Online News - Business News - Date: November 2009
The end of UK accounting rules for medium sized and larger businesses?
International Financial Reporting Standards (IFRS) are shortly to become a reality for a large number of UK companies. The UK Accounting Standards Board published its proposals for the future of UK GAAP in August 2009 and, from as early as 2012, a specially abridged Small & Medium Sized Entity (SME) version of IFRS is likely to be the default accounting framework in the UK.
The proposed timetable means companies affected will adopt the new framework for accounting periods beginning on or after 1 January 2012, with comparative information prepared on the same basis. This makes the effective transition date as early as 1 January 2011. Our experience is that few businesses are ready for this pace of change.
The ASB is proposing a three tier approach as follows:
| Listed and publicly accountable entities: | Full EU endorsed IFRS |
| Non-publicly accountable: | IFRS for SME's |
| Small companies (as defined by Companies Act): | FRSSE |
There has been a steady convergence of UK accounting rules with IFRS in recent years. Nevertheless it may be a mistake to assume that the final flip-over to IFRS will be pain free. Finance directors of listed companies, who have already been through the IFRS transition process, sound words of warning: IFRS affects more than simply accounting, it can affect the whole financial platform of the business. Common issues which have been encountered are:
- IT and reporting systems may need to be reconfigured
- Operational and financial KPIs require revision
- Debt covenants problematical under the new GAAP
- Bonus and option schemes proving unworkable
- Accounting staff need retraining
- Non financial management (including the Board) need re-educating
- Financial statements needing a virtual re-write
- Communication with stakeholders requiring sensitive management
Those who have already experienced transition say the same thing: it takes up far more time and resource than originally envisaged, it places an additional burden on finance teams who are perhaps already stretched, and it is far more complex than it first appears.
One of our audit directors, Neill Rayland, who has first hand experience of IFRS comments "The scale of the transition task should not be underestimated. Invariably significant issues emerge: accounting policies, tax accounting, fair values, disclosures - all of which require the exercise of judgement. Companies need to plan their transition now, and make sure they engage with their advisors throughout the process. Let's not also forget that companies will also be grappling with the implementation of iXBRL based reporting for tax purposes from 2011 and could therefore face a transition 'double whammy' unless the ASB are persuaded to modify their proposed timetable".
We will be discussing the impact of the changes with clients likely to be affected by the ASB's proposals however in the meantime please do not hesitate to contact us at any time to discuss how this may impact on you.
For further information, please contact us on +44 113 389 6200 or email enquiries@kirknewsholme.co.uk
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