FRSME FAQs: What you need to know
In the first of a series of ‘FAQ’ articles, Steve Collings addresses some of the key aspects of the proposed Financial Reporting Standard for Mid-Sized Entities (FRSME).
Q. Who will the new regime affect?
A. The Accounting Standards Board (ASB) proposes no changes for entities which are publicly accountable or those entities which are eligible to use FRSSE. The ASB’s proposal is for unquoted entities and others which currently apply full financial reporting standards to adopt FRSME which is based on the IASB’s International Financial Reporting Standard for Smaller Medium Entities (IFRS for SMES).
Q. When is the proposal planned to take effect?
A. The consultation period will be open until 30 April 2011. The new framework is proposed to apply to accounting periods commencing on or after 1 July 2013. Earlier adoption is permitted.
Q. What will happen to FRSSE?
A. FRSSE will be amended to become the Financial Reporting Standard for Smaller Entities (effective July 2013). The Accounting Standards Board propose to withdraw its Financial Reporting Standards (FRSs), Urgent Issues Task Force Abstracts (UITFs), Statements of Standard Accounting Practice (SSAPs) and as a consequence, FRSSE will simply refer to Financial Reporting Standard for Medium-Sized Entities and no reference will be made to FRSs/SSAPs/UITFs as they will be redundant.
The ASB will consult at a later date on the future options for FRSSE.
Q. With three reporting tiers, will an entity be able to move between tiers?
A. Under the UK Companies Act, sections 395 and 493 prohibit an entity or group that prepares financial statements under international standards from preparing Companies Act accounts unless there is a relevant change in circumstances. However, the Department for Business Innovation & Skills has informed the ASB that it will consult on amending these sections of the Companies Act to enable the definition of a relevant change in circumstances to include the implementation of the proposals set out in the exposure draft. The effect of this would enable a subsidiary which has always prepared its financial statements under EU-adopted IFRS for consistence with its parent company to move to tier 2 as well as not being prohibited from applying either of the reduced disclosure frameworks as a one-off change.
Steve Collings is the audit and technical director at Leavitt Walmsley Associates Ltd and a partner in AccountancyStudents.co.uk. He is also the author of ‘The Interpretation and Application of International Standards on Auditing’ and lectures on financial reporting and auditing issues.
Continued...
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Publicly Accountable
Hi Goatacre
'Publicly Accountable' (as defined in IFRS) refers to listed PLCs and AIM-listed entities who are already required to report under EU-adopted IFRS, so there is no change for them in the proposals. I think (correct me if I am wrong) you are referring to public sector entities??
Regards
Steve
Publicly Accountable
The term "publicly accountable" has certainly been established by the international standard-setters, the IASB and has been defined in the same way the UK's ASB exposure draft defines a publicly accountable entity. It is fair to say that the exposure draft issued last week by the ASB is, in many respects, a mirror image of the IFRS for SMEs (adapted of course to suit the UK) and IFRS for SMEs, written by the international standard-setters, defines a publicly accountable entity on page 15 at paragraphs BC34 (a) and (b).
Full IFRS was targeted specifically at listed entities (disclosure-wise especially) and certain standards are very specific to listed entities, for example IFRS 8 'Operating Segments' and IAS 33 'Earnings per Share'. As a result, IFRS for SMEs does not cover such issues because they are only specific to listed (publicly accountable) entities. You also won't see an adapted version of IAS 34 'Interim Financial Reporting' or IFRS 4 'Insurance Contracts' in the IFRS for SMEs or FRSME.
Best regards
Steve
Taxation Effects
Since FA2002 all persons - individuals, partnerships, LLPs companies etc etc - must report profits using GAAP - and so changes in GAAP will be expected (unless there is a taxation rule to the contrary) to have taxation effects. One noteable example is FRS12 on provisions which had some seismic effects when adopted and, of course, the notious UITF pronouncement 40 - which caused HMRC to intrododuce a specific spreading relief for those affected by it.
Has any work been done on the taxation costs involved in adopting the new accounting standards? It should be borne in mind that in one recent case a builder whose accountants adopted a normal building trade practice of recognising income on certification was exposed to extended timelimit discovery assessments as the accountants had been negligent by not using GAAP as interpreted by the Tribunal judges, who were, incidentally, both accountants - Smith v HMRC - TC00403 - and Smith, one should add, was for taxation purposes, a sole trader.