The ASB publication pipeline has been busy recently, with a number other documents being issued in July.
Amendment to Financial Reporting Standard 3
The ASB has issued an amendment to FRS 3 Reporting Financial Performance to clarify its application to entities within the scope of FRS 26 (IAS 39) Financial Instruments: Recognition and Measurement. The amendment clarifies the required treatment of gains and losses on remeasurement and derecognition of certain instruments which are covered by FRS 3 as well as certain other more recent standards.
The principal change to FRS 3 is to reflect the exemption from certain paragraphs of FRS 3 for entities applying FRS 26 and FRS 23 (IAS 21) The Effects of Changes in Foreign Exchange Rates. The amendment to the FRS will be effective for accounting periods beginning on or after 1 January 2007. Early adoption is permitted.
Financial Reporting Exposure Draft (FRED) 41 'Related Party Disclosures'
FRED 41 contains proposals to replace the existing UK standard (FRS 8) with a Financial Reporting Standard based on International Accounting Standard (IAS) 24.
The proposals in the FRED are designed to ensure consistency between the requirements of accounting standards and company law. In March 2007 the Government issued a consultation document 'Implementation of Directive 2006/46/ EC on Company Reporting - Amending the Accounting Directives' which will align the definition of a related party in UK company law with that in IAS 24. Without an amendment to FRS 8 a conflict would arise between that standard and the Companies Act requirement.
The proposals will lead to improved convergence between UK and International Financial Reporting Standards (IFRS) whilst avoiding any potential conflict between the requirements of financial reporting standards and company law. The FRED also proposes to:
- incorporate the IASB's proposals to amend IAS 24, as published in February 2007;
- provide disclosure exemptions for wholly owned subsidiaries in accordance with the DTI proposal for the UK implementation of Directive 2006/46/EC; and
- provide guidance on materiality, based on that set out in IAS 1 Presentation of Financial Statements.
The FRED also requires disclosure of transactions entered into by the company with related parties if they are material and have not been concluded under normal market conditions, as required by the Directive. The ASB notes that this is an addition to the disclosure requirements under IAS 24 and has asked both the Government and the European Commission to clarify whether this was the intention of the Directive. This proposal will be reviewed in the light of their responses.
It is anticipated that the changes proposed to UK company law above will become effective in 2009. The ASB is seeking the views of its constituents at this time so that it can make any changes required to UK FRSs simultaneously to changes in company law. The deadline for comments is 19 October 2007.
Statement 'Half-Yearly Financial Reports'
The Statement is designed to provide guidance for UK or Irish entities that are required or voluntarily choose to prepare half-yearly financial reports.
The Statement is an update of the ASB's 1997 Statement Interim Reports, in particular following the implementation in the UK of the EU Transparency Directive through the Financial Services Authority's (FSA) Disclosure and Transparency Rules (DTR). The FSA has made clear in the DTR that UK issuers reporting under UK GAAP can satisfy the requirement for the half-yearly financial statements to give a true and fair view by a statement that they have been prepared in accordance with pronouncements by the ASB.
The ASB decided to revise its 1997 Statement and rename it Half Yearly Financial Reports to reflect the requirements of the DTR. Other than that, the ASB has made the minimum number of changes necessary. The ASB has adopted this approach in order to have revised guidance available for the first round of halfyearly financial reports that have to be prepared to the meet the requirements of the DTR.
