UK GAAP may soon cease to exist in its current form, following the launch of proposals to base the system on a simplified version of International Financial Reporting Standards (IFRS)
Accounting standard-setter the Accounting Standards Board (ASB) today issued a consultation document called Policy Proposal: the Future of UK GAAP, which sets out a vision for the future reporting requirements of UK and Irish organisations.
It envisages a differential reporting regime based on public accountability broadly in line with the International Accounting Standards Board's (IASB) definition in its recently issued IFRS for small and medium enterprises.
This states that entities have public accountability if they:
- trade their debt or equity instruments in a public market, and
- hold assets in a fiduciary capacity for a broad group of outsiders as one of their primary businesses.
The ASB is proposing a three-tier approach to developing UK GAAP converged with IFRS:
- Tier 1 – publicly accountable entities would apply IFRS as adopted by the EU.
- Tier 2 – all other UK entities other than those who can apply the Financial Reporting Standard for Smaller Entities (FRSSE) could apply the IFRS for SMEs.
- Tier 3 – small entities could choose to continue to apply the FRSSE.
Organisations within tiers 2 and 3 would have the option of using EU-adopted IFRS if they wish, and those in tier 3 would have the option of using the IFRS for SMEs.
‘UK GAAP has adopted some aspects of full IFRS, but adopting the rest of full IFRS was not attractive, as it would have imposed on private companies and subsidiaries a system of reporting that is more geared towards the capital markets,’ remarked Peter Holgate, senior technical partner at PricewaterhouseCoopers.
He added: ‘To base future UK practice on the IFRS for SMEs makes sense for two reasons. Firstly, it gives the UK market something that is fit for purpose for entities that are not publicly accountable.
'Secondly, by recognising that the days of national accounting rules are largely over, it contributes to global harmonisation.
‘In the UK, there are tens of thousands of subsidiaries of listed groups. It would be a big benefit for them if… they are able to use full IFRS for the purposes of measurement of profits, assets and liabilities… but at the same time take advantage of the disclosure reductions in the SME standard, and therefore avoid the need for pages of unnecessary disclosures,’ said Mr Holgate.
