COULD IFRS AND UK GAAP COEXIST?

Tony Cooney of Ashworth Treasure advocates that UK listed companies should continue to prepare their financial statements using EU-adopted IFRS for purposes of international comparisons and, as many seem to be doing, also prepare their financial statements using UK GAAP.

He also accepts that there could be a case for larger unlisted companies to also prepare two sets of financial statements using EU-adopted IFRS and UK GAAP.  However he queries whether there are benefits for medium-sized companies and strongly believes it is wrong to impose international standards on smaller ones.

Tony would like the UK’s Accounting Standards Board to find a way for IFRS and UK GAAP to coexist.  He argues that we might then create an acceptable model for the US and other major economies to follow.

In the July Business Briefing, which considered the future of UK GAAP, Ian Mackintosh, the Chairman of the Accounting Standards Board (ASB), said that the UK GAAP-based Financial Reporting Standard for Smaller Entities (FRSSE) will be retained for the smaller companies until the IFRS for SMEs has been implemented by larger ones.

This seems to have surprised some of our readers because in the ASB’s consultation document, which was published this time last year, the proposal was to have a three tier system of financial reporting.  The following is an extract from the document.

The view to have a two, rather than a three, tier system is supported by the Association of Chartered Certified Accountants (ACCA) in its publication What is the future of UK GAAP? in which it comes out in favour of replacing UK GAAP including FRSSE with IFRS for SMEs.  The document advocates that if FRSSE is retained it should be for as short a time as possible.

When Tony Cooney first read this, he said to me:

"Why abandon UK GAAP?  The issue I have is that few SME owners really understand their accounts. Regulation has already increased by removing the exemption for medium entities to dispense with consolidated accounts. I would prefer that FRSSE was left alone - to start messing with that as well can only serve to confuse many owner managed businesses.  I find that they are interested in looking at how much money they have made and the financial position.  I doubt whether they are interested in changes to amortisation, deferred tax, leases, accounting policies etc etc.  The fact is that most SMEs accounts are used by the owners themselves, who are usually the people running the business, together with the bank and possibly suppliers. I don’t really see the need for change."

Tony argues that we have gone down the path of the global standard setters setting the standards for SMEs. He points out that there are nearly 2.4 million registered companies in the UK of which less than 4,000 are listed companies. He is concerned that a very small minority are influencing the financial reporting requirements of the majority. However, he concludes that owner managers of SMEs are not likely to get involved in the debate and will continue to rely upon their accountants to prepare their financial statements in accordance with the standards of the day.

Whether it is UK GAAP or IFRS for SMEs, it remains desirable to have a global standard for global organisations and for all UK businesses to use one basis for financial reporting.

Stephen Smith
Managing Director, UK Training (Worldwide) Limited

THE ESSENTIAL GUIDE TO IFRS FOR SMES

The International Accounting Standards Board has published an International Financial Reporting Standard  for use by small and medium-sized entities. UK Training's seminar, The Essential Guide to IFRS for SMEs, carefully explains all aspects of the standard enabling organisations to manage the transition from UK GAAP to IFRS for SMEs. Please visit the UK Training web site for full details.