UK GAAP: The new regime
Convergence of financial reporting standards is at last in sight with the publishing by the FRC of FRS 100, FRS 101 and FRS 102, which between them set out the new UK GAAP framework that will be mandatory from 1 January 2015. Early adoption is permitted, and indeed encouraged, but mandatory implementation will be for accounting periods beginning on or after 1 January 2015.
All extant FRSs, SSAPs and UITF Abstracts, apart from FRS 27 Life Assurance and the FRSSE, will be withdrawn for accounting periods beginning on or after 1 January 2015. They will also be superseded on early adoption of FRS 100.
FRS 100 Application of Financial Reporting Requirements sets out how the new regime will work, summarised in paragraph four of the FRS:
“4 Financial statements (whether consolidated ﬁnancial statements or individual ﬁnancial statements) that are within the scope of this FRS, and that are not required by the IAS Regulation or other legislation or regulation to be prepared in accordance with EU-adopted IFRS, must be prepared in accordance with the following requirements:
(a) If the ﬁnancial statements are those of an entity that is eligible to apply the FRSSE , they may be prepared in accordance with that standard;
(b) If the ﬁnancial statements are those of an entity that is not eligible to apply the FRSSE, or of an entity that is eligible to apply the FRSSE but chooses not to do so, they must be prepared in accordance with FRS 102, EU-adopted IFRS or, if the ﬁnancial statements are the individual ﬁnancial statements of a qualifying entity, FRS 101.”
The standard highlights that if the reporting entity prepares its accounts under a SORP, this will not change and the appropriate SORP should still be applied, though the provisions of a SORP will cease to have effect, for example, to the extent that they conﬂict with a more recent ﬁnancial reporting standard. SORPs are being rewritten by a number of the issuing bodies with drafts for consultation expected this year. Some are likely to contain radical changes! You can expect updates on the SORPs and information for you to take over the coming months.
The transitional arrangements to be undertaken on first time application of FRS 100 are set out in the relevant standards, that is to say, in the FRSSE for entities transitioning to the FRSSE and in FRS 102 for entities transitioning to that standard from full UK standards. Entities changing to EU-adopted IFRS should refer to IFRS 1 for transitional arrangements. Reporting standards can be found on the ACCA website, here.
Small entities that apply FRS 101 shall, unless it is applying EU-adopted IFRS prior to the date of transition, apply the requirements of paragraphs 6 to 33 of IFRS 1 as adopted by the EU.
There will be some consequential amendments to the FRSSE, and a ‘new’ version effective January 2015 will replace the current FRSSE (effective April 2008).
Section 401 of the Companies Act 2006 exempts, subject to certain conditions, an intermediate parent from the requirement to prepare consolidated ﬁnancial sstatements where its parent is not established under the law of an EEA state, as long as the company and all of its subsidiary undertakings are be included in consolidated accounts for a larger group drawn up to the same date, or to an earlier date in the same ﬁnancial year, by a parent undertaking. Such accounts must be prepared in accordance with the Seventh Directive. This means that they meet the basic requirements of the Fourth and Seventh Directives; in particular the requirement to give a true and fair view, without implying strict conformity with each and every provision.
Additionally FRS 101 and FRS 102 permit certain exemptions from disclosures, but in some cases those exemptions are subject to equivalent disclosures being included in the consolidated ﬁnancial statements of the group in which the entity is consolidated.
Where those exemptions are to be applied, it will be necessary to consider whether the consolidated ﬁnancial statements of the parent provide disclosures that meet the basic disclosure requirements of the relevant standard without requiring strict conformity with each and every disclosure.
Previously there were restrictions on moving between IAS accounts and Companies Act accounts, with sections 395 and 403 of the Act restricting an entity’s ability to move from preparing IAS individual accounts to preparing Companies Act individual accounts and from preparing IAS group accounts to preparing Companies Act group accounts respectively. Statutory Instrument 2012/2301 has relaxed that rule and allows the change for ﬁnancial years ending on or after 1 October 2012, for a reason other than a relevant change of circumstance, once in a ﬁve year period.