Inside Track 37 indicated differences between twelve international standards that have been revised under the IASB’s ‘Improvements’ project (issued in December 2003) and their current UK equivalents.

A further twelve standards have not been changed since being inherited by the IASB and are not expected to be changed before the IASB’s ‘period of calm’ begins in March 2004. These have already been adopted by the EU (in September 2003) and are therefore ready for use from 2005 by companies that will prepare accounts under the EU Regulation.

This article deals with the twelve unchanged standards and indicates ‘headline’ comparisons with the equivalent UK requirements. The IASB has already begun, however, to reconsider some of these standards; others are expected to be reconsidered after 2005. We understand that any changes will not be mandatory for 2005, although some may be revised in time for voluntary early adoption.

IAS 7 Cash flow statements

• IAS 7 is similar to the original FRS 1 before it was revised in 1996. It requires cash flows to be reported under three headings(operating, investing and financing) whereas FRS 1 has eight.


• IAS 7’s cash flow statement is a statement of changes in cash and cash equivalents (including short-term liquid investments). FRS 1’s
  statement is a statement of changes
  in cash only; cash flows relating to management of liquid resources are reported separately.

IAS 11 Construction Contracts

• The accounting requirements of IAS 11 and SSAP 9 are similar.


• UITF Abstract 34 specifies more narrowly than IAS 11 the limited circumstances when pre-contract costs may be carried forward as assets.

IAS 12 Income Taxes

• IAS 12 requires deferred tax to be provided on temporary differences rather than timing differences and could result in larger deferred tax liabilities than the UK standard. Deferred tax is required on all revaluation gains (rather than only when there is an agreement to sell a revalued asset) and on the unremitted earnings of associates (rather than only to the extent that distribution of earnings has been agreed).
  
• IAS 12 does not allow deferred tax assets and liabilities to be discounted. FRS 19 permits but does not require discounting.

IAS 14 Segment Information

• IAS 14 and SSAP 25 differ as regards how reportable segments are defined. IAS 14 also identifies primary and secondary segments, requiring more disclosures about the former than the latter. Under IAS 14, business and geographical segments are usually the organisational units for which information is reported to the board and CEO; under SSAP 25 segments are determined by reference to the risks, returns etc of different classes of business and geographical areas.


• The disclosures required by IAS 14 are more extensive.

IAS 18 Revenue Recognition

• The specific requirements of IAS 18 are generally similar to those of Application Note G to FRS 5 (issued in November 2003).

IAS 20 Government Grants

• The accounting requirements of IAS 20 and SSAP 4 are similar. Both standards allow grants related to assets to be either deducted from the cost of the asset or recognised as deferred income. The former treatment is not, however, permitted by the Companies Act 1985 (although companies and groups that prepare accounts under the EU Regulation from 2005 will not be constrained by the Act).


• In December 2003 the IASB undertook to consider whether IAS 20 should be withdrawn.

IAS 23 Borrowing Costs

• IAS 23 and FRS 15 both make capitalisation of borrowing costs optional, and the two standards have similar requirements.


• There are some differences regarding the calculation of borrowing costs eligible for capitalisation. First, IAS 23 admits certain exchange differences to the definition of borrowing costs. Second, where borrowings specifically relate to expenditure on an asset, IAS  23 takes the actual borrowing costs less any investment income received from the temporary reinvestment of unutilised borrowings; FRS 15 takes interest on the amount of borrowings that has been spent on the asset to date.

IAS 29 Financial Reporting in Hyperinflationary Economies

• IAS 29 applies to the financial statements of an entity whose functional currency is the currency of a hyperinflationary economy. It requires the financial statements to be stated in terms of the measuring unit current at the balance sheet date (ie adjusted for the effect of inflation).


• When translating the financial statements of a subsidiary that operates in an area of hyperinflation, IAS 21 requires the method in IAS 29; it does not permit the alternative method in UITF 9 of using a relatively stable currency as the functional currency.

IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions

• IAS 30 applies only to banks and similar financial institutions. It specifies accounting policies to be disclosed, items to be shown in the profit and loss account and balance sheet, and other financial instrument disclosures. Although many of these requirements are similar to those of Schedule 9 to the Companies Act 1985 and the BBA SORPs, some additional disclosures are required. IAS 30 is currently under review by IASB for amendment after 2005.

IAS 34 Interim Financial Reporting

• Entities that are required or choose to publish interim financial reports in accordance with IAS must apply IAS 34. There are no significant differences between IAS 34 and the ASB Statement ‘Interim Reports’.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

• There are no significant differences between IAS 37 and FRS 12. Aspects of IAS 37 are under review in the IASB’s short-term convergence project with the FASB and so changes could be made in time to be available for early adoption in 2005.

IAS 41 Agriculture

• IAS 41 sets out accounting requirements for the following when they relate to agricultural activity: biological assets (ie living animals or plants), agricultural produce at the point of harvest and government grants. IAS 41 requires biological assets up to the point of harvest to be measured at fair value less estimated point-of-sale costs, with changes in that value being recorded in profit or loss for the period in which it arises. There is no equivalent UK standard.