FRED 35 Corresponding Amounts

FRED 35 'Corresponding Amounts' was issued in March 2005. The proposals in the FRED reflect the draft regulations issued by the Department of Trade and Industry (DTI) 'A consultation on extending use of summary financial statements and other minor changes' (see page 8).

The draft Regulations propose to remove from the law the requirements to restate corresponding amounts where they are not comparable - although it will remain a legal requirement to provide corresponding amounts, and the law will permit restatement where they are not comparable.

The disclosure of corresponding amounts, adjusted onto a comparable basis, is an important part of accepted accounting practice but there are some cases where it is excessive to require adjustment. In particular, the Board intends entities using IFRS-based UK accounting standards to be able to take advantage of the same exemptions as entities adopting IFRS. The amendments to the draft Regulations will enable the Board, where appropriate, to permit the same exemptions as permitted under IFRS.

In summary the FRED proposes:

• corresponding amounts should be shown for items in the primary financial statements and the notes to the financial statements;
  
  
• where corresponding amounts are not directly comparable with the amount to be shown in respect of the current financial year, they should be adjusted;
  
  
• most of the exemptions from showing corresponding amounts given in the Companies Act 1985 should be maintained;
  
  
• the requirements of the [draft ] FRS apply unless an accounting standards or UITF Abstract permits or requires an alternative treatment.

The Companies Act 1985 currently provides a number of specific exemptions from providing corresponding amounts to items in the notes to the financial statements. The exemptions are mainly replicated in FRED 35, as they are often voluminous and provide little benefit to the users of the financial statements.

The exemption provided in the Companies Act 1985 not to present corresponding amounts for loans and other dealings in favour of directors and others is, however, excluded. The corresponding amounts for these items can often be easily provided and would enhance the usefulness of the financial statements. It is difficult to justify these specific exemptions as there is no general exemption for related party transactions. The Board would welcome views on this matter.

The Board would welcome comments on the FRED by 10 June 2005. The comments pages can be download from the ASB website.

Proposed amendments to FRS 26

The ASB issued in April 2005 an exposure draft of amendments to FRS 26 'Financial Instruments: Measurement'. These amendments would:

• extend the scope of FRS 26, and
• implement the recognition and derecognition material of IAS 39.

These proposals represent another major step towards full convergence with international accounting standards. The exposure draft proposes an effective date of accounting periods commencing on or after 1 January 2007.

FRS 26 applies to listed entities (other than those adopting IFRS under the IAS Regulation) for accounting periods commencing on or after 1 January 2005, and to other entities that use the fair value accounting rules in the Companies Act 1985 for accounting periods commencing on or after 1 January 2006. The new exposure draft proposes extending the FRS to apply to all entities following UK standards, other than those applying the FRSSE.

The ASB believes that accounting standards for financial instruments are important for all types of entity, not just those active in financial markets. However, FRS 26 can be complex to understand and apply, and the ASB will consider respondents' views on the practical difficulties of implementation for those entities being brought within the scope of the standard before confirming the timescale.

Entities brought within the scope of the standard will also need to comply with the disclosure requirements of FRS 25 (IAS 32) 'Financial Instruments: Disclosure and Presentation', as well as FRS 23 (IAS 21) 'The Effects of Changes in Foreign Exchange Rates' and FRS 24 (IAS 29) 'Financial Reporting in Hyperinflationary Economies'.

The exposure draft also proposes implementation of the recognition and derecognition parts of IAS 39. The existing requirements of FRS 5 'Reporting the Substance of Transactions' would be superseded for transactions in financial assets that fall within the scope of the new requirements, but FRS 5 would continue to apply to transactions in non-financial assets. The corresponding disclosure requirements in IAS 32 would also be implemented.

Operating and Financial Review (OFR)

The consultation period on the ASB's Reporting Exposure Draft (RED 1) on the OFR closed on 28 February. Some 60 responses were received and the Board is working to finalise the Reporting Standard as soon as possible.

Heritage Assets

The Board is undertaking a review of the accounting treatment for 'heritage assets', including collections held by museums and galleries. The project aims to develop practical proposals that will result in greater consistency and transparency in the financial reporting of heritage assets. At its March 2005 meeting the International Public Sector Accounting Standards Board accepted our offer to contribute to its own project to develop proposals on accounting for heritage assets. The ASB aims to issue a UK Discussion Paper in the Autumn.