2 February 2012
Financial Reporting Matters
Welcome to Financial Reporting Matters
In this edition we focus on the future of UK GAAP. Revised proposals were published on 30 January.
We support the inclusion of new accounting policy choices, which should help to ease the transition process for many UK entities. The proposals will also allow many subsidiaries of groups applying EU-adopted IFRSs to use accounting policies consistent with those of their parent, without needing to apply the full disclosure requirements of EU-IFRSs.
The ASB has issued three related exposure drafts. Some of the proposals may be unpopular with some, such as the requirement to record a group defined benefit pension scheme liability on the balance sheet of at least one group company, as well as in the group accounts themselves, but we believe that these changes will improve financial reporting in the UK without imposing an undue burden. The new regime is expected to apply from 1 January 2015. The ASB has requested comments by 30 April 2012.
FRED 46 sets out which financial reporting framework applies. The tiered approach, based on public accountability, has been dropped. Only those entities required by law or regulation (such as group accounts of EU listed or AIM companies) must apply EU-IFRS. It remains optional for others. Qualifying small entities may continue to apply the FRSSE. Other entities apply the requirements within FRED 48 (formerly the Financial Reporting Standard for Smaller Entities, or FRSME) unless they choose to apply EU-IFRS.
FRED 47 creates a 'reduced disclosure framework' for qualifying group entities (including the individual financial statements of parent entities) applying the recognition, measurement and disclosure requirements of EU-IFRS. A qualifying group entity is 'a member of a group that prepares publicly available financial statements, which give a true and fair view, in which that member is consolidated'. The disclosure exemptions are not available in consolidated financial statements. Financial institutions would not be exempt from financial instruments disclosures.
FRED 48 retains the IFRS for Small and Medium-sized Entities (IFRS for SMEs) as its starting point but offers the reduced disclosure framework of FRED 47. The ASB have introduced some accounting treatments not permitted by the IFRS for SMEs, such as the ability to revalue property, plant and equipment or to capitalise interest or development costs. The proposals also clarify certain requirements, including that merger accounting for group reconstructions should be retained from current UK GAAP, and introduce a simplified approach to accounting for tax based on the requirements within IAS 12.
KPMG has published a 'Financial Reporting Supplement', summarising the ASB's proposals briefly. It is available for download, free of charge, here.
If you have any comments on this edition or if you would like one of your colleagues to receive future editions, please contact me at FinancialReportingMatters@kpmg.co.uk.
Andrew Vials, Senior Technical Partner