UK GAAP update - fundamental changes due
The ASB intends to fundamentally change the reporting framework for UK entities. The latest position is that we expect the ASB to issue an updated exposure draft (ED) in January 2012, with the intention of finalising the new framework by June 2012, effective from 1 January 2014.
The ASB has simplified its tiered framework, removing the ‘publicly accountable’ criteria. Tier 1 is for entities listed on a regulated exchange (that is, those that already apply EU-adopted IFRS); Tier 2 is for all other entities. Tier 2 entities will apply the Financial Reporting Standard for Medium-sized Entities (FRSME), which is based on the IFRS for SMEs rather than existing UK GAAP.
Recognising that many IFRS groups wish to have consistent accounting across their entities, there will be a Reduced Disclosure Framework (RDF) for Tier 2 eligible entities that choose to apply Tier 1 instead.
Subsidiaries that choose to apply EU-adopted IFRS will be allowed to follow the RDF, except financial institutions will not be able to reduce their IFRS 7 disclosures. Any subsidiary that is a parent will not be allowed to reduce disclosures if it prepares consolidated accounts. Parent entities may also apply the RDF in their separate accounts.
Tier 2 entities will apply the FRSME, which differs from the IFRS for SMEs as follows:
- Certain options have been reinstated into the FRSME to align with EU-adopted IFRS or current UK GAAP practice;
- Guidance for areas such as segment reporting and earnings per share has been included as a result of broadening the scope of the FRSME;
- Tax accounting will be based on a ‘timing differences plus’ approach, which is nearer to current UK GAAP than IFRS;
- Entities applying Tier 2 or the RDF must use Company Law formats when presenting primary statements; and
- Accounting for financial instruments may change once IFRS 9 is published in full.
As for small companies, the ASB will defer future consultation on the FRSSE until the European Commission proposals on micro-entities are published. As part of this debate, The Department for Business Innovation and Skills recently published a discussion paper on reporting by micro-entities; this considers radical alternatives (such as cash accounting) to the current requirements of the EU Directives.
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