As reported in Inside Track 48, the ASB has been consulting on its tentative proposals for the convergence of UK standards with International Financial Reporting Standards (IFRS). Project Director Peter Godsall provides an overview of responses to the consultation and the ASB's next steps.
On 10 May, the ASB issued a press release setting out the Board's tentative proposals and seeking the views of constituents. The consultation attracted 43 responses. A summary of the responses on each of the four tentative proposals put forward by the ASB is set out below. The summary and a more detailed analysis of the responses can be accessed via the ASB website at: http://www.frc.org.uk/asb/technical/proj ects/project0072.html.
1. All UK public quoted companies and other publicly accountable should be required to apply full IFRS.
Views on this were mixed. Sixteen respondents agreed; another eight agreed but not for publicly accountable companies; six respondents disagreed; while thirteen did not answer the question.
The respondents who agreed with the proposals welcomed the adoption of IFRS if that would enhance transparency of reporting and provide long term benefit to users of financial statements. Other respondents agreed that the extension of IFRS is understandable but would expect there to be consultation with the relevant bodies to ensure that a pragmatic transition timetable is agreed for the conversion to full IFRS.
The respondents who disagreed with the proposal considered that it should remain a voluntary matter for individual companies and issues such as distributable reserves need to be resolved before individual companies can be required to use IFRS. The respondents who disagreed with requiring other publicly accountable companies to apply full IFRS consider that the definition of the category is wrong. IFRS has not been designed for organisations such as charities. There is a need for much more debate on the definition before any changes are made.
2. The extension of the ASB's Financial Reporting Standard for Smaller Entities (FRSSE) to include medium-sized companies.
This question also received a mixed response; eighteen respondents agreed with the proposal; four considered the most desirable approach would be a 'two tier system'; seven disagreed with the proposal; while the remaining fourteen respondents did not answer the question.
The respondents who agreed with the proposals considered that the use of the ASB's FRSSE would enable medium-sized companies to take advantage of simplified requirements; anything which reduces the level of disclosure for small and medium-sized companies would be welcome.
Those who disagreed with the proposal considered the extension of the standard for smaller entities could result in the scope of the standard becoming too broad. A consequence of this could be that it will no longer be possible to keep FRSSE simple because it will be necessary to consider the wider group of users of financial statements.
3. The reporting requirements for UK subsidiaries of group companies applying full IFRS.
Twenty respondents agreed that UK subsidiaries of group companies that apply full IFRS also be required to apply full IFRS in respect of measurement and recognition but with reduced disclosure requirements; eight respondents disagreed; while the remaining fifteen did not answer the question.
Those who agreed with the proposals were supportive of converging UK GAAP to IFRS recognition and measurement principles providing the time scales are realistic and take into account the practical consequences of change.
The respondents who disagreed were largely listed companies who would like to move their subsidiaries onto IFRS as soon as possible in order to avoid the burden of maintaining two sets of books. However, like many UK listed groups, they have not converted their UK subsidiaries to IFRS for specific practical points.
4. The treatment of entities that did not fall within the first three groups.
This proposal was designed to elicit views on what should happen in respect of the 7,000 or so companies that do not fall within 1, 2 or 3 above.
The response favoured by far the majority of respondents was that there should only be two options - all companies should report under either IFRS or the FRSSE. There should not be a third tier. In this way the UK version of the IASB's proposed IFRS for SMEs could replace FRSSE, although these opinions are based on the assumption that the IFRS for SMEs would be an acceptable replacement for the FRSSE.
5. Next Steps
In summary, the ASB's current line is that the responses to the consultation broadly support a two-tier approach, with the lower level potentially (and ideally) being based on the outcome of the IASB's IFRS SME project. The ASB has decided to defer any final decisions on convergence until there is a much clearer understanding of the outcome of the IASB project on SMEs, at which time a judgement can be made as to whether or not it is suitable for the UK's needs.
