“A Practitioner’s Perspective….”

GAAP are the more generic accounting rules that every country holds, and are directly influenced by the different accounting boards of each jurisdiction, whereas, IAS were the specific set of internationally recognised accounting standards, set by the IAS Committee (IASC). GAAP, is locally based, (i.e. UK GAAP, US GAAP) while the IAS is globally recognised, and some of its rules or standards are incorporated in the GAAPs of many countries.

The series of accounting standards, known as the International Accounting Standards (IAS), were released by the IASC between 1973 and 2000, and were ordered numerically. The series started with IAS 1, and concluded with the IAS 41, in December 2000. At the time when the IASB was established, they agreed to adopt the set of standards that were issued by the IASC, i.e. IAS 1 to 41, but that any standards to be published after that would follow a series known as the International Financial Reporting Standards (IFRSs).

The Difference The question of the differences between the IAS and IFRS arises on a number of occasions in accounting circles, and in fact, some would question if there is any/much difference at all. One of the major differences is that the IAS series of standards were published by the International Accounting Standards Committee (IASC) between 1973 and 2001, whereas, the standards for the IFRS were published by the International Accounting Standards Board (IASB), starting from 2001. When the IASB was established in 2001, it was agreed to adopt all IAS standards, and name future standards as IFRS.

Summary….. So far..!! IAS stands for International Accounting Standards, while IFRS refers to International Financial Reporting Standards. IAS standards were published between 1973 and 2001, while IFRS standards were published from 2001 onwards. IAS standards were issued by the IASC, while the IFRSs are issued by the IASB, which succeeded the IASC. Principles of the IFRS take precedence if there is any contradiction with those of the IAS, and this results in the IAS principles being dropped. Basically, when contradictory standards are issued, older ones are usually disregarded.

Since 2005 listed groups in the UK have been required to prepare their consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs). Almost all other groups and companies have a choice. They can choose to follow IFRSs or UK GAAP. Note: Small companies (as defined by the Companies Act 2006) have an additional option of following the Financial Reporting Standard for Smaller Entities (FRSSE).

But……!!!! New UK GAAP …..for periods beginning on or after ….1 January 2015…… three new Financial Reporting Standards FRS 100, 101 and 102…… …..will be in force, bringing with them a number of new options for all UK entities and groups.  

Developing a replacement to existing UK GAAP has long been an objective of the UK’s Financial Reporting Council. Three new FRSs have been developed by the Accounting Standards Board to replace current UK GAAP (‘ASB‘ - the predecessor of what is now the Accounting Council of the FRC) ……….(other than the FRSSE, which will be retained) and introduce an IFRS-based reduced disclosure framework for certain entities. 

The Financial Reporting Council assumed responsibility for accounting standards on 2 July 2012.  Accounting standards were formerly developed by the Accounting Standards Board are contained in 'Financial Reporting Standards' (FRSs).

Soon after it started its activities, the ASB adopted the standards issued by the ASC, so that they also fall within the legal definition of accounting standards. The FRC collaborates with accounting standard-setters from other countries and the International Accounting Standards Board (IASB) in order to influence the development of international standards and to ensure that its standards are developed with due regard to international developments. One role of the FRC is to issue accounting standards. It is recognised for that purpose under the Companies Act 1985. 

Current status…….. FRS 100, FRS 101 and FRS 102 have been issued by the FRC and are applicable for accounting periods beginning on or after 1 January 2015 (with earlier application permitted). For periods beginning on or after 1 January 2015, three new Financial Reporting Standards (FRS 100, 101 and 102) come into force, bringing with them a number of new options for all UK entities and groups. With all of these new standards now published, companies should now be thinking carefully  about the impact that these will have on their financial reporting.

The new financial reporting framework in the UK will be effective on 1 January 2015. The UK's Financial Reporting Council (FRC) has published three standards which together form the basis of the new UK regime. The three new standards will replace all current UK accounting standards. The purpose of each is as follows: FRS 100 Application of Financial Reporting Requirements which sets out the overall reporting framework; FRS 101 Reduced Disclosure Framework which permits disclosure exemptions from the requirements of EU-adopted IFRSs for certain qualifying entities; and FRS 102 The Financial Reporting Standard applicable in the UK and ROI which will ultimately replace all existing FRSs, SSAPs and UITF Abstracts.

FRS 100 sets out the financial reporting framework and outlines which standards to apply. It also outlines the application of Statements of Recommended Practice (SORPS) and transitional arrangements from the current standards. It sets out a proposed framework that would apply to all UK entities preparing financial statements that are intended to give a true and fair view other than where an entity is required or chooses to prepare its financial statements in accordance with IFRSs or the FRSSE.

FRS 101 is a proposed reduced disclosure framework for qualifying entities preparing their financial statements in accordance with IFRSs. This sets out a reduced disclosure framework which addresses reporting requirements and disclosure exemptions for subsidiaries and ultimate parents that would normally apply EU-adopted IFRSs.

FRS 102 contains the text of a comprehensive proposed accounting standard based upon the International Financial Reporting Standard for Small and Medium-sized Entities, this would replace current UK GAAP. The new standards will effectively allow for three different tiers of reporting in the UK. Under IFRS and FRS 102 there is also the option of reduced disclosures for ‘qualifying entities’ Optional for small entities i.e. large and medium private companies. Small private companies will use FRSSE (Small entities)

FRS 102 This is likely to be the standard applied by the majority of large and medium sized UK entities. It is a single standard that applies to entities not applying IFRS, FRS 101 or FRSSE. It is based on IFRS for SMEs but with amendments to incorporate UK company law and some additional accounting policy choices.

Overall this means that companies currently using SSAPs and FRSs are most likely to end up using FRS 102. Although they may choose to move to FRS 101 if they are part of a listed group. Companies currently using IFRS voluntarily will be able to use either FRS 102 or FRS 101. Previously a move "back" to UK GAAP from IFRS was only permitted if there was a "good reason", such as a group delisting or a subsidiary leaving a listed group.

Impact? Negligible…!!!

Presentation of Financial Statements

New titles for the financial statements The titles of some of the financial statements have been changed: A Balance Sheet is now referred to as a ‘Statement of Financial Position’, A Cash Flow Statement is referred to as a ‘Statement of Cash Flows’. A Profit and Loss Account is referred to as a ‘Statement of Comprehensive Income’. Where an entity elects to present income and expenses using a single statement (see later).

A complete set of financial statements includes: A statement of financial position (balance sheet) at the end of the period; A statement of profit or loss and other comprehensive income (income statement) for the period; A statement of changes in equity for the period; A statement of cash flows (cash flow statement) for the period; Notes to the accounts Note: The names of the main statements are not mandatory.

Although these new titles will be used in all accounting standards from now on: they are not mandatory for use in financial statements. Entities can choose whether to use the new titles. -------------- Generally, the recommendation would be to change (in the interests of simplicity and comparability, etc.) “…..For exam purposes, the following……applies to all companies, partnerships, and sole traders……” ACCA

Traditional terminology (Companies Act) FRS 102 Balance sheet Statement of financial position Profit and loss account Income statement (under the two-statement approach) or statement of comprehensive income (under the single-statement approach) which would include the income statement and statement of changes in equity being presented as one statement Statement of total recognised gains and losses Statement of changes in equity Cash flow statement Statement of cash flows Tangible assets Property, plant and equipment (as well as investment property). Debtors Trade receivables Creditors Trade payables Minority interests Non-controlling interests Capital and reserves Equity Net realisable value Estimated selling price less costs to complete and sell Stock Inventories Interest payable and similar charges Finance costs Interest receivable and similar income Finance income/investment income  

These are the most ‘notable’ differences in the terminology and a full and comprehensive list of the terminology equivalences can be found in FRS 102 ……(at Appendix III on page 299). Paragraph 3.22 allows an entity to use alternative titles other than those used in FRS 102 …… “provided they are not misleading….” ……….so the chances are that practitioners will still refer to the balance sheet as the balance sheet ………etc. ………….. see Sainsbury…..…!!!

Some worked examples…………..!!!