Change will always be challenging

If UK GAAP isn’t broken, it’s certainly on its way out. Standards are not
being updated and the conceptual underpinnings look tired when compared to
modern accounting principles.

It makes sense to adopt international standards, otherwise known by the
hideous label “IFRS for SMEs”. The Accounting Standards Board recognised this
long ago, and
it is right to push ahead for adoption of IFRS for SMEs. But it’s perhaps a
telling sign when so early in the process, critics are already surfacing.

Change on this magnitude is always going to trigger some criticism, but it
would be unwise to dismiss these early dissenters out of hand – particularly as
one of them is an ASB member himself. In that context alone these concerns,
focused on the timing of their introduction, won’t just disappear. But dealing
with them early in the process should smooth the standards’ adoption.

The ASB, under Ian Mackintosh, has adopted a conciliatory approach and wants
more feedback before establishing firm positions on some of the contentious

“Let the people decide” is essentially what his policy amounts to. For the
moment, this seems like the right option. There’s no point thumping tables at
this stage. Indeed, Mackintosh may well need to keep in conciliatory mode for
some time, as the arguments against moving to international standards play out.

The standards, which would likely require SMEs to begin the transition next
year, would come at a time when they are rebuilding themselves during what is at
best a tentative recovery phase. They would not be in any kind of mood to deal
with the burden of switching to new accounting standards, however helpful these
new rules could be in the future.

Bear in mind that the coalition government is not in the mood to burden
businesses with new regulation – accounting or otherwise. Its buy-in would
require tangible benefits to the UK economy, not to mention being persuaded that
the cost of switching would be more than outweighed by the advantages.

Another challenge the ASB will have to come to terms with is how to engage
with the largely disinterested SME community. Most won’t care about the new
standards until they’re placed in their in-trays. And by then it will be too
late to whine for revisions. The ASB has the unenviable task of reaching out to
these businesses, the engine-house of the economy.

It is all well and good that UK GAAP is outdated, but the inconvenient truth
for the ASB is that it might just have to wait a bit longer to introduce IFRS
for SMEs than estimated in its current timeline.

The ASB has only one shot at this.

Related reading

Fiona Westwood of Smith and Williamson.