THERE WAS MUCH BACK-SLAPPING taking place at Chartered Accountants Hall last week. But why the self-aggrandisement?
At the ICAEW conference on the future of UK GAAP, the profession was busy congratulating itself and the FRC on the completion of FRS 102.
The new financial reporting standard represents the most significant change to UK financial reporting in a generation, replacing the majority of current accounting standards with one, more succinct, standard that applies to organisations not using IFRS or micro company standard FRSSE.
Without going into the minutia of FRS 102 here, the important thing to note is that the standard has been lauded as comprehensive and comprehensible, while the FRC has been applauded for a job well done. Not all of the watchdog’s work is described in such glowing terms.
How the FRC implements Lord Sharman’s guidance on going concern is arguably no less significant than its work on FRS 102. But so far the FRC has been subjected to more jeers than cheers from the profession. Its work on going concern is only at the consultation stage, but it is important it applies its success on the new standard to that of the governance guidelines.
A decade in the making, FRS 102 took its fair share of knocks to get to where it is. One of its key architects suggested that the project “suffered a number of false starts” in its early years and by 2006, the Accounting Standards Board (now the Accounting Council) “couldn’t go back, but didn’t know how to go forward either”.
Though FRS 102 is at pains to avoid some of the complexity and issues under IFRS, it was the IASB’s publication of IFRS for SMEs that helped kick-start the process. The Accounting Council (then the Accounting Standards Board) was able to use the IASB model as a framework, while cutting out the errors, omissions and problems in IFRS and retaining the best parts of UK GAAP.
As a result the standard is a simmered down version of IFRS for SMEs that has a uniquely British flavour. The key to its success is that the Accounting Council realised early on that it had to take its time over the project, and use that time wisely- in other words, engage with stakeholders. The consultation process was arguably the most wide-ranging the FRC has ever conducted.
No one is suggesting that the FRC should take ten years to sort out going concern, but the project would benefit if the pace of implementation was slowed. The guidance must be right first time, before implementation – and regrettably the current timetable is unrealistic.
Nor should the FRC bow to pressure from the profession and make wholesale changes to the principles underpinning its guidance on going concern, but it must heed warnings over how small businesses could be affected and clarify some of the terminology around “material uncertainty” currently being used.
With FRS 102 the FRC’s Accounting Council took its time over the project and engaged very hard with stakeholders. Ultimately, that is why it has been a success.
Richard Crump is deputy editor of both Accountancy Age and Financial Director
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