UK GAAP
On 30 January the ASB launched the latest stage in its long-running consultation on the future of UK GAAP. These radical proposals entail the replacement of the current UK GAAP, which underpins charity reporting, with a new regime. At its core this envisages a single comprehensive new standard (to be called FRS 102 The Financial Reporting Standard) based around the IFRS for SMEs. Draft FRS 102 would apply to all UK companies (and other UK entities preparing accounts intended to show a true and fair view) except those required or opting to report under EU-adopted IFRS and small entities reporting under the FRSSE. A new charities SORP would be released to supplement the standard.
The proposals have undergone a number of important changes since they were last exposed back in October 2010. The main revisions are:
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EU-adopted IFRS will no longer be extended to those entities that had been described as ‘publicly accountable’ in the previous exposure draft. As a result, the application of EU-adopted IFRS is not extended beyond the requirements of the EU’s IAS Regulation.
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As a consequence, some extra provisions have been added into FRS 102 to cover areas such as earnings per share and segmental reporting and to improve disclosures for financial institutions.
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A number of options, available under current UK GAAP and IFRS but omitted from the IFRS for SMEs, have been re-introduced. These include options to revalue property, plant or equipment and to capitalise certain borrowing or development costs. The treatment of grant income has also been revised to bring this back in line with current UK practice.
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Plans for a separate standard for public benefit entities have been abandoned; instead additional guidance for public benefit entities has been inserted into draft FRS 102. Changes were also made to reflect issues raised by respondents to the consultation on FRED 45
FRS for Public Benefit Entities, notably in clarifying the treatment of donated goods or services.The Financial Reporting Faculty will be providing a range of resources to help members understand the implications of the new proposals. These include a
webinar on 21 February. The webinar is free-of-charge and open to all members on this occasion.
Small entity reporting
The changes to UK GAAP outlined above will apply to medium and large entities. The ASB’s original plan was for the small entity regime to remain unchanged in the short-term. However, developments in Brussels mean that imminent change is likely here too.
Firstly, a legislative proposal is currently before the European Parliament for the introduction of a new accounting directive. The draft directive sets-out a simplified disclosure regime for small companies which would limit the ‘full’ accounts they are required to prepare for members to an abridged balance sheet/profit or loss account, plus five stipulated notes. Crucially, ‘maximum harmonisation’ is proposed for this provision and therefore it seems that EU countries will not be permitted to require any additional disclosures. Once UK legislation implementing the new directive is in place, it appears that the FRSSE will no longer be consistent with the law, particularly as the disclosures it requires are considerably in excess of those set-out in the draft directive. The current version of FRSSE will need to be withdrawn. In advance of this the ASB plans to consult on options for FRSSE’s replacement. Consequently the final shape of the UK small entity reporting regime is currently far from clear.
Secondly, accounting simplifications for micro entities are due to be adopted into EU law shortly, offering exemptions from the accounting directive over and above the simplifications for all small entities outlined above. Micro companies are defined in the approved text as those not exceeding two out of three of:
Total assets €350k
Turnover €700k
Employees 10
These levels are significantly above the threshold for the charity receipts and payments regime, but equally the exemptions offered to micro entities are rather limited in comparison.
The precise form the new rules will take for UK entities will be decided by the UK government, as the exemption is a Member State option. The stated aim of the exemption is to simplify reporting by micro entities by further limiting disclosures on the face of the profit or loss and balance sheet and removing most of the already limited notes disclosures the new directive would require of small companies. It also – controversially - allows micros not to recognise certain accruals or prepayments.
What do you think?
ICAEW has established a working party to look at the new UK GAAP exposure drafts and we will be responding to the ASB on these proposals. A distinct sub-group will be scrutinising the proposals and contributing to the ICAEW response from a public benefit entity perspective. We also have in place a working party that has considered the simplification proposals for small and micro entities emanating from Brussels and are continuing to work to influence the debate as it progresses in London and in Brussels.
We're interested to hear what you think on these proposals. Post up your views below...