THE UK accounting regulator has rowed back on plans to impose international reporting standards on “publicly accountable” non-listed companies, following feedback from consultation drafts.
Currently companies fall within three tiers to make their financial reports. The largest entities in the UK must report in International Financial Reporting Standards (IFRS), SMEs use UK GAAP and micro entities use FRSSE (Financial Reporting Standards for Smaller Entities).
Under the Accounting Standards Board’s (ASB) original proposals, published in October 2010, publicly accountable bodies – such as businesses that lend money to individuals – would have had to implement European IFRS from 2013. The ASB also proposed axing UK GAAP and succeeding it with IFRS for SMEs – causing fears of a confusing multi-tiered system.
The ASB is now proposing to not widen the number of companies caught in full IFRS. Instead, they will fall into a middle tier that sees IFRS for SMEs implemented in place of UK GAAP. The ASB has attempted to allay fears that this set of standards would be too simplistic, by incorporating some current UK standards in the mid-tier standard to be known as FRS.
Deloitte senior partner Isobel Sharp says the ASB had taken on the key criticisms of is earlier proposals. However, it would need to demonstrate that it could make a mix of UK GAAP and IFRS for SMEs work.
“The challenge for the ASB is to demonstrate that this proposal is a fine blend and not a stodgy pudding,” says Sharp.
Grant Thornton head of assurance Phil Crooks says the changes, while “less revolutionary”, would not deflect from the project’s objective of updating UK accounting standards, but need to be made quickly or risk being seen as slow to react.
Crooks says: “The ASB is seizing the chance to rationalise and restructure the framework, and bring accounting up to date with the modern business environment. The timetable has been laid out and we urge the ASB to avoid further delay, which would risk the project being overtaken by changes in international standards and could result in UK GAAP losing credibility by being seen as slow to react to the changing world around us.”
Crooks also welcomes the ASB’s proposal to ease reporting requirements for large company subsidiaries under IFRS.
“The potential for significant cost savings for large and listed businesses from the ASB’s proposed option of IFRS with reduced disclosures will also provide welcome relief,” he says. “This option will result in a reduction in reporting burdens for business by streamlining the group reporting process through the use of consistent accounting, while removing unnecessary disclosures from parent and subsidiary company accounts.”
The standard setter hopes to reduce current UK GAAP from 2,500 pages to 250 by introducing IFRS for SMEs.
The exposure drafts are open to comment until 30 April, with a final standard expected by the end of the year and adoption expected on 1 January 2015.
Roger Marshall, chairman of the ASB, says: “In developing these exposure drafts the ASB has listened carefully to the many responses to its proposals. The proposals in FRED 48 now fit better with current reporting needs in the UK and Republic of Ireland and will ease its application.”
Lack of certainty
However, the head of the ICAEW’s financial reporting faculty warns that the revised proposals fail to provide certainty around reporting for small companies.
The ASB will retain FRSSE for micro-entities but will need to update it following the European Commission’s planned changes to the accounting requirements for smaller entities.
The EC’s new accounting directive will give member states an option to treat micro-entities as a separate category of company and to exempt them from certain accounting requirements.
“There is still a lack of certainty over what will happen to the reporting requirements for small companies, which make up the vast majority of UK business, not least as the EC is currently consulting on a simplified regime for small and micro companies,” says Nigel Sleigh-Johnson, head of ICAEW’s financial reporting faculty.
“Looking to finalise a radical new regime for medium and large private companies without having clarity on the shape of the future regime for small companies is clearly not ideal.”
However, he welcomes the ASB’s decision to retain some aspects of UK GAAP, such as revaluation of tangible and intangible fixed assets, and capitalisation of borrowing costs and carrying forward certain development costs in the mid-tier accounting standard.
“We felt that too many of the options had been removed. The ASB has sensibly moved back,” Sleigh-Johnson says.?
A group of investors have made fresh calls for the UK’s largest listed companies to disregard the accounting advice of reporting watchdog the FRC
Thack Brown, global head line of business finance, SAP, outlines best practice in preparing for IFRS 15
FRC highlights the things directors should consider when preparing their forthcoming half-yearly and annual financial reports
Subsidiaries will be exempt from certain rules on how businesses record revenue on their books under proposed changes to FRS 101