Replacing UK GAAP with IFRS for SMEs - what does the future
hold?
The UK Accounting Standards Board (ASB) has
proposed replacing UK GAAP with the International Financial
Reporting Standard for Small and Medium-sized Entities (IFRS for
SMEs). The IFRS for SMEs was published by the International
Accounting Standards Board (IASB) on 9 July 2009.
Who will be affected?
Companies currently using UK GAAP, except those using the Financial
Reporting Standards for Smaller Entities (FRSSE), are likely to be
affected in some way by the proposal. Companies already
implementing the FRSSE will not be affected by the replacement of
UK GAAP with the IFRS for SMEs yet. However, the provisions of the
FRSSE are based on UK GAAP, therefore if UK GAAP changes so, in
time, will the FRSSE.
What is the timescale?
The ASB
initially proposed that the IFRS for SMEs would
replace UK GAAP for financial years beginning on or after
1 January 2012. However, they have now made a
preliminary decision to delay the change for one year, to
1 January 2013. This would mean a company with a
December year end would need financial information under the IFRS
for SMEs as early as 1 January 2012.
What will this mean for not-for-profit
entities?
The IFRS for SMEs has been written with profit-making entities in
mind. There is therefore a separate discussion of potential
approaches for not-for-profit entities. These non-for-profit
entities specifically include those in the housing, education and
charities sectors. The ASB has proposed developing additional
guidance around IFRS for SMEs or full IFRS to address areas
peculiar to not-for-profit entities. Their consultation suggested
several approaches to this and invited comments on these possible
approaches. The timeline for application is similar to that for
other entities. With this in mind, the developments and debates
surrounding the replacement of UK GAAP with the IFRS for SMEs are
still relevant to not-for-profit entities.
What will this mean for UK Businesses?
The impact of the IFRS for SMEs depends on the precise
circumstances of your company. For example, some of the differences
to UK GAAP which will have an impact include:
- IFRS for SMEs does not allow revaluation of tangible fixed
assets, or intangible fixed assets - moving to cost will clearly
reduce compliance costs but will result in a company's balance
sheet failing to record the current value of these items
- all internal development costs must be expensed under IFRS for
SMEs, as must all borrowing costs, which could increase volatility
of profit
- investments in associates and joint ventures can be measured at
cost, unless there is a published price quotation, when fair value
must be used: the equity method is also allowed - again moving to
cost will reduce compliance costs and complexity but some useful
information may be lost
Whilst there may be cost savings for companies on an on-going
basis, it is probable that some companies will need to introduce
new accounting systems and software to cope with the
changes. In addition training and familiarisation will be
required, and so there is more than likely to be a one-off
cost associated with the transition.
Expert opinion
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Thornton's IFRS for SMEs blog or share your views at the Forum.
Future Developments
If you would like to be kept posted on further developments
regarding the transition of UK GAAP, please access the IFRS for
SMEs blog and sign up to RSS feeds.
Resources
Factsheet - How will the ASB's plans to
replace UK GAAP affect your business?
Factsheet - How will moving from UK GAAP to
the IFRS for SMEs impact on your company's accounts?
IFRS News Special edition - More on the IFRS
for SMEs and its impact internationally
Other useful information
IFRS
for SMEs - IASB website
The Future of UK
GAAP - Grant Thornton's views on the ASB consultation
Grant Thornton press
release on the future of UK GAAP