IFRS for SMEs given green light by UK ASB

Tens of thousands of UK businesses will need to act promptly to adapt to the new accounting plans announced today by the UK Accounting Standards Board (ASB) which will see the demise of UK GAAP, says Deloitte, the business advisory firm.

The ASB has set the ambitious target of 1 January 2012 for implementing the new accounting framework, the International Accounting Standard Board’s (IASB’s) International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs).  With comparatives needed from 1 January 2011 there is not much time for businesses to get new systems in place, especially as the final rules are not expected to come until late 2010 at the earliest.

Isobel Sharp, audit partner at Deloitte, said: “While it is right to lay to rest the profusion and confusion that is current UK GAAP, the ASB must take the lessons from 2005 on board.  The two must-haves are a stable platform and adequate time to plan for the change.  The two go together.  Three full years’ notice of the rules that will be adopted at that future date is needed.  The tens of thousands of companies that will be impacted can then consider in detail the potential consequences of the change, make any amendments across their businesses, test their processes and carry out the education and awareness activities.  The ASB will need to be firm, not firmly fuddled.”

Businesses will also need to evaluate carefully the complex tax impact of transitioning to IFRS for SMEs.  The immediate impact is the taxation of transitional adjustments, whilst in the longer term there will be the ongoing impact on tax calculations and tax planning.
 
Bill Dodwell, tax partner at Deloitte, added: “There will be some important tax issues arising from the change – indeed, tax has been one of the reasons that not many companies have switched to IFRS.  However, not everything is the same in IFRS for SMEs as it is in full IFRS.  Advance planning will be essential.” 

Since 2005, listed groups in the UK have been required to prepare their consolidated financial statements in accordance with IFRS.  Almost all other groups and companies have had a choice to follow IFRS or UK GAAP.  From 2012, the options will change with UK GAAP being replaced by IFRS for SMEs.

Sharp commented: “Over a hundred countries make use of IFRS but there has been a growing demand for the IASB to produce a regime more suited to businesses without public accountability.  The IASB has taken six years to develop this and the IFRS for SMEs was issued on 9 July 2009.  Despite the title, the standard is applicable not only to SMEs but to all firms which do not have public accountability.  This means that it will be suitable for most subsidiaries of listed companies as well as large private businesses, as long as they are not publicly accountable.

“IFRS for SMEs is a much simplified version of full IFRS.  It takes into account the needs of users of financial statements of non-publicly accountable businesses and the costs and benefits of compliance.  It is small, at 230 pages, in comparison to the full bound text of IFRS and has a tenth of the 3,000 disclosure requirements contained in full IFRS.”

-Ends-

Notes to Editors:

What is an SME in relation to IFRS for SMEs?
A major selling point of the ASB’s plans is that the Financial Reporting Standard for Smaller Entities (FRSSE) will continue to be available to the two million or more small companies and businesses in the UK.  They are therefore not facing any significant changes over the next three years.  The businesses directly affected by these plans are the 50,000 or so larger companies currently using full UK GAAP.  These include:

• Companies which are listed and have not adopted IFRS in their individual financial statements;
• Subsidiaries in listed groups who have not adopted IFRS throughout the group;
• All public limited companies which are not publicly accountable; and
• All private groups and companies, except those which may qualify as small by having two out of three of:
  • turnover less than £6.5 million (£7.8 million gross in groups);
  • balance sheet total less than £3.26 million (£3.9 million gross in groups); and
  • not more than 50 employees.

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.  Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk\about for a detailed description of the legal structure of DTT and its member firms.  The information contained in this press release is correct at the time of going to press.  For more information, please visit www.deloitte.co.uk.

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