On 29 October 2010 the Accounting Standards Board (ASB) published its proposals for the future of financial reporting in the UK and Republic of Ireland.
The exposure drafts set out proposals for a three-tier reporting framework, which aims to balance the needs of preparers and users of accounts. The consultation period will run until 30 April 2011. It is proposed that the new framework would be effective for accounting periods beginning on or after 1 July 2013, with earlier application permitted.
The exposure drafts aim to explain to companies and other entities which set of accounting standards will apply to them, and to simplify UK standards into a concise, coherent and updated form.
The proposal is for a three-tier approach as follows:
- Entities that have public accountability will report under international financial reporting standards (IFRS), as adopted by the EU (EU-adopted IFRS).
- Entities without public accountability and which are not small may prepare financial statements in accordance with the FRSME or EU-adopted IFRS.
There would be a new standard called Financial Reporting Standard for Medium-sized Entities (FRSME). The FRSME would be modified to comply with UK and EU law and to ease tax reporting.
- Small entities without public accountability and which are permitted in accordance with the Companies Act 2006 to apply the small companies regime may apply the FRSSE; alternatively they may apply the FRSME or EU-adopted IFRS.
In addition, the draft application FRS proposes that relief be provided for small publicly accountable entities that are prudentially regulated.
The framework uses public accountability as the differentiator. An entity has public accountability if:
- as at the reporting date, its debt or equity instruments are traded in a public market, or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
- as one of its primary businesses, it holds assets in a fiduciary capacity for a broad group of outsiders and/or is a deposit-taking entity for a broad group of outsiders. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds or investment banks.
The ASB plans to develop a standard tailored to the needs of public benefit entities such as charities. It will also retain the sector-specific statements of recommended practice (SORPs) where there is a clear need.