THE FINANCIAL REPORTING COUNCIL has issued a replacement for current UK GAAP in its quest to streamline UK accountings standards.
FRS 102 is applicable in the UK and the Republic of Ireland, and moves accounting standards towards a more IFRS-based framework.
It is widely tipped as a simplification of accounting requirements and includes some significant accounting differences to EU-IFRS such as amotisation of goodwill and development costs.
The FRC claims that this latest update is a "modernisation" which will now make the standards "fit-for-purpose".
"The standards have not kept pace with evolving business transactions and in some areas are out of date. As business practices change, so too must accounting requirements to ensure that financial statements continue to show a true and fair view," the FRC impact assessment said.
Roger Marshall, (pictured) FRC board member and chairman of its Accounting Council said: "FRS 102 modernises and simplifies financial reporting for unlisted companies and subsidiaries of listed companies as well as public benefit entities such as charities.
"The standard updates UK accounting to take account of evolving business practices. It is succinct, easy to digest and use. Developed with considerable consultation, FRS 102 brings a distinctly British flavour to the international standard for small and medium sized businesses. At around 350 pages the standard replaces close to 3000 pages of UK GAAP."
Although the FRC admits there could be costs incurred by organisations that need to change aspects of their accounting and reporting, they believe the benefits such as a reduction in borrowing costs outweigh this derogatory factor.
"In the FRC's view, the benefits of more consistent, transparent information for decision-making (the adoption of an IFRS-based framework will allow better benchmarking and comparison between entities; the enhanced transparency may also lead to a reduction in the cost of borrowing because users have easy access to understandable, comparable information) outweigh the transition costs of implementing FRSs 100 to 102."
Small businesses are unaffected by the Standards as there are no changes2 to the Financial Reporting Standard for Smaller Entities (FRSSE).
KPMG welcomed the update and explained the UK GAAP adopters will have the ability to choose between EU-IFRS and FRS 102.
UK head of accounting advisory services at KPMG Nick Chandler said: "It has been some time coming but we now have certainty over what the accounting framework will look like for current UK GAAP adopters in 2015. Groups will now seek to evaluate which accounting framework is right for their subsidiaries - EU-IFRS recognition and measurement or FRS 102.
"Changing the basis of accounting for company financial statements may have wide-ranging effects, including impacts on taxation, distributable reserves, debt covenants, remuneration schemes and systems. The ability to pick and choose the accounting framework on a subsidiary-by-subsidiary basis will be important in allowing companies to mitigate the impact of such effects - choosing the right accounting framework for each company".
FRS 102 was approved by the FRC board on 5 March and will become effective from 1 January 2015.
ICAEW's head of financial reporting faculty Dr Neigel Sleigh-Johnson said the latest change was a major improvement to the UK regime.
"The new UK GAAP is much shorter, clearer and simpler than the old regime, which was outdated and rather lacking in coherence, and is thus a great improvement overall. It also aligns UK accounting more with international thinking."
PwC's accounting consulting services partner Iain Selfridge warned that although the implementation date is two years away the clock is already ticking.
"The goalposts are fixed and the clock is ticking. Two years sounds a long time to prepare but those who evaluate their options now will be better placed to implement their plans in a way that minimises disruptions to the business and maximises the benefits."
However, he warned that for many the most significant change will be the requirement to recognise and measure financial instruments which was previously optional.
Baker Tilly's head of financial reporting Danielle Stewart welcomed the move and said the changes will bring accounting methods in line with international reporting frameworks for both large entities and SMEs.
"We believe that the FRC has got this absolutely right, having worked closely with the Department for Business to ensure both government and industry were given their say. Companies may not see the advantages at first, as they deal with the transition period, but this is a huge and very commecial step forward in accounting and financial reporting."
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