IFRS Impacting European Fund Managers' Investment Decisions

by Robert Lee, Tax-News.com, London

16 February 2006

The results of a new survey by PricewaterhouseCoopers and Ipsos MORI, entitled: 'IFRS – The European investors’ view', have revealed that conversion to the new International Financial Reporting Standards (IFRS) is having a noticable impact on the way fund managers perceive companies, and consequently on the investment decisions they make.

The survey of 187 fund managers in seven European countries shows that the overwhelming majority (79 per cent) regard the change to IFRS as significant, and even before the year-end financial statements have been distributed, more than half (52 per cent) said the IFRS information reported in 2005 had directly influenced their investment decisions.

When mulling potential investments, 21 per cent of the respondents stated that IFRS information had influenced decisions to buy, and another 17 per cent reported that it was a factor in their decision not to invest.

The survey found that IFRS information also impacted on decisions about existing investments, with 22 per cent reporting that it had influenced them to sell a company’s shares, while 11 per cent of fund managers responded that they had been swayed into holding onto shares.

Nonetheless, three-quarters of the respondents expressed the belief that IFRS has been helpful in clarifying the financial risks that companies assume and 66 per cent were of the view that they provide a clear picture of companies’ operational risks.

Nearly three-quarters (73 per cent) of the fund managers reported that IFRS has had at least some impact on their perception of a company’s value.

“We have been waiting to see what effect IFRS will have on the market," noted Ian Dilks, head of IFRS conversions at PricewaterhouseCoopers.

However, he went on to note that: “Clearly most fund managers - who are at the sharp end of investment decision making – seem to welcome the new data."

Another interesting fact highlighted by the survey was the apparent high level of understanding of the IFRS rules, with 73 per cent of the respondents reporting that they know a great deal or a fair amount about the new standards, and 76 per cent saying that they felt very or fairly confident in their understanding of the impact of IFRS on the companies they invest in. However, little more than one in ten (12 per cent) stated that they are "very confident" in their understanding of IFRS.

Neverthless, Mr Dilks stated that the impact of IFRS is likely to be positive for investors.

“Companies have worked hard to implement IFRS, so they can take encouragement from fund managers’ confidence in their handling of the change so far," noted Mr Dilks.

"There are positive indications that investors think IFRS is making progress towards the goal of greater clarity and comparability in financial statements," he added.

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