The future of UK GAAP
Overview
On 29 October 2010 the ASB (UK Accounting Standards Board) issued a new standard that will fundamentally change the financial reporting of entities not currently applying the EU adopted IFRS. The new standard expands on the concepts proposed in the ASB’s August 2009 paper ‘Policy Proposal – The Future of UK GAAP’ in which the ASB concluded that there was no case for maintaining two different reporting frameworks in the UK.
The three-tiered reporting structure proposed in August 2009 remains but two additional sub-tiers have been introduced for subsidiary undertakings:
- Tier 1 - IFRS - Publicly accountable entities
- (New) Tier 1s - IFRS with reduced disclosure – Non publicly accountable subsidiaries with Tier 1 parents with a shareholder agreement to use reduced disclosures
- Tier 2 - FRSME - Non publicly accountable entities and small publicly accountable entities that are prudentially regulated
- (New) Tier 2s - FRSME with reduced disclosures - Non publicly accountable subsidiaries with Tier 2 parents with a shareholder agreement to use reduced disclosures
- Tier 3 - FRSSE - Small entities which are permitted by the Co. Act 2006 to apply the small company regime
The FRSME (Financial Reporting Standards for Medium-sized Entities)
The FRSME is a new standard based on the IFRS for SMEs amended to comply with UK law as well as EU law. The FRSME has the following advantages over full IFRS:
- There is less guidance and therefore potentially more choice
- The accounting is simpler than full IFRS
- Less disclosure especially in areas such as related parties and financial instruments
The potential disadvantages of the FRSME include:
- Companies considering an IPO should be aware that FRSME will not be accepted for use in a listing document
- It is likely that the tax implications of converting from UK GAAP to FRSME will be complex and will need careful evaluation
- The standard may result in accounting policies being adopted which companies do not find attractive
There are some major differences between the current UK GAAP and the proposed FRSME including the accounting treatment of; development costs; leases; revenue recognition; defined benefit pension schemes; associates and joint ventures; stock valuation; borrowing costs; goodwill and intangible asset amortisation and revaluation; investment properties; deferred taxation and revaluation of fixed assets.
When will this happen?
The exposure draft is open for consultation until 30th April 2011. If the proposal is supported by the majority it is possible that the new framework will be effective for accounting periods beginning on or after 1st July 2013. Early adoption will however be possible, although it is not recommended during the consultation stage.
Further Information
For further information on the implications of the FRSME, please contact Michael Morris (michaelmorris@unw.co.uk) or Andrew Wilson (andrewwilson@unw.co.uk)
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The future of UK GAAP
On 29 October 2010 the ASB (UK Accounting Standards Board) issued a new standard that will fundamentally change the financial reporting of entities not currently applying the EU adopted IFRS.
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New tax partner for unw
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unw advice was first source for Firstsource
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The Budget 2010
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unw Commentary on Pre-Budget Report 2009
Chancellor Alistair Darling presented his Pre-Budget Report on Wednesday 9 December 2009.
