At the moment private and unlisted public companies have a free choice as to whether they prepare their financial statements under International Financial Reporting Standards (IFRS) or existing UK Generally Accepted Accounting Practice (UK GAAP).
However, such companies need to be aware that a proliferation of new Financial Reporting Standards has been issued by the UK Accounting Standards Board with the principal intention of bringing UK GAAP into line with IFRS. Eight were issued in 2004, which included six in December. They also need to be aware that the Government proposes to implement regulations stating that companies in the same group must adopt the same accounting framework, unless there are good reasons not to do so. Therefore a UK company will need to implement IFRS if it is a subsidiary of a UK parent which prepares IFRS financial statements whether by law or by choice.
The message is clear. As a private and unlisted public company, even if you choose not to adopt IFRS just yet, you will find yourself using it to all intents and purposes within a short period of time. UK GAAP and IFRS are likely to converge, and the UK Accounting Standards Board will then broadly follow where the International Accounting Standards Board leads, its role reduced to issuing guidance on specific issues.
The move towards IFRS has been driven by Professor Sir David Tweedie who is Chairman of The International Accounting Standards Board. Before taking this post Sir David was the Chairman of the UK Accounting Standards Board. The vision is that if all organisations, not just listed companies, adopt IFRS then the ability to compare financial results will cross international borders rather than be limited to individual countries. This is an ambitious project worth achieving.
I recommend that, like listed companies, you get it over with and adopt IFRS in full now, rather than piecemeal over the next few years. Companies listed on EU Stock Exchanges must adopt International Financial Reporting Standards in their consolidated financial statements for accounting periods beginning on or after 1st January 2005.
IFRS Expert and UK Training Presenter
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