The Role and Current Status of IFRS in the Completion of National Accounting Rules – Evidence from the UK

Figures & data

Table 1. Key features of UK GAAP 1998–2016.

Publicly accountable entities	Non-publicly accountable entities
From 1998	Large	Medium	Small
Full, audited accounts guided by SSAPs, FRSs, UITFs	Full audited accounts guided by SSAPs, FRSs, UITFs	Abbreviated accounts for filing, but full audited accounts for shareholders guided by SSAPs, FRSs, UITFs	Abbreviated accounts for filing, but full audited accounts for shareholders guided by the FRSSE
From 2005	Large	Medium	Small
Full, audited accounts guided by EU-adopted IFRSs	Full audited accounts guided by SSAPs, FRSs, UITFs	Abbreviated audited accounts for filing, but full audited accounts for shareholders guided by SSAPs, FRSs, UITFs	Abbreviated, audit exempt accounts for filing, but full accounts for shareholders guided by the FRSSE
From 2015	Large	Medium	Small
Full, audited accounts guided by EU-adopted IFRSs	Full audited accounts guided by FRS 102	Abbreviated audited accounts for filing, but full audited accounts for shareholders guided by FRS 102	Abbreviated, audit exempt accounts for filing, but full accounts for shareholders guided by the FRSSE
From 2016	Large	Medium	Small	Micro
Full audited accounts guided by EU-adopted IFRSs	Full audited accounts guided by FRS 102	Full audited accounts guided by FRS 102	Abridged, audit exempt accounts guided by FRS 102	Abridged, audit exempt accounts guided by FRS 105

Notes: Size thresholds for small- and medium-sized entities were raised over the period. From 2016, the small category excluded micro-entities.

FRS, Financial Reporting Standard (formerly issued by the former Accounting Standards Committee, but now issued by the Codes & Standards Committee of the Financial Reporting Council (FRC); FRSSE, Financial Reporting Standard for Smaller Entities (withdrawn in 2015); SSAP, Statement of Standard Accounting Practice (issued by the former Accounting Standards Committee); UITF, Abstract issued by the former Urgent Issues Task Force.

Figure 1. Overview of FRS 100, application of financial reporting requirements. Source: FRC (2015, p. 4).

Table 2. Size thresholds for accounting and auditing in the UK from 2016.

Criteria	Micro	Small	Medium
Turnover	£0.632 m	£10.2 m	£36 m
Balance sheet total	£0.316 m	£5.1 m	£18 m
Average number of employees	10	50	250

Source: Companies House (2016).

Table 3. Analysis of UITF abstracts.

Category	Abstract number(s)	No. of abstracts
Reference to IFRSs prior to 2005	4, 9, 24, 28, 33, 34	6
Reference to IFRSs from 2005	40	1
Implementation of the IFRS Interpretations Committee	39, 41, 42, 44, 45, 46, 47	7
Reference to the IFRS Interpretations Committee, but not to a particular IFRS	31, 37, 38	3
No reference to IFRSs, but reference to US standards	6, 26, 29	3
No reference to IFRSs or US standards	5, 11, 15, 17, 18, 19, 21, 22, 23, 25, 27, 30, 32, 35, 36, 43, 48	17
Superseded by a UK Financial Reporting Standard or UITF Abstract	1, 2, 3, 7, 8, 12, 13, 14, 16	9
Withdrawn	10, 20	2
Total issued		48

Source: FRC (n.d.).

Table 4. Key differences between FRS 102 and FRS 105.

FRS 102	FRS 105
Full recognition of equity settled share-based payments	No requirement to account for equity settled share-based payments
Foreign currency transactions must be measured at the spot rate and any derivative contract (such as a forward) must be held at fair value through profit and loss	If a contracted or forward rate exists for foreign currency transactions, this must be used to translate the transaction
Derivative contracts (such as interest rate swaps, etc.) must be measured at fair value through profit and loss	Derivative contracts are recognised at cost, which is usually zero, unless they become onerous
Requirement to impute interest where loan is not at market rate	No requirement to impute interest where loan is not at market rate
Investments in equity instruments must be measured at fair value where a reliable value is available	Investments in ordinary or preference shares are measured at cost less impairment
Deferred tax is recognised using a timing difference plus approach	Deferred tax must not be recognised
Defined benefit pension schemes must be recognised at value	Contributions only are recognised, together with any liability under a schedule of contribution to reduce a deficit
Limited list of related parties with disclosure only of non-market rate transactions	No related party disclosures
Identifiable purchased intangibles must be recognised and can be held at cost or, in some cases, valuation	Only separable purchased intangibles are recognised and they are measured using the cost basis

Source: Accountancy (2015, p. 67). Reproduced with permission from Accountancy.

Table 5. Key differences between old UK GAAP and FRS 102, and between EU-adopted IFRS and FRS 102.

Subject		Old UK GAAP vs FRS 102		IFRS vs FRS 102
Financial statements presentation	2	Company law formats apply for both, but a change in law and an amendment to FRS 102 means formats based on IFRS can be used under new UK GAAP.	2	IAS 1 formats differ from detailed company law formats used in FRS 102 (but under the amended FRS 102, there is also an option to use formats based on IFRS).
Cash flow statements	3	Cash vs Cash and cash equivalents. Also, FRS 102 has fewer headings.	1	Both prepared for cash and cash equivalents. Similar headings.
Financial assets and liabilities: − FRS 4 model	3	Fair values (for example, for derivatives) not used under FRS 4.	n/a
− FRS 26/IAS 39 model	2	Measurement of financial assets may differ as no fair value through ‘OCI’ category under new UK GAAP. Also, different rules for hedge accounting.	2	Measurement of financial assets may differ as no fair value through ‘OCI’ category under new UK GAAP. Also, different rules for hedge accounting.
Foreign currency (SSAP 20)	2	Contracted rates can be used under SSAP 20. More flexible hedging of investments in entity accounts under SSAP 20.	n/a
Foreign currency (FRS 23)	2	No recycling of CTA under new UK GAAP.	2	No recycling of CTA under new UK GAAP.
Hyperinflation	1		1
Revenue recognition	1		1
Government grants	2	Policy choice (accruals/ performance model) under FRS 102. Old UK GAAP uses accruals model.	2	Policy choice (accruals/performance model) under FRS 102. IFRS uses accrual model.
Capitalisation of borrowing costs	2	Policy choice under FRS 102.	2	Policy choice under FRS 102.
Retirement benefits	2	Net interest cost approach and group schemes differ.	1	FRS 102 is similar to IAS 19.
Other employee benefits	3	No standard under old UK GAAP.	1	FRS 102 is similar to IAS 19.
Share-based payment transactions	2	Option pricing models not always applied under FRS 102. Also, arrangements where the counterparty has a choice of settlement are treated differently.	2	Option pricing models not always applied under FRS 102. Also, arrangements where the counterparty has a choice of settlement are treated differently.
Income taxes – Current	1		1
– Deferred	3	More deferred tax under FRS 102 ‘timing differences plus’ approach. Unlike old GAAP there are no exceptions for revaluations, rollover and unremitted earnings. A temporary difference approach is applied for business combinations.	2	Timing difference ‘plus’ vs temporary difference approaches, although in many cases the resulting deferred tax from the different approaches will be the same.
Intangible assets other than goodwill	2	More intangibles under FRS 102 and no indefinite life.	2	IFRS can have indefinite-lived intangibles.
Property, plant, and equipment	1		1
Investment property	2	Fair value movement in statement of total recognised gains and losses (old UK GAAP) vs profit or loss (FRS 102).	1	Fair value movement in profit or loss for both.
Impairment of non-financial assets	2	Annual impairment testing required for some goodwill and intangibles under old UK GAAP. Reversals of goodwill impairments will be prohibited under FRS 102.	1	Same, when the July 2015 amendment to FRS 101 prohibiting reversal of impairment of goodwill applies.
Leases	2	Guidance more detailed in old UK GAAP. No 90% test in FRS 102.	1
Inventories	1		1
Provisions and contingencies	1		1
Events after the reporting period	1		1
Consolidation	2	Subsidiaries held in investment portfolios are not consolidated under FRS 102.	2	No remeasurement of pre-existing or retained stakes under FRS 102.
Business combinations (including goodwill)	2	Goodwill has to be amortised under FRS 102. Useful life is no longer ‘presumed’ to be 20 years (as it was under old UK GAAP).	2	Goodwill is not amortised under IFRS. Accounting for transaction costs and contingent consideration differs under IFRS.
Discontinued operations and assets held for sale	2	Different definitions for discontinued operations. No concept of assets held for sale in either GAAP.	3	FRS 102 does not deal with assets held for sale.
Investments in associates	1		1
Investments in joint ventures (IFRS 11)	1		1
Related-party transactions	1	Similar definitions and disclosures.	1	Similar definitions and disclosures.
Specialised activities (agriculture)	2	Cost or fair value policy choice under FRS 102. No specific guidance under old UK GAAP.	2	Cost or fair value policy choice under FRS 102. IFRS requires fair values.
Service concession arrangements	3	FRS 102 includes an intangible asset model for operators.	2	FRS 102 covers accounting by grantors.
Key:
1 Same or minor differences
2 Some differences
3 Significant differences

Source: Adapted from PWC (2015).

FRC. (2015). Overview of the financial reporting framework, July, London: Financial Reporting Council. Retrieved January 9, 2017, from https://www.frc.org.uk/Our-Work/Publications/Accounting-and-Reporting-Policy/Overview-of-the-financial-reporting-framework.pdf

 Google Scholar

Companies House. (2016) Changes to accounting standards and regulations, 29 February. Retrieved June 30, 2016, from https://companieshouse.blog.gov.uk/2016/02/29/changes-to-accounting-standards-and-regulations/

 Google Scholar

Accountancy. (2015). FRS 105 rules for micros. November, p. 67.

 Google Scholar

PWC. (2015). Summary of key differences between old UK GAAP, new UK GAAP (FRS 102) and IFRS, 16 October. Retrieved January 1, 2017, from https://inform.pwc.com/inform2/show?action=informContent&id=1317233404103278

 Google Scholar