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THE FUTURE OF UK GAAP

My colleague, Peter Hughes, attended a roundtable meeting on 20th July at Chartered Accountants’ Hall which considered the future of UK GAAP.  There were many eminent speakers including Ian Mackintosh who is the Chairman of the UK’s Accounting Standards Board (ASB).

One of the other speakers, Mark Smith of Tomkins plc, had some interesting comments to make.  Mark managed Tomkins’ transition to IFRS and now has responsibility for the Group’s external financial reporting under both IFRS and US GAAP.

Mark Smith - Tomkins plcMark gave a business perspective on the ASB’s intention that unlisted companies should adopt the international financial reporting standard, IFRS for SMEs (small and medium-sized entities). He questioned why the abandonment of UK GAAP is necessary, highlighting that the ASB had received 151 responses to its consultation of which only eight were from unlisted companies. He also asked the question “why should IFRS for SMEs differ from full IFRS?” He pointed out that, while UK listed companies must already prepare their consolidated financial statements under IFRS, they have a free choice between UK GAAP and IFRS in the separate financial statements of the parent and subsidiaries. Many have chosen not to adopt IFRS in these separate financial statements.

He also considered that business does not generally like the rigidity of IFRS. There is a widely-held view that IFRS emphasises the financial position rather than the reporting of transactions and cash flows.

Ian Mackintosh has given me some brief reactions to Mark's comments.

"In relation to the abandonment of UK GAAP, this has been consulted on and broadly agreed to in many consultations since 2003. The major issues in moving to one framework (the international framework) are comparability and long-term cost savings. Retaining and simplifying existing UK standards would require an immense amount of effort and it may well be that the outcome would not be very different to international GAAP.

"The IFRS for SMEs is different from full IFRS because it simplifies the requirements of full IFRS, recognising the different needs of the entities using it. The logic seems quite simple - if you don't raise money on capital markets or act in a public fiduciary capacity then you should have fewer financial reporting requirements.

"Full IFRS disclosure requirements are voluminous. This is why the IASB has proposed that subsidiaries will have reduced requirements - a cost and work saving measure that has been welcomed by the preparer community.

"It should also be noted that the UK GAAP-based FRSSE will be retained for the smaller companies until the IFRS for SMEs has been implemented by larger ones."

The ASB is preparing an Exposure Draft on the UK's adoption of IFRS for SMEs. Ian expects a 'big bang' rather than a phased implementation.

It is desirable to have a global standard for global organisations and for all UK businesses to use one basis for financial reporting. At this point in time, it is worth noting two things:

  1. Germany and France are unlikely to adopt IFRS for SMEs; and
  2. The USA has yet to embrace IFRS and key differences between US GAAP and IFRS are proving difficult to overcome.

Albeit these are two significant obstacles that the global standard setters have to contend with, it is also worth noting that over sixty countries throughout the world are putting in place plans to implement IFRS for SMEs.

It is important that all accountants are aware of the impact that IFRS for SMEs will have on financial reporting in the UK.

Stephen Smith
Managing Director, UK Training (Worldwide) Limited


THE ESSENTIAL GUIDE TO IFRS FOR SMES

The International Accounting Standards Board has published an International Financial Reporting Standard  for use by small and medium-sized entities. UK Training's seminar, The Essential Guide to IFRS for SMEs, carefully explains all aspects of the standard enabling organisations to manage the transition from UK GAAP to IFRS for SMEs. Please visit the UK Training web site for full details.

 



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