New accounting standards: International Financial Reporting Standards (IFRS) and UK GAAP
As the recognised global accounting standard, the International Financial Reporting Standards (IFRS) have now been adopted by over 100 jurisdictions worldwide. In each jurisdiction where the standard has been adopted, IFRS tends to be mandatory for listed companies and some larger unlisted companies, permissible for all unlisted companies and increasingly permissible for SMEs.
In the UK, IFRS is mandatory for listed companies. With effect from accounting periods beginning on or after 1st January 2015, a new set of Generally Accepted Accounting Principles (GAAP) will apply to all other businesses in the UK. Consequently, accounting standards are changing again with the introduction of FRS 102 to replace the previous Financial Reporting Standards (FRS) accounting framework.
Some companies have always been able to choose which accounting framework they want to base their accounts on, whether IFRS, full FRS or the Financial Reporting Standard for Smaller Entities (FRSSE). But with the introduction of FRS 102 replacing the FRS framework, there is now even greater reason to reconsider whether your accounting framework is best for you. Because there are subtle differences between the frameworks, which are all acceptable, there can be differences in how certain information and transactions are presented and in how Corporation Tax is calculated.
FRS 102 - the new accounting standard for large and medium sized companies, mandatory for accounting periods beginning on or after 1st January 2015. However, early adoption is permitted. The purpose of FRS 102 is to bring the presentation of the financial statements closer in line with IFRS, but without the full disclosure requirements of IFRS.
FRSSE - the accounting framework for small companies. This too has been updated for accounting periods beginning on or after 1st January 2015 and early adoption is permitted. The new version is largely the same as the previous version, other than in respect of goodwill amortisation which now has a deemed useful economic life of 5 years (previously 20 years), unless it can be reliably estimated.
There will also be a new regime for micro-entities (defined as having at least two of the following characteristics: Turnover < £632,000, Gross assets < £316,000, Employees <11). Qualifying companies will soon be able to present their accounts with reduced disclosures and will be exempt from certain parts of the FRSSE. Although the legislation permitting micro-entity accounts is in place, the FRSSE specifying the changes has not yet been finalised.
As accountants and auditors for a wide range of SMEs and larger corporates, we can help you to:
· Decide which reporting standards to apply and when to adopt them
· Understand the tax implications of each standard
· Review your accounting policies and procedures and Identify any impacts on your financial statements
· Undertake the transition smoothly
· Ensure all changes to your accounting policies, restatements and reconciliations are properly disclosed.
For further information and advice, contact us.