Latest UK Financial Reporting Proposals ‘Will Improve Financial Reporting in the UK’
KPMG in the UK welcomes the issue of the Accounting Standards Board’s (ASB’s) latest Financial Reporting Exposure Draft (FRED) outlining the proposed future for financial reporting in the UK, which is the culmination of much consultation by the ASB in recent years.
In response to comments received on the previous FRED issued in October 2010 (‘the 2010 FRED’), the ASB no longer proposes the adoption of a tiered approach to financial reporting based on public accountability. The application of full EU-IFRSs would be mandated only for those entities currently required by law or regulation to apply those standards, although entities would still be permitted to apply EU- IFRSs voluntarily.
FRED 48 (draft FRS 102) The Financial Reporting Standard applicable in the UK and Republic of Ireland (no longer to be known as the FRSME) is based on the IASB’s IFRS for Small and Medium Sized Entities (IFRS for SMEs) and would replace existing UK GAAP.
The FRSSE would remain in place for the smallest entities.
The ASB continues to propose certain disclosure exemptions for the individual accounts of qualifying group entities, whether applying EU-IFRSs or FRS 102, although qualifying financial institutions will not be permitted disclosure exemptions in relation to financial instruments. This proposal now encompasses parent entity individual accounts as well as all subsidiaries.
Consistent with KPMG’s comments on the 2010 FRED, the ASB proposes clarifying certain requirements, including that merger accounting for group reconstructions should be retained from current UK GAAP. It has reacted to widespread comment by now proposing to diverge from the requirements of the IFRS for SMEs in a number of areas. These include allowing certain accounting policies that are not permitted under the IFRS for SMEs but are permitted under current UK GAAP and full EU-IFRSs; for example, the revaluation of property, plant and equipment. FRED 48 also introduces a simplified approach to accounting for tax, rather than applying the full requirements of IAS 12 Income Tax.
Oliver Tant, UK head of audit for KPMG, commented that “We welcome the wide consultation process undertaken by the ASB and are pleased that the latest FRED addresses a number of the concerns raised in our response to the 2010 FRED. The revised proposals, which will affect the majority of UK entities, will introduce a more consistent set of principles to UK GAAP, broadly aligned with that of EU-IFRSs.
“We believe that they will improve financial reporting in the UK without imposing an undue burden. Directors will now need to make important decisions about which accounting framework to apply, which will require not only consideration of the accounting options available to them, but also assessment of the potential effect on accounting systems, staff training, taxation and other arrangements such as loan covenants.”
Commenting on the proposals, Andrew Vials, senior technical partner in KPMG in the UK said: “We support the proposal to include the new accounting policy choices, which should help to ease the transition process for many UK entities. Importantly, it will allow many subsidiaries of entities applying EU-IFRSs to use accounting policies consistent with those of their parent, without needing to apply the full requirements of EU-IFRSs.
“The revised proposals for tax accounting provide a pragmatic solution which should benefit UK entities by being simpler to apply whilst in many cases resulting in the same accounting for deferred tax as under IAS 12.”
The ASB’s latest proposed timetable for the new financial reporting regime is that it should apply to accounting periods commencing on or after 1 January 2015, requiring a transition balance sheet to be prepared as at a date as early as 31 December 2013. Earlier adoption would be permitted. The ASB is seeking comments on the FRED by 30 April 2012.