Does the IFRS for SMEs spell the end of UK GAAP?
Friday, July 17, 2009 | Posted by: Jake Green
Categories:
Future of UK GAAP,
UK GAAP
| Tags: IFRS,
UK GAAP,
UK economy,
SMEs,
Jake Green,
IASB
On Thursday the IASB issued the IFRS for SMEs and in my view, they have done really well to develop a new standard which is designed specifically for non-listed companies.
The question we in the UK now need to ask ourselves is can it and should it replace UK GAAP?
My gut reaction (and despite my interest in the topic, I haven’t finished reading it yet) is that I think it should. I know there is going to be lots of resistance to change, not least, I believe, because of the mixed press that the IASB and IFRS has received in the past. But this shouldn’t be allowed to cloud our judgement of whether this standard is a fit replacement for UK GAAP.
We have a broad range of interested parties in Grant Thornton who are reviewing the proposals. Our response will be based on what we think is right for the UK economy and UK Limited.
Needless to say, it is going to be easier to familiarise ourselves with the 231 pages of the IFRS for SMEs than the 2,000 or so pages of UK GAAP. More importantly, for those companies that are affected, I suspect that the transition to IFRS for SME’s will be tricky but that once we are through that, the financial statements of many companies will be considerably shorter and punchier than they are presently.
If you have any thoughts, why not visit our forum and post your comments, or leave some comments here for me.
Jake Green, Senior Manager, Financial Reporting
Reader Comments (3)
Response: Securities and Exchange Commission query by Steve
In the UK, Listed and AiM companies are required to use full IFRS (as adopted by the European Union) for their group accounts. Under the ASB’s proposals, Listed and AiM companies will have to use full IFRS in their individual accounts too. Full IFRS will also apply to companies with securities quoted on any other public market or exchange anywhere. At present, any UK company (other than a charitable company) is permitted to use full IFRS though the vast majority of UK companies still use UK GAAP, including many subsidiaries of quoted companies. A big issue in the UK will be whether non-publicly accountable subsidiaries of quoted companies should go to full IFRS or use the IFRS for SMEs when UK GAAP disappears. Full IFRS gives consistency of recognition and measurement at the expense of long accounts. IFRS for SMEs means shorter accounts but potentially leads to recognition and measurement differences that need to be adjusted on consolidation into full IFRS group accounts.
Added Thu Nov 2009 at 06:11:08
As you may know, our Securities & Exchange Commission is supposed to have an IFRS roll-out plan in place in a couple of years. I’ve asked of one small CPA firm and they’re not considering implementation at this time. I’m sorry I’m not familiar with the situation in the UK—please forgive my ignorance but is IFRS being rolled out or are you in a situation similar to the US?
Added Mon Nov 2009 at 11:11:28
Parlez-vous IFRS?
The recently issued IFRS for SMEs clearly offers a unique opportunity to create a standardised accounting framework for privately held businesses. The potential (and intention) of this new standard is to lead us to a situation where lenders, investors and advisers are able to assess company performance from financial statements irrespective of country location. Looking at the bigger picture, this has to be a positive move - with greater international comparability, there will (or at least should be) improvements in access to and cost of capital, as well as assisting cross-border business.
One of my concerns though is that individual countries have now been asked to consider the new standard, consult with local stakeholders and decide whether, when and how it should be used in their jurisdiction.
A number of my colleagues, particularly in Europe, recognise the benefits of a global financial reporting language, although remain highly sceptical nonetheless raising a number of worthy comments:
· “They told us that IFRS would be simple - most of my clients are still struggling with a number of concepts today! Why is this one going to be different?”
· “Our local GAAP has been operating successfully for almost a century and is easily understood - what reason is there to change?”
· “The EU has stated that they wish to reduce the administrative burden on SMEs - is a recession really the best time to ask companies, accountants, auditors to adopt a new standard with all the requisite time & cost?”
History, as well as the current global recession, has taught us that individual country protectionism will not go away easily. A number of European countries still have predominantly tax driven local accounts, with many adhering to a set chart of accounts (for example France, Luxembourg and Belgium). If it ain’t broke…
[I haven’t had the guts to ask my US colleagues for their thoughts yet!]
My colleague, Christine Corner, highlighted one of the barriers to improved comparability in her response saying that “the main change is likely to be presentation issues in terms of the look of financial statements”. If you ask 5 accounting firms to prepare the financial statements for the same company, are we going to get 5 different answers? Now apply that across 5 different countries, and imagine you’re a banker assessing a refinancing application.
That said, many countries around the world now require all listed companies to report financial information in accordance with IFRS. In some countries, national regulators accept IFRS for all companies (listed & private), for example Australia and South Africa (who adopted the simplified standard in its draft form).
There is therefore a perceived reluctance to change, which begs the question: Is it worth pushing through this change in the UK if the majority of other countries maintain their status quo? If we don’t, will UK Limited miss an opportunity to gain a competitive advantage?
Added Mon Aug 2009 at 09:08:25