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The new UK GAAP: Nearly there

8th Jan 2013
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The new UK GAAP project has been ongoing for quite a while and the good news is that we are finally nearly there with the whole project, explains Steve Collings. 

In November 2012, the Financial Reporting Council’s Accounting Council (formerly known as the Accounting Standards Board) finally issued FRS 100 Application of Financial Reporting Requirements and FRS 101 Reduced Disclosure Framework. So what are these new standards all about?

FRS 100 outlines which entity uses which standard. For the smaller companies, the good news is that the Financial Reporting Standard for Smaller Entities (FRSSE) will still be operational with no change in those sorts of companies that can use FRSSE: Only those companies that meet the definition of ‘small’ under the Companies Act 2006 are eligible to report under the FRSSE. 

FRS 101 (the reduced disclosure framework) is essentially IFRS but with reduced disclosure requirements. This FRS outlines the reduced disclosure framework which is available for qualifying entities that report under EU-adopted IFRS. Under FRS 101, a qualifying entity will not have to prepare a cash flow statement even if a cash flow statement is prepared in the parent company’s group accounts.

FRS 101 previously required an entity under its scope to disclose the relevant standard and paragraph number in respect of the exemptions taken which would have proved to be fairly arduous for companies. However, this has now been replaced by a requirement for a brief narrative summary of the disclosure exemptions that a reporting entity has adopted, which, in all honesty, is a much more sensible approach.

However, there is a slight bone of contention! Disclosure exemptions can only be taken advantage of in a reporting entity’s individual financial statements provided that the equivalent disclosures are made in the consolidated financial statements. The main issue here is where certain disclosures are immaterial to the group, hence not disclosed in the consolidated financial statements, but are material to the individual entity reporting under FRS 101, the disclosures must be reported in the individual entity’s financial statements. 

Groups that are currently required to report under EU-adopted IFRS may want to consider taking advantage of FRS 101 early as it can be adopted for year-ends ending on or after 1 October 2012 - particularly as the disclosure requirements in IFRS are quite vast.

FRSs 100 and 101 form two out of three standards that the Accounting Council has been working on.  FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland is expected to be issued in February 2013. The original plan was to issue FRS 102 towards the end of 2012, however the Accounting Council recently re-exposed certain areas of the draft FRS 102 - notably defined benefit pension schemes and service concession arrangements - for further comment.

Despite re-exposing certain areas of draft FRS 102, the Accounting Council has not indicated a change to the ‘effective from’ date, which is still scheduled to be for accounting periods commencing on or after 1 January 2015. This will mean that for those companies who are not adopting early, they will be required to prepare their first balance sheet under the new financial reporting framework on 1 January 2014, which is not too far away.

Steve Collings is the audit and technical partner at Leavitt Walmsley Associates and the author of ‘Interpretation and Application of International Standards on Auditing’. He is also the author of ‘The AccountingWEB Guide to IFRS’ and ‘IFRS For Dummies’ and was named Accounting Technician of the Year at the 2011 British Accountancy Awards.

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