The UK Accounting Standards Board has proposed significant changes to financial reporting standards in the UK and the Republic of Ireland. The ASB proposed to replace all existing financial reporting standards with IFRS for small and medium-sized enterprises and introduce a reduced disclosure framework for the financial reporting of certain qualifying entities. The ASB will not proceed with the three-tier system it had previously proposed.
The proposed framework permits certain entities (mainly subsidiaries) to apply the measurement and recognition requirements of EU-adopted IFRS with reduced disclosures. The drafts are open for comment until 30 April 2012. Subject to the feedback received, the ASB expects to issue the final standards by the end of 2012.
The overall objective of the proposed revision is to enable users of financial statements to receive high quality and understandable financial reporting proportionate to the size and complexity of the entity and the users’ information needs. The proposed financial reporting standards are cost-effective to apply and are consistent with global accounting standards through the application of an IFRS-based solution. They also reflect up-to-date thinking and developments in the way businesses operate and the transactions they undertake. They balance consistent principles for accounting by all UK and Republic of Ireland entities with pragmatic solutions and are based on size, complexity, public interest and users’ information needs.
As part of the proposals, development costs may be capitalized and carried forward in certain circumstances; merger accounting is permitted for business combinations under common control, hedge accounting is permitted for net investments in a foreign operation, and investment entities are permitted to account for joint ventures at fair value. In addition, all entities will be required to recognize derivatives on balance sheet at fair value.