Project Director Peter Godsall outlines the latest developments and gives an insight of the UK constituents’ views on the future of UK convergence with IFRS.
The International Accounting Standards Board (IASB) published an Exposure Draft (ED) of its proposed International Financial Reporting Standard for Small and Medium-sized Entities (SMEs) in February 2007 (see Inside Track 51), with the ASB’s consultation paper on the draft following in April.
The ASB received twenty-two responses to its consultation paper. Overall, respondents adopted a favourable approach to the IFRS for SMEs – commenting that the proposed standard represents a significant achievement for the IASB, is well organised, easy to navigate and readable. The majority view is that the special needs of entities that do not have public accountability have been considered and the IFRS for SMEs would be suitable for ‘middle tier’ entities that fall between applying full IFRS and the ASB’s Financial Reporting Standard for Smaller Entities (FRSSE).
The majority of respondents took the view that the proposed IFRS for SMEs should not replace for the FRSSE. In their view, the FRSSE is more specifically tailored to the needs of small companies.
These responses, together with the discussions at four public roundtable meetings hosted by the main accountancy bodies in which the ASB participated, helped to inform the Board’s response to the IASB on its ED. A copy of the full response is available on the website at: http://www.frc.org.uk/asb/publications/other.cfm, but the key messages are highlighted below.
In general, the ASB thinks that the proposals in the document provide a good basis for financial reporting for entities that do not have public accountability and publish general purpose financial statements for external users. The IASB has done a thorough job and is to be commended for the significant simplification of full IFRS that has been achieved.
However, the ASB considers that the present title is the not the most appropriate and needs to be reconsidered. The Board, in line with many UK and Irish constituents, also questions the IASB’s view that the proposed IFRS for SMEs will be suitable for all entities that do not have public accountability, including the so-called ‘micro’ entities. The ASB has also suggested some areas where there might be further simplifications, most notably in the section of the proposed IFRS that deals with Income Taxes.
The ASB has also been in correspondence with the European Commission on the merits of the IASB’s ED. In a speech made on 13 September, European Commissioner Charlie McCreevy commented that there seems to be "very little support from Member States" for the ED. ASB Chairman Ian Mackintosh has written to the Commissioner to inform him that there is support for the ED in the UK and Republic of Ireland (a copy of the letter is available at the website reference given above) and that these Member States at least would be in favour of applying it. In the ASB’s view, it would be unfortunate – to say the least – if the EU blocked application of the final standard.
In the meantime, responses to the proposed IFRS for SMEs are being received and analysed by the IASB. The ASB will now need to wait and see what changes will be made to the current ED as it continues to consider its strategy for convergence of UK standards with IFRS, in particular whether there should be a three tier or two tier system of reporting in the UK and Ireland.
