The Accounting Standards Board has taken the first definitive step towards the elimination of the UK's dominant financial language in a position paper which heralds the end of UK GAAP.

The ASB, moments ago, released a new draft policy which sets the stage for a future where 'UK GAAP will cease to exist'.

UK GAAP will be phased out under the draft policy and replaced by a three-tier system which will result in publicly accountable entities using full international financial reporting standards (IFRS); non-publicly accountable entities using new international standards for small and medium sized entities (SMEs); and small organisations using financial reporting standard for smaller entities (FRSSE).

Under the proposals businesses will have the option to voluntarily adopt a higher tier.

'Our ambition in setting out the proposals in this policy paper is to develop a high-quality, fit-for-purpose, financial reporting framework that addresses comprehensively all entities required to prepare financial statements... in accordance with UK GAAP,' the document reads.

The ASB has previously expressed its enthusiasm to adopt new international reporting standards for SMEs which was released to an international audience by global standard setter the International Accounting Standards Board on July 9.

Any new accounting rules, however, will need to be consistent with the European Union's fourth and seventh directive, but the ASB said this has so far not been an issue.

Ian Mackintosh, Chairman of the ASB, said there was 'no case' anymore for a two-tiered accounting system in the UK.

'For a number of years, the board has stated that in the medium term there is no case for the use of two different accounting frameworks in the UK,' he said.

'The recent publication by the IASB of its IFRS for SMEs provides the board with the opportunity to consult on what we see as the future framework for financial reporting by UK and Irish entities.'

Isobel Sharp, audit partner at Deloitte, welcomed the move away from the 'profusion and confusion' of UK GAAP, but believes the ASB has set an ambitious implementation date of 1 January, 2012.

'Three full years’ notice of the rules that will be adopted at that future date is needed. The tens of thousands of companies that will be impacted can then consider in detail the potential consequences of the change, make any amendments across their businesses, test their processes and carry out the education and awareness activities,' she said.

Andrew Vials, technical accounting partner at KPMG, wants to see more clarity surrounding the phrase 'publicly accountable'.

The ASB's proposal would allow companies that are not publicly listed to use the SME accounting rules.

'A key unanswered question, as the ASB acknowledges, is which entities are publicly accountable,' Vials said.

'This issue evidently needs to be resolved through the consultation process.'

Read the ASB's proposal:

ASB seeks views on proposals for the future reporting requirements for UK and Irish entities

Download IFRS for SMEs:

Access IFRS for SMEs and related material