When the International Accounting Standards (IAS) gave way to the new International Financing Reporting Standards (IFRS) it was hoped that a company's accounts would be more transparent and that the level of risk that it had exposed itself to would be more clearly reflected. Stresssing the importance of these developments, Philippe Foulquier*, head of the EDHEC Financial Analysis and Accounting Research team and Finance Professor at EDHEC who was called upon to analyse these changes, called the implementation of the new International Financing Reporting Standards a "big bang" for insurance companies.

Out of a concern that the IFRS are incomplete standards for insurance companies, EDHEC's prime research areas, Risk & Asset Management and Financial Analysis & Accounting, in conjunction with AXA, joined forces in order to analyse flaws in the new IFRS and propose solutions.

Philippe Foulquier a leader in his field and nominated Best Insurance Sector Financial Analyst 2005 in the international Extel/Thomson Financial and Agefi rankings, summed up the outcome of the report stating that the methods that had been put in place by the new IFRS were often contradictory to the goals of transparency that the IFRS had set itself. In effect, the new IFRS ended up making the company's accounts more complicated, arbitrary and made comparisons very difficult and in all, did not represent any improvement. For example, beforehand, derivative trading was not included in a company's accounts; however with the advent of the new IFRS these now need to be reported. This often provides misleading financial information and doesn't accurately reflect the economic well-being of the company.

The report also found that similar problems will also be posed by Solvency II, a European Directive due to enter into vigour around 2010. This European Directive aims to regulate the ability of insurance companies to meet their liabilities. Philippe Foulquier however also warned against the possible negative consequences of this new directive. He said that it was a highly sophisticated tool which, if not implemented with a great deal of care, could lead to a great deal of confusion. EDHEC researchers reached the conclusion that the Solvency directive would lead insurance company managers to follow strategic paths that were in complete contradiction to the objectives that were meant to be achieved by the new European Directive.

In conclusion EDHEC demonstrably opposes the implementation of this Directive and proposes significant changes to its content. The EDHEC research team takes into account both shareholders and insurance policy holders in negatively assessing a directive which is likely to put their interest in peril.

"EDHEC research has the goal of advancing societal and company thinking." stated Philippe Foulquier in conclusion. 

*Philippe Foulquier also serves as a consultant in the application of IFRS norms, Solvency II and company valuation. He lectures on Financial Analysis at EDHEC Business School.