The ASB's first proposals for an accounting standard
to replace current UK GAAP resulted in nearly 300
The proposed standard, the FRSME, was based on the International
Financial Reporting Standard for Small and Medium-sized Entities
(IFRS for SMEs) with minimal amendment. As a consequence many
accounting choices offered by current UK GAAP were not permitted
and other aspects of established accounting practice were not
The ASB has taken into account the comments received and in
January it issued its revised proposals in the form of FRED 48
'The Financial Reporting Standard applicable in the UK and
Republic of Ireland' (draft FRS 102) (the 'proposed
Financial Reporting Standard'). While the revised proposed
standard is still based on the IFRS for SMEs, the ASB has included
a number of accounting options already permitted by current UK GAAP
as well as additional guidance in a number of areas.
Accounting policy choices reinstated
Among the accounting policy choices that were not permitted by
the proposed FRSME, but which now look set to be retained in the
proposed Financial Reporting Standard, are the ability to revalue
fixed assets and, where certain criteria are met, to capitalise
development and borrowing costs.
Key differences to current UK GAAP
While there will be much that is familiar to UK preparers, there
will be some areas of significant change which will have an effect
on the reported results and financial position of many entities.
The major differences are considered in the table opposite.
Reduced disclosures for subsidiaries and parent
Certain disclosure exemptions will be available in the financial
statements of subsidiaries and parent companies applying the
proposed Financial Reporting Standard. The exemptions will be
available where the relevant financial statements are included in
consolidated accounts that give a true and fair view and are
publicly available. These exemptions, and the circumstances in
which they may be taken, mirror the concessions offered to such
entities applying IFRS as discussed in the later article
"Reducing the Disclosure Burden".
Public benefit entities
The ASB had originally suggested a separate, supplementary,
standard containing guidance specific to PBEs. It has, however, now
determined that it would be preferable to include the guidance
within the proposed Financial Reporting Standard and the additional
requirements have therefore been integrated but are separately
identified as applying to PBEs.
When might it all change?
An application date of periods beginning on or after 1 January
2015 is being proposed. Early application will be permitted for
periods beginning on or after the date the final standard is
issued, but for PBEs required to follow a SORP they will only be
able to adopt early if the relevant SORP has also been updated to
reflect the new requirements.
Smith & Williamson commentary
While many of the unpopular restrictions have now been lifted,
resulting in a standard that in many ways feels closer to UK GAAP,
both preparers and users of financial statements should be aware of
the extent to which a number of areas will change.
For many preparers, financial instruments will prove to be the
most challenging area of the new requirements. Early consideration
will need to be given as to how financial instruments will be
categorised. Many entities will find themselves with instruments
that do not meet the definition of basic, and therefore could be
required to incur the cost and effort of obtaining fair value
calculations. Reported results will also be affected by the
associated volatility that will be introduced into earnings.
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.
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