News January 2012 ASB issues revised proposals for the Future of Financial Reporting Standards in the UK & Republic of

ASB issues revised proposals for the Future of Financial Reporting Standards in the UK & Republic of Ireland

30 January 2012

ASB PN 366

The Accounting Standards Board (ASB) of the Financial Reporting Council has today published financial reporting exposure drafts (FREDs) 46 to 48 setting out revised proposals for the future of financial reporting in the UK and Republic of Ireland.

Related links:

The ASB is issuing these FREDs following feedback to its previous exposure drafts (FREDs 43 to 45). Having listened carefully and considered the matters raised, the ASB is proposing significant changes to its previous proposals.

The ASB’s objective in developing its revised proposals is to enable users of accounts to receive high-quality, understandable financial reporting proportionate to the size and complexity of the entity and users’ information needs.

The revised proposals recommend:

  • replacing all current accounting standards with a single FRS. The ASB is proposing (consistent with its previous proposals) to use the IFRS for SMEs, as issued by the International Accountings Standards Board, as the base for FRED 48. This will reduce the volume of accounting standards from approximately 2,500 pages to 250 pages.

  • introduction of a reduced disclosure framework. The framework permits certain entities (mainly subsidiaries) to apply the measurement and recognition requirements of EU-adopted IFRS with reduced disclosures.

  • retaining the financial reporting standard for smaller entities (FRSSE).

As a consequence of feedback to its previous exposure drafts the ASB is proposing the following major changes:

  • eliminate the tier system; The ASB will not proceed with the tier system previously proposed. The application of EU-adopted IFRS will not therefore be extended beyond that required by Regulation1 or by for example the rules of the Alternative Investment Market;

  • introducing accounting treatments permitted under current accounting standards; options to revalue land and buildings, capitalise borrowing costs or carry forward certain development expenses have been incorporated into the FRED 48. The ASB is proposing to retain accounting treatments permitted under current accounting standards and international accounting standards rather than its previous policy to make minimal changes to the IFRS for SMEs.

The ASB is proposing that the revised proposals should take effect from for accounting periods beginning on or after 1 January 2015 with earlier adoption permitted.

The exposure drafts are open for comment until 30 April 2012. Subject to the feedback received it is expected to issue the final standard by the end of 2012.

The Department for Business, Innovation and Skills (BIS) has recently launched the company and commercial law theme under the Red Tape Challenge programme. The Red Tape Challenge gives the public an opportunity to comment on the regulations under each theme with a view to reducing and simplifying regulations. The theme’s objective is to ensure that the UK has a company law framework that gives companies the flexibility to compete and grow effectively. The ASB has worked with BIS in developing its revised proposals and considers that it is in line with the Red Tape Challenge. The proposed framework allows entities the flexibility to prepare effective financial reports that are proportionate to the size and complexity of the entity whilst reducing significantly the volume of current UK and Irish accounting standards.

Roger Marshall, Chairman of the Accounting Standards Board, said:

“In developing these exposure drafts the ASB has listened carefully to the many responses to its proposals. The elimination of the tier structure means that the application of EU-adopted IFRS is not extended beyond its current boundaries. The proposals in FRED 48 now fit better with current reporting needs in the UK and Republic of Ireland and will ease its application. “

Regulation (EC) No 1606/2002/EC of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards.

Notes to Editors

  1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.

  2. The role of the ASB is to oversee the financial reporting requirements for UK entities. This is done by maintaining and improving UK Financial Reporting Standards (FRS) and influencing the development of international standards. The ASB achieves this by collaborating with accounting standard-setters from other countries and the International Accounting Standards Board (IASB).

  3. The ASB currently has nine Board members, of whom one (the Technical Director) is full-time, and the remainder, who have a variety of experiences as preparers, auditors and users of financial reports, are part-time.

  4. The exposure drafts are as follows:

    • FRED 46 ‘Application of Financial Reporting Requirements’ (draft FRS 100); 

    • FRED 47 ‘Reduced Disclosure Framework’ (draft FRS 101); and 

    • FRED 48 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (draft FRS 102).

  5. Further information regarding the proposals (including a Key Facts document) and the history of the consultations on the future of financial reporting in the UK and Republic of Ireland is also available on the ASB’s website.

  6. The ASB will consult again on the future of the FRSSE once the European Commission’s proposal to changes the financial reporting requirements for small and micro-sized entities are clarified.

  7. The requirements proposed in FRED 45 ‘Financial Reporting Standard for Public Benefit Entities’ have been incorporated into FRED 48.