NEW LOOK FINANCIAL STATEMENTS ARE ON THEIR WAY

The UK’s Accounting Standards Board (ASB) intends to implement the new international standard, IFRS for SMEs. This standard will bring a new look to financial reporting in the UK. It proposes that financial reporting entities should produce four primary financial statements:

• Statement of Comprehensive Income;
• Statement of Financial Position;
• Statement of Changes in Equity;
• Statement of Cash Flows.

The Statement of Comprehensive Income brings together the features of a Profit and Loss Statement and a Statement of Total Recognised Gains and Losses whilst whilst the Statement of Financial Position is an alternative to the Balance Sheet.  The Statement of Changes in Equity expands upon the note to the accounts which explains the movement in reserves.  The Statement of Cash Flows is another attempt to improve upon the reporting of cash flow.

It is worth noting that the Statement of Financial Position reports the total assets of the organisation, its liabilities and its equity. The total assets are sub-divided into current assets and non-current assets whilst liabilities are similarly divided into current and non-current. No longer will we be presented with the net current assets or net current liabilities.

Then there is the Statement of Cash Flows.  The desire, going back to the mid 1970’s when cash flow reporting was first introduced in the UK, was to explain in simple terms what had brought about a change in the liquid funds of an organisation.  The Source and Application of Funds Statement, which preceded the Cash Flow Statement, failed to do this with clarity for the non-accountant.  A Cash Flow Statement produced in accordance with FRS1 was an improvement.  This latest attempt, Statement of Cash Flows, could well be a further improvement.

In a recent article Ian Mackintosh, the Chairman of the ASB, outlined what he saw to be the benefits of the changes. There will be a new, more user-friendly book consisting of 300 pages, replacing around 3,000 pages of UK standards, which will not be continuously updated.  He believes that by simplifying UK GAAP and reducing the disclosure requirements of subsidiaries we will have a progressive financial reporting regime in the UK.

There are still many people who are sceptical about the need for change. The important thing is that we have an informed debate when the Financial Reporting Exposure Draft is published this autumn. The seminar, The Essential Guide to IFRS for SMEs, will inform you.

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. The 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.