ECONOMY

Projects hit IFRS snag

Problems may arise in promoting self-financed projects by the International Financial Reporting Standards (IFRS), according to the European constructors association. The FIEC (Fédération de l’Industrie Européenne de la Construction), says that even after two years of efforts the competent committees for the drafting of the IFRS have not managed to find an adequate solution about how to display concession agreements in contractors’ balance sheets. In a letter to EU Internal Market Commissioner Charlie McCreevy, FIEC notes that the application of the IFRS (compulsory for group balance sheets of listed companies since January 1) leads to a mistaken and non-comparable depiction of concession agreements in the accounting records of enterprises. Incompatible results The contractors’ officials engaged in ensuring the application of IFRS suggest that, according to existing regulations, companies have two different ways of displaying concession agreements: The first one is used in projects where the user pays for their construction cost (for example, through toll stations), and the second in projects where the state pays the contractor gradually (e.g. in constructing and operating a hospital). FIEC says that the method to be used by each company has not been clarified with precision, possibly leading to non-comparable financial results among contractors. The European constructors association suggests in its letter to McCreevy that the application of the former method will force construction companies participating in co-financed projects to record heavy losses during the first few years of the contracts’ materialization. In new projects The problem will appear in new projects with concession agreements and not in contractors participating, for example, in the Rio-Antirio bridge or the Attiki Odos, which have already been delivered and are in operation. This is why listed contractors in co-financed projects have not been seriously engaged by the issue. Their managers also believe that by the time contracts are signed for the new co-financed projects (as in the underwater tunnel in Thessaloniki or the project at the Maliakos Gulf) these pending issues with the IFRS will have been resolved. Tenders for most of these projects started some four years ago, but are still in their early stages. FIEC admits that competent committees for the drafting of the IFRS have noted the problem but there is a delay in finding the right solution. It also notes that as no solution had been found by the end of 2004 and given the requirements for drafting group balance sheets for the last financial year based on the IFRS, many construction companies will be caught unawares.