Three new proposed accounting standards from the
Accounting Standards Board (ASB) are set to change the face of UK
The ASB has for many years said that UK GAAP was not sustainable
in the long term. In October 2010 the ASB issued two exposure
drafts – one outlining the reporting frameworks that
might apply across all UK entities, and the other setting out the
proposed standard to be used by the majority of UK preparers.
The ASB received a significant volume of responses with the
majority suggesting, among other things, that the proposals to
extend full IFRS to entities falling within a new definition of
publicly accountable were unnecessarily onerous and that the
proposed new UK standard (tentatively named the Financial Reporting
Standard for Medium-sized Entities (FRSME)) was too
Since the comment period on the original exposure drafts closed,
the ASB has put considerable time into refining and reshaping their
original suggestions. At the end of January they issued three new
exposure drafts containing their revised proposals.
FRED 46 'Application of Financial Reporting
Requirements' (draft FRS 100)
FRED 47 'Reduced Disclosure Framework' (draft FRS
FRED 48 'The Financial Reporting Standard applicable in the
UK and Republic of Ireland' (draft FRS 102)
Here we look at the proposed shape of future financial reporting
as set out in FRED 46. The other two FREDs are considered elsewhere
in this newsletter in "UK GAAP – Take 2" and
"Reducing the disclosure burden".
The ASB has dropped its suggestion of extending the requirement
to apply full EU-adopted IFRS to a wider group than that currently
required to do so. Those entities that are eligible to apply the
Financial Reporting Standard for Smaller Entities (FRSSE) will be
able to continue to use that standard, which will remain virtually
unchanged for the time being. All other entities will apply the new
'Financial Reporting Standard applicable in the UK and Republic
of Ireland' (referred to hereafter as the 'proposed
Financial Reporting Standard').
There are a number of financial institutions that would have met
the previously proposed definition of public accountability, but
which will now be eligible to use the proposed Financial Reporting
Standard. In recognition of the importance of financial instruments
to such entities, they will be required explicitly to make
additional disclosures based on those in IFRS 7 'Financial
instruments – disclosures'.
As discussed further in the later article "Reducing the
Disclosure Burden", subsidiaries and parents preparing their
financial statements in accordance with EU adopted IFRS will be
permitted to take advantage of a number of disclosure exemptions
not currently available to them.
When the ASB issued its original proposals it was intended that
the additional requirements of public benefit entities (PBEs) would
be met through an 'add-on' standard. However, most
respondents to the relevant exposure draft (FRED 45) found its
interaction with the new accounting standard difficult to
understand. The requirements of PBEs have therefore been subsumed
into the proposed Financial Reporting Standard.
The ASB is suggesting that the new requirements be mandatory for
periods ending on or after 1 January 2015. Early adoption will be
permitted for periods that begin on or after the date the final
standards are issued.
Smith & Williamson commentary
There is considerable good news in the revised proposals and it
seems that the ASB has really listened to the views of its
constituents. The extension of adoption of full IFRS would have
been costly for many entities, who would probably not have gained
any real benefit as a consequence. We are therefore pleased to see
this suggestion removed.
The final standards could be issued before the end of the year
and early adoption might therefore be possible by 1 January 2013.
However, there are some legal matters that still need to be
addressed. Among the most significant will be changing the law to
permit companies the option to revert from full IFRS to UK GAAP in
wider circumstances than the current, very restrictive,
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