New UK GAAP is Approved

At its board meeting on 5 March 2013, the Financial Reporting Council (FRC) finally approved FRS 102 The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland for issue which will become the new UK accounting standards replacing all FRSs, SSAPs and UITFs.  This long-awaited standard brings to an end several years of uncertainty amongst the profession as to the direction UK GAAP is going and the FRC is expected to issue the new standard in the next couple of weeks.

The (now defunct) Accounting Standards Board (ASB) acknowledged some time ago that UK GAAP in its current form had become overly-complex and voluminous.  UK standard-setters have always had a vision that the UK will adopt an international-based financial reporting framework in an attempt to provide consistency in the way financial reporting works but also to develop a high-quality and fit-for-purpose financial reporting framework.  In 2009, the ASB acknowledged that to essentially scrap all existing accounting standards and replace them would be a significant task but they viewed this project as an opportunity to deal with UK GAAP in a comprehensive manner with the end result being a financial reporting framework that is effective, but simplified, and one which will produce more relevant, comparable and understandable information.

The ASB initially based their exposure drafts (FREDs 43 to 45) on the International Accounting Standards Board’s IFRS For SMEs which was planned to become (and was exposed as) the Financial Reporting Standard for Mid-Sized Entities (FRSME) in the UK, but it became apparent that certain emerging issues would cause significant controversy – particularly the concept of ‘public accountability’.  Having listened to the feedback on FREDs 43 to 45, the ASB decided to significantly change its original proposals and expose FREDs 46 to 48 for comment, which were to become FRSs 100, 101 and 102 respectively.  These revised exposure drafts:

• Eliminated the ‘tier system’
• Introduced accounting treatments permitted under current UK GAAP
• Incorporated guidance for public benefit entities into FRED 48

FRS 102 is part of a suite of three standards, with the two others being:

• FRS 100 Application of Financial Reporting Requirements; and
• FRS 101 Reduced Disclosure Framework

FRS 100 and FRS 101 were both issued on 22 November 2012 with a delay in FRS 102 being due to certain areas of the draft standard being re-exposed, notably in respect of defined benefit pension schemes and service concession arrangements.

FRS 100 outlines which entities will use which standard.  Smaller companies will still continue to use the FRSSE, but this has been updated for the consequential effects of FRS 102 and therefore smaller companies will use FRSSE (effective January 2015).  It is also likely that the FRSSE will be further aligned to the new UK GAAP in the future.

FRS 101 is basically IFRS but with reduced disclosure requirements for qualifying entities and outlines the reduced disclosure framework which is available for qualifying entities that report under EU-adopted IFRS.

Both FRS 100 and FRS 101 were issued in November 2012 and effective for accounting periods commencing on or after 1 January 2015 with early-adoption permissible.  Therefore groups that are currently required to report under EU-adopted IFRS may want to consider adopting FRS 101 earlier as it can be adopted for year-ends ending on or after 1 October 2012 due to legislation being introduced that allows companies that are not required to apply IFRS by the ‘IAS Regulation’ more flexibility to change their accounting framework to FRS 101 or FRS 102.  This may be advantageous for groups with a 31 December 2012 year-end to early-adopt given the disclosure requirements in EU-adopted IFRS are fairly vast.

FRS 102 will be applicable for accounting periods commencing on or after 1 January 2015 but entities that will fall under this standard’s scope will have to think about the impact of FRS 102 earlier as the first balance sheet to be prepared under the new financial reporting regime will be as at 1 January 2014 (which is not in the too distant future) and there are additional disclosure requirements in the year of transition to FRS 102.  Of course, additional costs will be incurred and this is another issue that practitioners will have to take into consideration but resources will be available on here and on AccountingWEB.co.uk to help with the transition to the new standard.  Indeed my next article will consider the changes that have been made to the FRSSE (effective 2008) to become FRSSE (effective January 2015).

There are some differences between the way UK GAAP currently works and the way that it will work from 1 January 2015 and these differences will also be summarised into articles and various worked examples to aid practitioners.

Category: Accounting and standards, Audit