Posted: February 25, 2016
How did we end up with so many reporting options under ‘new UK GAAP’?
The choice now seems endless in the UK, with acronyms such as FRSSE, FRS 102, FRS 105, IFRS and IFRS for SMEs being banded around.
After many years of convergence of accounting standards with international standards, changes in company law and a desire to simplify accounting standards, we are now left with a set of new UK GAAP standards as follows:
• FRS 100 Application of Financial Reporting Requirements
• FRS 101 Reduced Disclosure Framework
• FRS 102 the Financial Reporting Standard
• FRS 103 Insurance Contracts
• FRS 104 Interim Financial Reporting
• FRSSE (Effective 2015)
• FRS 105 The Financial Reporting Standard applicable to the Micro-Entities Regime
When does all this affect you?
All of the standards, except FRS 105, had an effective date of accounting periods beginning on or after the 1 January 2015, so the year to 31 December 2015 was the first full year affected. This will lead many very small companies towards adopting the FRSSE for 2015 and then FRS 105 for 2016, if eligible. If you really want to, you can move to a higher tier such as FRS 102 (or even IFRS if you really wanted).
At the other end of the spectrum, UK listed companies will continue to report under EU adopted IFRS in their group accounts. Although, there will be an additional choice for the individual parent company and subsidiary financial statements; either apply FRS 102 or adopt FRS 101.
For many companies and LLPs though, the new proposals will mean moving from current UK GAAP to FRS 102.
How does this affect you?
The list of areas affected by the change to new UK GAAP is too long to go in to detail here but you should consider further guidance if you have any of the following items:
• Financial instruments held at fair value – such as fixed interest arrangements or swaps
• Investments in listed shares
• Acquisitions or mergers
• Investment properties
• Deferred tax
• Foreign currency transaction – such as forward exchange contracts
• Capitalised goodwill or other intangible assets
• Defined benefit pension schemes
• Leased assets
• Long term loans with nil or low interest rates
• Paid annual leave.
Not only can we help advise you on finding the right accounting standards for you and your business but we can also manage the transition process for you. This allows you to focus on running your business and give you peace of mind that the transition to new UK GAAP or IFRS will go without a hitch.
Further reading on UK financial reporting can be found in the Financial Reporting Council’s (FRC) guide: ‘Overview of the financial reporting framework’.
External auditor’s report
Investors have welcomed extended auditor reporting and the additional information it provides about the companies being audited, according to the FRC’s survey FRC survey ‘Extended auditor’s reports: A further review of experience’.
Commenting on the survey, Melanie McLaren, Executive Director, Codes and Standards said: “Confidence in UK audits underpins investor confidence in UK capital markets and we are pleased that we have led the way internationally in extended auditor reporting, which is being adopted more widely following changes to international standards on auditing.
“The FRC supports the continuing development of good quality auditor reporting and the trend towards more granular descriptions of risk, more transparent and accessible reporting of audit findings for assessed significant risks of material misstatement and the disclosure of performance materiality.”
Developments in Corporate Governance and Stewardship
The FRC has published its annual report on developments in corporate governance and stewardship. The report provides:
• An assessment of corporate governance and stewardship in the UK
• Reports on the quality of compliance with, and reporting against, the UK’s governance and stewardship codes
• Reports findings on the quality of engagement between companies and shareholders
• Indicates where the FRC would like to see changes in governance behaviour or reporting.
The overall quality of corporate governance in the UK remains high according to the report.
Clear & Concise: Developments in Narrative Reporting
The FRC has published ’Clear & Concise: Developments in Narrative Reporting’, which includes insights and suggestion to help companies achieve clear and concise reporting and also provides an overview of developments in narrative reporting.
The report aims to ensure that the annual report:
• Is drafted with a focus on investors’ information needs
• Is fair, balanced and understandable, explaining clearly and concisely the potential effects of any unfavourable circumstances and the steps being taken to mitigate them as well as the positive aspects of the business’ performance
• Includes information on the medium to long-term expectations of the company
• Explains the nature of any linkages between pieces of information in different parts of the annual report
• Does not include boilerplate language which investors are unlikely to find informative and can sometimes obscure useful information.
Copies of these reports can be downloaded from the FRC’s website, www.frc.org.uk.