Inside Track 39 contained an extensive summary of the ASB's Discussion Paper 'UK Accounting Standards: A Strategy for Convergence with IFRS'. Comments were requested by 30 June and respondents' views are currently being analysed.

As foreshadowed in the paper, the ASB has meanwhile issued a new standard on post balance sheet events and an exposure draft 'Amendment to FRS 2 'Accounting for Subsidiary Undertakings': Legal Changes', both of which reflect prospective changes in UK law.

Post Balance Sheet Events

FRS 21 (IAS 10) 'Events After the Balance Sheet Date' was issued in May. It reflects the proposal in FRED 27 and will supersede theexisting UK accounting requirements set out in SSAP 17 'Accounting for post balance sheet events'.

The FRS is mandatory for accounting periods beginning on or after 1 January 2005 for all entities other than those applying the Financial Reporting Standard for Smaller Entities (FRSSE). The DTI's parallel change in the law will
also take effect in 2005.

FRS 21 is identical to the IASB's IAS 10 'Events after the Balance Sheet Date'. The principal difference from SSAP 17 is that the FRS removes the requirement to report dividends proposed after the balance sheet date in the profit and loss account and instead requires disclosures in the notes to the financial statements. This accords
with the now generally accepted view that dividends declared after the balance sheet date should not
be reported as liabilities.

Amendments to FRS 2

An exposure draft proposing amendments to FRS 2 'Accounting for Subsidiary Undertakings' was issued in May. The proposed amendments are in response to the DTI Consultation Document' Modernisation of Accounting
Directives/IAS Infrastructure', which was issued in March 2004, and which proposes changes to the law on group financial reporting for 2005. Comments on the exposure draft are requested by 30 September.

The proposed changes to FRS 2 are:

• to delete references to 'participating interest' in the
  definition of a subsidiary;
• to reflect the proposed exemption from the preparation of consolidated accounts for intermediate parent undertakings whose immediate parents are not governed by the law of an European Economic Area (EEA) State; and
• to remove the requirement for exclusion from consolidation of subsidiaries with dissimilar
  operations to the parent undertaking.

The DTI is also proposing to revise the law on when a subsidiary held exclusively with a view to subsequent resale may be excluded from consolidation. The FRED does not propose to incorporate this into FRS 2, which is already more restrictive than both the current and proposed legalrequirements. The ASB believes that exclusion from consolidation on the grounds that a subsidiary is held for resale should only apply if the subsidiary has never been reported as part of the group's continuing operations. If a subsidiary has previously been consolidated into group accounts it is not appropriate for a decision to dispose of a subsidiary to trigger de-consolidation prior to actual disposal.

The IASB has also updated its requirements in this area, by the issue of IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'. This requires newly acquired subsidiaries held for sale to be measured at the lower of carrying value and fair value less costs to sell, recorded in the balance sheet with the underlying assets and liabilities presented separately (rather than at the net amount required by FRS 2). The Board welcomes comments on whether FRS 2 should be amended to bring it into line with this gross presentation required for similar items by IFRS 5.