We provide an update on the ASB's proposals regarding
financial reporting following the consultation period.
In our winter 2010/11 edition we highlighted the ASB's
proposals for the future of financial reporting. The proposals were
for a three-tier structure reporting in accordance with EU-adopted
IFRS (full IFRS), the financial reporting standard for medium-sized
entities (FRSME) or the existing financial reporting standard for
smaller entities (FRSSE).
The FRSME is the proposed new standard which would apply to the
majority of UK entities. The period for comments on the proposed
structure and the new FRSME has now closed and the ASB has been
considering the responses received. The ASB has also been
publishing what it describes as its 'tentative decisions to
date' and so far it would appear that these may go some way to
allaying at least some of the concerns we and other respondents
Many respondents considered the proposed transition date of 1
July 2013 to be too early; a number said they would like this date
to be pushed back until 2015. The IASB is currently suggesting that
the effective date might be periods beginning on or after 1 January
Application of full IFRS to entities with public
Financial Reporting Exposure Draft 43 (FRED 43) proposed that
all entities with public accountability would be required to apply
full IFRS. The definition of public accountability has caused a
great deal of comment as it brings entities into the scope of full
IFRS where this has not been a requirement in the past (for example
pension schemes). There were also concerns that splitting sector
groups across different tiers would lead to lack of consistency and
that the additional cost of adopting full IFRS by small entities
that would fall within the definition would be disproportionate to
any benefit. At its meeting on 16 June, the ASB tentatively decided
to remove the requirement for entities with public accountability
to apply full IFRS, meaning that the requirements would not extend
beyond what is required by law and regulation.
Reduced tier disclosures
Although there is significant support for the proposed reduced
disclosure requirements for qualifying subsidiaries, some
respondents are suggesting that these should apply to all
subsidiaries. As discussed below it now seems likely that there
will be a number of changes to the FRSME and therefore the ASB plan
to do further work on the effect this might have on the proposed
reduced disclosure regime.
There were a number of areas of the proposals regarding the
FRSME that were unpopular with respondents to the ASB's
consultation, including the following.
No revaluation of property, plant and equipment. This
requirement would be inconsistent with IFRS and current UK
No capitalisation of development or borrowing costs. In certain
businesses, such as those in the software industry and property
development, the ability to capitalise these costs is seen as
reflecting the entities' business model. To disallow this
treatment would be a significant issue and may leave some entities
with no option but to adopt full IFRS.
The proposed treatment of capital grants differs from the
current requirements under UK GAAP and those in IFRS, and could
result in the deferral of income where a particular grant contract
contains residual performance obligations and clawback provisions.
This would have a significant impact on the financial statements of
entities receiving these grants.
At the ASB meeting in June it tentatively agreed to change the
principles for amending the IFRS for SMEs (the standard
underpinning the FRSME) to permit or require accounting options
that exist in current UK and Republic of Ireland accounting
standards at the transition date where these would align with full
This change would permit the ASB to address many of the concerns
expressed by respondents should it consider this to be appropriate.
Smith & Williamson commentary
This article first appeared in the newly released book from NERA Economic Consulting,' The Line in the Sand: The Shifting Boundary Between Markets and Regulation in Network Industries.' With a foreword by Alfred E Kahn.
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