal gains to operating profits will make it harder for investors and analysts to separate the earnings from continuing businesses. Derivative contracts. Under IFRS, some derivative contracts will not qualify as hedges as they wont meet the criteria. UK GAAP allowed deferment of such contracts until transaction took place. IFRS won’t allow the deferment of such contract and would impact the profit and loss account even before the transaction took place. It is better in a way that investors will know the current value of the firm as on date rather than historical costs of such instruments, especially if the duration of financial instruments was long. At the same time, it would increase the burden on the company to calculate the fair value of all such transactions. Agricultural. UK GAAP allowed companies to use a cost model for biological assets and all agricultural produce. But under IAS companies would have to use mark to market method for valuing such assets. Now companies would have to use market valuation even for assets in far off countries. Advantages of IFRS over UK GAAP Common financial language. Adopting common financial reporting standards will open up a company to more markets and investors. The growth in telecommunications has made it easier for smaller investors to invest across physical boundaries. Such investors are normally not as financially sophisticated as some big financial institutions. They would also not like to understand more than one accounting standards as they don’t have required resources in hand to do so. With one common accounting standard, more investors would like to explore companies across nations. Acquisitions. IFRS 3 is more open and transparent than UK GAAP on acquisitions. It will allow investors and analysts to judge faster the success of an acquisition. Many of the companies that have relied on acquisition as a key cornerstone for growth would now come under intense scrutiny and may have to develop a new strategy for growing business.    Consolidation. In IFRS, all entities will have to provide a cash flow statement. Additionally there would be more transparency within the group companies and this should make the consolidation process more straight-forward. Securitisation by businesses is likely to be impacted by the new ways governing how companies can show assets and liabilities on their financial statements. Companies have used securitisation to cash in assets like trade receivables sitting on their balance sheets. Securitisation helps companies to slim down their balance sheets and hence allows companies to show higher return on assets at same earnings. And it was one of the reasons why companies went for securitisation. But stringent criteria for moving assets and liabilities off balance sheet will threaten securitisation. Sue Harding, chief accountant at Standard Poor’s in Europe said that new international accounting standards were sweeping a lot of securitised assets back on to balance sheets (Jopson, Feb 2005). This will help investors compare like to like and avoid companies that have used securitisation only to make-up their balance sheets. There is no harm in using securitisation if used in a proper way and not to deceive stakeholders. But we have seen how corporations like Enron had used securitisation to disguise their true financial position. Annual impairment review. Annual impairment review will benefit investors because the companies then won’t like to take big goodwill cuts in one year and not do anything for years. Annual reviews would help investors judging whether the amount paid by companies in acquiring other company was justified or not. Access to cheaper capital. Increase in investor profile diversification would most probably lower the cost of capital for most of the companies. This is especially true for smaller companies which don’t have financial muscles and resources to tap international investors. Expensing research costs gives better information to investors and other stakeholders because at research stage the chances of success are quite uncertain. Investors can only be sure of development costs bringing in some returns in future. Also by segregating research and development costs, external stakeholders will now have a better chance to differentiate the suitability of costs incurred in developing new products. Multiple listings. Many companies now have multiple listings across different countries. Companies need to prepare financial statements as per each local accounting standard to meet listing requirements. With one accounting standard only it will save a lot of botheration for companies with multiple listings. Dividends. Under IFRS dividends are not provided for until the dividend recommended by the Board is approved by shareholders. This move will bring more convergence between accounting profits and cash flows. Disadvantages of IFRS Fair value. While fair value in a way conveys more up to date value of a company as compared to historic costs, it also puts a question mark on the methods used and the reliability of fair value. Derivative instruments which are commonly traded on various stock exchanges can be easily assigned value. So while valuing some of the assets or liabilities may not be difficult, the question still remains what impact such valuations will have on companies’ business models. Many companies use hedging instruments as a strategic tool rather than for intentional gains. Any short-term swings in such instruments may have a significant impact on income statement and probably adverse market reactions may deter companies’ from using such instruments. Then comes the more important issue of valuing assets and liabilities that don’t have a proper market. The companies may use some valuation model, which itself may not be the right way, to value an asset or liability. The model will incorporate some subjective assumptions. An example would be brand value. A same brand can have two different values for two different companies because of its strategic importance. So at one hand, investors and other external stakeholders are getting more objective information about a companies’ assets and liabilities, they are also getting valuation based on more subjective assessments. Only time will tell whether some individuals or companies will use it to manipulate results. An interesting thing to observe would be the treatment and importance given by analysts to unrealised fair value of assets and liabilities. Some investors may try to separate unrealised gains and losses from other operational performance. It may also prompt companies to issue adjusted earnings excluding unrealised gains and losses. An important point to note about fair value principle is that the financial statements should not be seen as perfect prediction of things to come. That depends on the strategic and business decisions management will take in future. Just having a fair value of assets and liabilities doesn’t mean that the company will be able to extract those values in future.    Dividend. New accounting standards promote payment of dividend from distributable reserves. With the inclusion of unrealised gains and losses and pension deficits, the first few years of new accounting standards may not leave enough of distributable reserves for dividend payments. Securitisation. Securitising assets into special purpose vehicles and re-financing them through had also helped companies raise funds at lower costs. The new accounting standards by restricting the use of special purpose vehicles, would diminish some sources of cheap financing. It is question yet to be fully tested in the practical world that since the assets are same, change in financing options shouldn’t change the returns on total assets. By refinancing at lower rates through securitisation should result in higher financing cost for remaining assets such that the overall costs remain same. But examination of this hypothesis is beyond the scope of this dissertation. But what is mostly observed in capital markets is that when companies announce refinancing, the share price rises. How much of the rise is from relief that company will survive and how much from the fact that the overall costs have lowered is not known. Annual impairment tests. Annual impairment tests are easier said than done. Companies would not only have to devote substantial resources to do that first would have to train its personnel to do that. Assessing true value of a goodwill is not easy. If there is a comparable market then companies can easily value it. Even then it may differ from case to case as it would be very unusual to see exactly two similar companies. Goodwill is very different from tangible assets or technologies and depends a lot on market perception and strategy. Companies would have to review the whole process of valuing goodwill and would have to review the valuation process at constant intervals. Net pension liability. The inclusion of net pension liability on the balance sheet may have severe impact on the shareholders funds. Companies will be required to have annual actuarial valuation of their pension liabilities and the same would be reflected in financial statements. Most of the pension funds invest in equity markets, which have been quite volatile in the recent years. So though over a longer period, the movements in pension liabilities may even out but in short to medium term, it may have a dramatic effect on balance sheets and earning statements. Segmental information. IAS 14 requires companies to report information on their business segments and on a scale more detail than UK GAAP. As of date, no agreed accounting practices have emerged on how much should be disclosed because companies may end up revealing sensitive information to its competitors. If companies disclose the turnover, earnings and expenditure for each segment, its profitable operations may come under intense competition. Ian Dilks of PwC said that â€Å"some companies have found they’re giving much more information than they’re comfortable with on sales and the profitability of product areas† (Tricks, 2005) Expensing research costs may result in listed companies focusing more on products in development stage than in research stage. This will keep their balance sheets healthy but may harm long term prospects. Complex and long IFRS compliant reports. PricewaterhouseCoopers estimates that an IFRS compliant financial report for insurance companies could be up to twice as long as those prepared under existing UK GAAP (Finn Zoon, 2004). The requirement for other industry sectors though may not be as intensive as for insurance sector, their IFRS compliant financial may also be longer and resource intensive than under UK GAAP. Any company that has makes an acquisition will have to do annual goodwill impairment analysis and most of them would like to explain the results also. Comparable formats. IAS 1 is less prescriptive than the UK GAAP when it comes to the format of the balance sheet and income statement. It just distinguishes current and non-current assets and liabilities. Investors, when faced with different formats, may find it difficult to compare companies. Modify organisation structures. Meall (2003) suggested that the additional burden of more financial reporting along different segments may force companies to modify their existing organisational structures within their financial systems to collect and analyse data. Impact of IFRS on different industries IFRS will have different impact on different industries. For some, most of the applied UK GAAP is almost same as IFRS and won’t feel the difference. But for some industries, the difference in accounting standards may have a substantial impact. Financial services and insurance companies are among them. Financial services companies would be affected by substantial change in recognition and measurement of financial instruments under IAS 39. UK GAAP has no equivalent to IAS 4 which deals with insurance contracts. Insurance companies would now have to account for this in their financial statements. Under IFRS, insurance companies would have to book financial instruments such as derivatives at market value rather than historical value allowed under UK GAAP. Many insurers have said that this will distort their earnings (Reuters, 2005a). IFRS will put more stringent criteria for classification of insurance products and this may lead to reclassification of some insurance products as investment products. Other industries that might face higher impact are the ones that heavily use hedging instruments in their day to day operations. Mostly companies using commodity materials like oil as a significant part of their input costs use hedging to smooth over the volatile changes in commodity markets. New accounting standards will reduce Tesco’s projected annual profit of  £2,000m by  £30m only, a reduction of 1.5%. But for some companies the impact would be much more. Royal Sun Alliance said that new accounting rules would reduce its net assets by  £400m (Reuters, 2005a). This is a big number by any standards and shareholders