Ernst & Young comments on new UK and Ireland Financial Reporting Standards The timely issue of new standards allows IFRS with reduced disclosures to be adopted in December 2012 accounts
Today the Financial Reporting Council ("FRC") issued two of the three new Financial Reporting Standards (“FRSs”) which will replace the current accounting framework in the UK and Ireland. The issued standards are FRS 100 ‘Application of Financial Reporting requirements’ (“FRS 100”) and FRS 101 ‘Reduced Disclosure Framework’ (“FRS 101”).
Commenting on these releases, Andrew Davies, Ernst & Young partner and leader of Financial Accounting Advisory Services in the UK and Ireland, said:
"We welcome the earlier release of FRS100 and 101, divorcing them from the release of FRS 102, the third standard of the new financial reporting regime. The issue of FRS 102, now commonly referred to as ‘New UK GAAP’, has been deferred until Spring 2013, while further changes are debated. The earlier release of FRS 100 and FRS 101 provides qualifying companies the opportunity to apply IFRS with reduced disclosures in their 31 December 2012 accounts. This will be a significant benefit for many.
EU listed companies currently applying UK GAAP in their subsidiary accounts now have the opportunity to use consistent IFRS accounting policies throughout the group, without the significant burden of the full IFRS disclosure requirements. This consistency will reduce risks of error in the annual accounts preparation process and improve governance.
Companies currently applying IFRS in their subsidiary accounts can now, thanks to a recent change in the law, convert them to FRS101. As a change from IFRS to FRS 101 will not, for most companies, cause any material measurement differences we believe that early-adoption would be especially advantageous for such groups, significantly reducing the volume and cost of disclosures currently being prepared.
Other companies will have to make a choice when replacing UK GAAP, between using internationally recognised IFRS or a new, untested, globally unique, simpler accounting regime; New UK GAAP.
Davies continued: “While the new framework is not mandatory until periods beginning on or after 1 January 2015, the first balance sheet that must be presented under the new framework for those converting at the last possible date will be at 1 January 2014 (for December year ends) – just over a year away. Companies that have not already begun and many have not, need to start planning now as the change can have multiple impacts. In particular, taxation paid is likely to change, as are the magnitude of possible dividend payments.
“Early planning allows companies time to ensure any possible benefits of conversion are maximised and risks are mitigated as far as possible. Many companies have had this on the 'back-burner', waiting for the FRC to formalise its proposals. They are only now beginning to assess the nature of the impacts, and the level of complexity associated with conversion. Now that FRS 101 has been issued and FRS 102 is not far away, companies should plan in detail now how they will navigate the conversion in order to make the most of the benefits it potentially offers."