The originally proposed three-tier framework has been considerably simplified. In particular, there is no longer a proposed requirement for all 'publically accountable' entities to report under full IFRS. This is good news for credit unions and other not-for-profit entities that might have otherwise been caught by the ASB's definition of publically accountable. The new framework requires only those entities that are currently obliged to prepare accounts under full EU-adopted IFRS to continue to do so, and does not extend this requirement. Company law in the UK does not currently permit charities to prepare accounts under full EU-adopted IFRS.

Other significant changes from the previous proposals were:

  • replacing the IFRS formats for the income statement and balance sheet with the formats currently set out in UK company law
  • allowing alternative treatments permitted under current UK GAAP, such as revaluation of tangible and intangible fixed assets
  • permitting the capitalisation of borrowing costs
  • permitting the capitalisation of development costs if certain criteria are met
  • the inclusion of guidance for the use of merger accounting in group reconstruction situations and mergers of not-for-profit entities
  • the amalgamation of the proposed public benefit entity reporting standard into the draft of FRS 102.

Some consequential amendments to the FRSSE will be made as a result of this changing framework. The presumed useful economic life of goodwill will be reduced from 20 years to 5 years to be consistent with the treatment under FRS 102.

The proposed effective date for the new framework is for accounting periods beginning on or after 1 January 2015. This means that the transition date is 1 January 2014 as entities will have to prepare an opening balance sheet for the comparative period for their first set of accounts under the new standard.

The charities SORP is also undergoing revision. As well as being updated for the changes in FRS 102, the SORP committee is considering other feedback and research findings to improve the SORP, as follows.

  • Think small first: the SORP will be written to be more accessible to smaller charities.
  • The current SORP contains a lot of guidance and is therefore a long document: the new SORP will seek to rebalance guidance/length.
  • Where possible, less technical language will be used, so that the SORP is more accessible.
  • A modular format will be adopted to make it easier for charities to access the parts which are relevant to their specific circumstances. (For example, there will be separate modules for charities applying FRS 102 and for those applying FRSSE.)

Currently, most charities are eligible to adopt the FRSSE, but many of them do not as the current SORP imposes significant disclosure requirements which eliminate the benefits of the FRSSE. However, in the future, such charities may be tempted to use the FRSSE rather than transition to FRS 102.

The SORP will also have to be issued for consultation, but the timing of this is dependent on the issue of a final version of FRS 102 by the Financial Reporting Council.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.