UK GAAP stands for 'UK Generally Accepted Accounting Practice' and you may or may not be aware that there have been some crucial changes taking place for the way that the UK will be producing and publishing its accounts in the future. This brief guide will explain the background behind the changes, what is likely to be involved and how the changes are going to affect the various different types of UK businesses today.
The Accounting Standards Board (ASB) is the body responsible for laying down the standards used for all accountancy in the UK. In 1985, the wording of the Companies Act actually enshrined its' role and ever since 1990, it has replaced the former Accounting Standards Committee (ASC). In October 2010 it was expected to publish a document entitled "The Future of UK GAAP", which was to act as a framework laying the ground towards a further adoption of International Financial Reporting Standards (IFRS) for Small and Medium Size Enterprises (SMEs).
As things stand at the moment, any UK listed company must prepare its financial statements using IFRS. Non-listed companies tend to use UK GAAP. And finally, smaller enterprises are also allowed to follow a different system altogether, called the Financial Reporting Standard for Smaller Entities (often abbreviated to FRSSE). The different systems in operation clearly contribute to something of a divide between the listed companies who tend to be larger and listed, and the numerous SMEs operating in the UK today.
Overall, the situation can furthermore create some difficulties when it comes to business comparisons; the differing regimes inevitably create financial statements which bear no close resemblance to each other throughout many crucial areas. The introduction of a greater uniformity should therefore finally allow greater ease of understanding between the financial statements of all the different types of business models. This should lend businesses some clear advantages, in that their statements would be likely to be much easily comparable by many interested parties, including international readers. The ability to make ready comparisons of statements (plus for international readers, a higher level of familiarity) could well be helpful towards opening up some important new business opportunities.
From August 2009, the ASB appeared to be in favour of the following three tier approach:
At the time of the consultation, there were some concerns being raised about potential problems should the FRSSE be withdrawn, since it is a widely used regime for those very smallest businesses. It had been suggested that the adoption of the IFRS instead could result in a disproportionate burden for financial reporting for those smaller entities.
There were also an equal number of concerns raised about the potential effect of continuing to allow the use of the FRSSE. Some parties were concerned that that stance could in fact lead to a widening of the existing divergence between those larger businesses and their smaller counterparts' reporting results. Additionally, the close relationship between the FRSSE and the current UK GAAP could be yet another factor which served to again widen the divide.
It is not clear at present how all these developments will unfold, except to say that it is certain major changes will take place as far as UK SMEs are concerned. The general trend towards adopting International Financial Reporting Standards does appear to be gaining popularity. The best advice at the current time is therefore going to be to simply develop a good working relationship with your Chartered Accountancy services, in order to be able to manage whichever changes are finally implemented as and when they arise.
The Accounting Standards Board (ASB) is the body responsible for laying down the standards used for all accountancy in the UK. In 1985, the wording of the Companies Act actually enshrined its' role and ever since 1990, it has replaced the former Accounting Standards Committee (ASC). In October 2010 it was expected to publish a document entitled "The Future of UK GAAP", which was to act as a framework laying the ground towards a further adoption of International Financial Reporting Standards (IFRS) for Small and Medium Size Enterprises (SMEs).
As things stand at the moment, any UK listed company must prepare its financial statements using IFRS. Non-listed companies tend to use UK GAAP. And finally, smaller enterprises are also allowed to follow a different system altogether, called the Financial Reporting Standard for Smaller Entities (often abbreviated to FRSSE). The different systems in operation clearly contribute to something of a divide between the listed companies who tend to be larger and listed, and the numerous SMEs operating in the UK today.
Overall, the situation can furthermore create some difficulties when it comes to business comparisons; the differing regimes inevitably create financial statements which bear no close resemblance to each other throughout many crucial areas. The introduction of a greater uniformity should therefore finally allow greater ease of understanding between the financial statements of all the different types of business models. This should lend businesses some clear advantages, in that their statements would be likely to be much easily comparable by many interested parties, including international readers. The ability to make ready comparisons of statements (plus for international readers, a higher level of familiarity) could well be helpful towards opening up some important new business opportunities.
From August 2009, the ASB appeared to be in favour of the following three tier approach:
- Tier 1 - Publicly accountable entities to use IFRS (as adopted by the EU).
- Tier 2 - The majority of other UK entities to adopt the IFRS for SMEs
- Tier 3 - Finally, the majority of the smaller entities could adopt the FRSSE
At the time of the consultation, there were some concerns being raised about potential problems should the FRSSE be withdrawn, since it is a widely used regime for those very smallest businesses. It had been suggested that the adoption of the IFRS instead could result in a disproportionate burden for financial reporting for those smaller entities.
There were also an equal number of concerns raised about the potential effect of continuing to allow the use of the FRSSE. Some parties were concerned that that stance could in fact lead to a widening of the existing divergence between those larger businesses and their smaller counterparts' reporting results. Additionally, the close relationship between the FRSSE and the current UK GAAP could be yet another factor which served to again widen the divide.
It is not clear at present how all these developments will unfold, except to say that it is certain major changes will take place as far as UK SMEs are concerned. The general trend towards adopting International Financial Reporting Standards does appear to be gaining popularity. The best advice at the current time is therefore going to be to simply develop a good working relationship with your Chartered Accountancy services, in order to be able to manage whichever changes are finally implemented as and when they arise.
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