Modernisation of Accounting Directives and IAS Infrastructure
Comments from ACCA
July 2004
The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on the above consultation document.
We generally support the proposed legislation. Our comments set out below in response to the specific questions raised for comment, have been prepared on the general assumption that UK standards will converge completely and fairly rapidly with International Financial Reporting Standards (IFRS). In the medium term UK standards would become virtually the same as IFRS, except for some adaptations to UK legislation and some disclosure and other requirements that may not be relevant to unlisted companies. If this takes place then many of the considerations and restrictions on the use of one or the other set of standards may become largely irrelevant. The restrictions do add complexity to the Companies Act and we therefore welcome the commitment to a review in 2008 at which stage it may be possible to simplify matters.
Q1. Do you agree with the policy that the option to choose IAS should operate separately for individual and group accounts?
No, not entirely. There should be some restrictions otherwise under these proposals
- one set of financial statements might contain IFRS consolidated numbers with UK GAAP numbers for the holding company's balance sheet
- listed companies which do not need to prepare consolidated accounts need not prepare IFRS accounts at all.
On the first point the scope for confusion of users seems much greater than for example in the case of consistency of quite separate accounts within a group. The second point is particularly important in our view. To allow listed companies who happen to have no subsidiaries this option would seem to go against the spirit of the EU regulation which was to provide consistent information to investors across EU capital markets. It also leaves ASB for example post 2005 still having to set standards relevant to listed companies as well as unlisted.
Q2. Do you agree with the policy that choice of IAS should be one way, with one exception?
Yes. As a general principle this would be right and the exception is needed for changes of control of a group. We note, however, that this restriction may be fairly easy to avoid if companies wish to. The insertion of a new intermediate non-UK holding company in a group structure might achieve this effect for example.
We also noted the new section 226(5) refers to the individual accounts of a parent company, and it would seem that it is the parent company's consolidated accounts that would be the more relevant consideration.
Q3. Do you agree with the policy of consistency of choice of accounting framework within a group?
Yes. Again as a general objective this must be right, though legislation in other respects has not required it (for example in terms of alternative accounting rules or choice of formats). Nor will of course this be able to be applied to overseas subsidiaries.
We accept the general exception �except to the extent that in their opinion there are good reasons for not doing so� left in the legislation. We are not sure that there should be cases where the parent company consolidates a UK subsidiary but is unable to control the basis of its accounts, as noted in the explanatory text. There may, however, be cases where in the interim until convergence is completed that UK standards or IFRS are more appropriate to particular circumstances.
Q4. Do you agree with the policy of treating building societies consistently with companies in permitting them to use IAS?
Yes.
Q5. Do you agree that charitable companies should not be permitted to choose IAS?
Yes.
Q6. Do you agree with the proposals to implement (or not as the case may be) the Member State options in the Modernisation Directive?
No. Company law should allow UK GAAP to converge on IFRS for example in respect of both a current/non-current analysis of assets and a performance statement in place of a profit and loss account. In the latter case company law would otherwise continue to obstruct a true statement of total recognised gains and losses being allowed under FRS3. The Statement of Financial Activity for charitable companies has had the same difficulty, entailing sometimes elaborate note disclosures to meet the requirement for a P&L account.
Q7. Do you agree with the proposal on dividends?
No. Under IFRS, dividends are not a loss and so should not be included in a profit and loss account. They are a distribution to shareholders and should be accounted for as such.
Q8. Do you agree that LLPs, banking and insurance undertakings should be treated in the same way as Companies Act companies?
Yes.