Proposals from the ASB on the future of Financial Reporting Standards
On 30 January 2012 the Accounting Standards Board (ASB) published three financial reporting exposure drafts (FREDs 46 to 48) containing its latest plans on the future of financial reporting in the UK. The ASB’s press release is here and here is its webpage with links to all the FREDs. This is the best introduction to what will be a complete revision of UK generally accepted accounting principles.
In summary, the ASB’s proposals recommend:
- replacing all extant Financial Reporting Standards, Statements of Standard Accounting Practice and Urgent Issues Task Force Abstracts (current FRSs) in the UK with a single Financial Reporting Standard;
- introducing a reduced disclosure framework for the financial reporting of certain qualifying entities; and
- retaining the ‘Financial Reporting Standard for Smaller Entities’ (FRSSE) with a further consultation on how to update it following the European Commission proposals for the future of financial reporting for small and micro companies.
The single FRS that would be adopted under these proposals would be an adaptation of the IFRS for SMEs – “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (draft FRS 102). In the words of the ASB:
“By adapting the IFRS for SMEs, the UK and Republic of Ireland will operate under one consistent, international accounting framework…a single book that sets out clear, concise and cost-effective accounting requirements, whilst addressing some areas in current FRS that are in need of updating.”
IFRS for listed companies
EU-adopted IFRS will continue to be the standard under which groups listed on a regulated market prepare their consolidated financial statements, consistent with the IAS Regulation (and AIM companies will continue to use EU-adopted IFRS, as required by the AIM Rules).
FRSSE for small companies
The ASB intends to retain the FRSSE for companies eligible for the small companies regime under Part 15 of the Companies Act 2006, following the European Commission’s recent proposals on small and micro-company reporting (those proposals would require the FRSSE to be updated).
The ASB’s objectives
In making these proposals, the ASB’s objective is:
“To enable users of accounts to receive high-quality, understandable financial reporting proportionate to the size and complexity of the entity and users’ information needs”
And to provide “succinct” reporting standards that:
• “have consistency with global accounting standards through the application of an IFRS based solution, unless an alternative clearly better meets the overriding objective;
• reflect up-to-date thinking and developments in the way businesses operate and the transactions they undertake;
• balance consistent principles for accounting by all UK and Republic of Ireland entities with pragmatic solutions, based on size, complexity, public interest and users’ information needs;
• promote efficiency within groups; and
• are cost-effective to apply”.
The ASB’s exposure drafts are open for comment until 30 April 2012, with the expectation that the ASB expects to issue the final standard by the end of 2012. The standard would take effect for accounting periods beginning on or after 1 January 2015, with early adoption permitted.
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