Infighting breaks out over IFRS for small business

Resistance was surely expected for plans to replace the UK’s national
accounting code, but the Accounting Standards Board didn’t expect it this early.
And least of all from within.

The board hasn’t even released a draft and yet there are already murmurings
of dissent, not least from within the nine-member body itself.

Caution, restraint, temperance – these are emerging as main themes of the
criticism, which is questioning whether this is the right time to be introducing
a new accounting code.

The ASB, led by the straight-talking Ian Mackintosh, has made no secret of
the fact it intends to replace the current UK code – riddled with
inconsistencies and widely considered out of date – for the recently released
international code.

Seemingly out of the blue, last week Mackintosh’s fellow board member Edward
Beale wrote to the employment relations minister Ed Davey warning the new rules
would “both make it more expensive to prepare and interpret accounts, and… will,
on balance, provide a lower quality of information”.

Beale went on to suggest the wake of economic crisis may not be the best time
to force businesses to go through the costly exercise of switching accounting

“The current economic crisis increases the importance to the UK economy of
growth in the SME sector. Changes to UK [accounting framework] at this point in
time are an unnecessary distraction that can easily be avoided.”

He went on to accuse the ASB of inadequate consultation on the new rules and
suggested a new system where only carefully selected accounting rules are
incorporated into the UK system.


In response, Mackintosh pointed out that the ASB was consulting again, when
the draft standards are released, and that Beale’s alternative view would be
included in
the draft. “We are going to publish that alternative view in the exposure draft
and give people a chance to comment on it,” he said.

Beale’s concerns will play well with government mandarins under instruction
to reduce the burden on businesses. And it remains in their power to scrap the

Beale’s was only the latest voice to urge restraint as the ASB considers how
best to release the new accounting code. In July, Mark Smith, secretary with the
influential but reclusive Hundred Group of Finance Directors and director
external reporting at FTSE 250 company Tomkins, raised similar fears.

“I’m not convinced that now is the right time to commit to scrapping the
existing body of UK GAAP,” he told an audience of accountants at the ICAEW. “I
reckon it’s likely that the majority of companies in this country have no idea
that the board is proposing these changes let alone that we are sitting here
debating them.”

Ideally, the ASB would like to adopt the international code wholesale, in
full, as handed down by the International Accounting Standards Board (IASB) in
July 2009.

However, it must tinker with some requirements to bring it line with EU
directives. It must also retrofit statutory requirements cont­ained in the
Companies Act. And there’s also a general acceptance that the new tax standard,
described by one senior accountant as “gobbledegook”, is already out of date and
must be removed.

All this adds up to an accounting code which resembles, but is far from
identical, to the 230-page international code bequeathed by the IASB.

Adding colour to the code

Deloitte created a sample set of accounting statements using the new code.
The colour-coded document, seen by Accountancy Age, uses blue, red and black ink
to represent new, redundant and mandatory disclosures.

Isobel Sharp, a Deloitte partner who helped compile the document said she
believes the new code might overwhelm UK accountants and businesses, and
suggests the ASB create a “one-stop shop” – a single booklet which includes all
accounting and statutory requirements.

“The far better idea is to have all books together in a logical order, so
thousands of people can pick up that one document and get all the relevant rules
in on place. It’s as simple as that,” she said.

In late August, Deloitte sent a letter to the ASB outlining five points of
concern about the new standard, among them that, for some businesses, the
process of switching accounting codes will be costly and time consuming – “the
work of days not months”.

“The impact and cost of this conversion will clearly very depending on the
entities’ business,” the firm said in its letter.

Draft rules are expected to be released next month.


Related reading

Fiona Westwood of Smith and Williamson.