The current debate about the future UK financial reporting regime is perhaps the single most important debate affecting UK private companies and not-for-profit entities for a generation.
Currently, the UK Accounting Standards Board (ASB) is reviewing the more than 150 submissions it received on its proposals for the future of UK Generally Accepted Accounting Principles (UK GAAP), one of which came from the ICAEW.
The ICAEW is very supportive of reform, especially as the current UK GAAP for those entities not eligible to use the Financial Reporting Standard for Smaller Entities (FRSSE) is a confusing mix of IFRS-based standards and older UK standards.
Whilst we believe further consultation is required, especially regarding the future of the FRSSE and the proposed UK standard for public benefit entities, our view is that we should strive towards implementing an IFRS-based regime for all UK reporting entities as soon as practically possible. We support the use of IFRS for SMEs for larger non-public entities, no least as it is well-written and much shorter than UK GAAP.
A tentative long-term vision for smaller companies is that the FRSSE might be replaced with a new-style standard based on IFRS for SMEs, excluding a number of requirements (such as cash-flow statements and consolidated accounts). However, it’s important to learn from larger businesses’ adoption of IFRS for SMEs before reaching any conclusions about a tailored standard for the smallest businesses. Therefore, we believe that we should leave FRSSE as it is for the moment – it isn’t broken, so why attempt to fix it?
In all of this, we will continue to listen very carefully to the views coming back from ICAEW members. What seems absolutely critical however is that all UK businesses, regardless of their size and shape, understand their place in any new regime. For that to happen, some clear and detailed guidance will be required.