The ‘big bang’ theory

Accounting is the language of business and the last thing we want to have is two business languages being applied within the UK, other than for a short transitional period.

ICAS does not favour piecemeal adoption of international financial reporting standards. It is confusing for users and time consuming for companies. ICAS recommends a ‘big bang’ move at a specific time, two or three years in the future.

This is in preference to the ASB’s proposed convergence strategy, which appears to be a long process. We appreciate that this will mean there will be two sets of standards running parallel. However, this will only be for a short transitional period. During this time, where a new IFRS is issued, ICAS firmly believes that the ASB should not produce a UK version of this standard.

ICAS is keen for all UK companies to adopt IFRS as soon as is practical. We recognise that at present these standards are not suitable for use for many types of entity, in particular SMEs. But urgent work must be undertaken by the IASB to develop suitable standards for these entities.

The need to maintain transparent and understandable financial reporting is at the heart of our stance. ICAS is concerned that differences in standards on the same subject are likely to cause confusion. One must also not forget the costs of operating with different sets of standards. This includes the potential cost of educating students on UK GAAP.

The problem for most unquoted entities is not the principles contained in IFRS. It is the level of detail required. We believe the level of disclosure requirements contained in IFRS could be significantly reduced for SMEs, and in certain instances larger private companies.

In the case of larger companies, disclosures that are onerous and add little include subsidiary’s accounts disclosures regarding group pension schemes, related party transactions and cash flows where funding is a group issue. On these it would be preferable that similar exemptions as exist currently under UK GAAP were available under IFRS.

James Barbour is ICAS’ director of accounting and auditing

Get off the fence

Last month, news that the European Commission was to do more to tackle the red tape burden on SMEs was splashed all over the Today programme and national papers. After all, as issues go, the EC and red tape is trotted out with the same frequency as the EC and bendy bananas.

Of course, it’s welcome that the EC intends to introduce assessments of the impact of new legislation, but it’s unlikely to be of any use unless other EU institutions and individual states do more – unilaterally and multilaterally – to effect meaningful change.

The commission’s move was never a response to the growing anxiety within the small business community that SMEs will soon be taken into the IFRS fold. But like red tape itself,the two are difficult to disentangle.

The Federation of Small Businesses is angry that new standards designed for listed companies are being spread to private businesses, even though the IASB is still developing a specific set of standards for SMEs.

Like the ICAEW, the FSB wants to see convergence suspended – until the new SME standards are finalised. The Forum of Private Business agrees.What’s causing them sleepless nights is what they believe is a continuing shift in UK GAAP towards IFRS, a shift that’s putting increasing burdens and uncertainties on unlisted companies.

They want to see a ‘significant pause’ in the convergence programme until the outcome of the international project on SME standards.

There is also growing concern among larger companies – voiced by most prominently by the FTSE100’s most senior CFO, Jon Symonds of AstraZeneca – that the IFRS transition is causing real problems at the top.

The position of this group is understandable. A small business needs another rule to comply with about as much as it needs a major customer to walk away. But – and this is a but that will sound like a crafty bit of fence-sitting – there is logic in the position taken by ICAS too.

In truth it hardly matters which position regulators adopt. Go for the big bang or delay compliance. Just end the uncertainty and do so now.

Damian Wild is editor of Accountancy Age