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UK groups that are either required to or choose to
prepare their financial statements in accordance with IFRS have
often elected to present the individual company and subsidiary
accounts in accordance with UK GAAP.
There are a number of reasons why companies may have chosen UK
GAAP in these circumstances. However, many have found that the
absence of any available disclosure exemptions in IFRS resulted in
a time and cost burden that outweighed the possible savings from
using a consistent set of accounting standards across the
group.
Recognising that it would be more cost effective if companies
only had to maintain accounting records in accordance with one
reporting framework, the ASB has proposed disclosure exemptions
that will apply to a large proportion of subsidiaries and parent
entities.
Under FRED 47 'Reduced disclosure framework' (draft FRS
101), 'qualifying entities' will be able to take certain
exemptions from the disclosure requirements contained in EU-adopted
IFRS. The definition of a qualifying entity is straightforward,
being a member of a group that prepares publicly available
financial statements, which give a true and fair view, and in which
the entity is consolidated.
The following additional conditions will need to be met before
the exemptions can be taken.
Shareholders in the entity will need to be notified in writing
and not object to the exemptions being taken.
The financial statements must otherwise apply the recognition,
measurement and disclosure requirements of IFRS but formats of
primary statements will need to comply with the Companies Act
2006.
The financial statements will need to disclose the relevant
standard and paragraph number of the exemptions taken and the name
of the parent in which the entity is consolidated together with
where the parent's financial statements could be obtained
from.
The available exemptions are set outin the
table below.
It is currently proposed that the new standard will apply for
periods beginning on or after 1 January 2015, with early
application permitted for periods that begin on or after the date
the final standard is issued.
Smith & Williamson commentary
We are pleased to see proposals that will make it easier for
consistency to be achieved across groups. The option will however
still exist for subsidiary and parent accounts to be prepared in
accordance with the new Financial Reporting Standard applicable in
the UK and Republic of Ireland. The new standard will continue to
have some differences from IFRS but will also contain an equivalent
reduced disclosure framework. How a company's accounting
policies affects tax and distributable profit may still, however,
turn out to be the deciding factor in determining which accounting
framework to follow rather than the extent and nature of disclosure
required.
Entities planning to use the proposed exemptions will also have
to be mindful of one complicating factor. While the measurement,
recognition and disclosure in the financial statements will be in
accordance with IFRS, the financial statements will also need to
comply with the Companies Act and therefore the primary statement
formats required by company law not IAS 1.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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