Removal of the public accountability concept and elimination of the tier system
The revised financial reporting framework removes the concept of public accountability so that EU adopted IFRS (full IFRS) will only be mandatory for those entities that are currently required by EU Regulation or listing rules to comply ie listed companies for their consolidated financial statements. The individual accounts of such entities and the individual accounts or consolidated accounts of all other entities may be prepared in accordance with the UK FRS unless they are eligible and choose to apply the FRSSE.
As a consequence of this decision, the ASB has proposed changes in the UK FRS to address the needs of a broader group of users by requiring additional disclosures for listed companies and financial institutions in respect of earnings per share, operating segments and financial instruments respectively.
Introduction of options permitted under current accounting standards
In response to the comments to the 2010 FREDs, the ASB has amended its original proposals to include accounting options that are currently permitted by full IFRS. These include:
a) The revaluation of tangible and intangible assets
The UK FRS allows entities to apply the cost or revaluation model after initial recognition.
b) Capitalisation of development expenditure
The UK FRS permits entities to recognise intangible assets resulting from internal development expenditure (subject to certain criteria).
c) Capitalisation of borrowing costs
The UK FRS permits entities to capitalise borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial amount of time to get it ready for use or sale.
Effective date
The mandatory effective date has been deferred to periods commencing on or after 1 January 2015. However the ASB is proposing voluntary early adoption on or after the date of issue.
Other changes
The ASB is proposing other amendments that include:
- Financial statement presentation based on formats set out in company law;
- The option to recognise grant income using either the performance or the accrual model;
- The use of merger accounting principles for common control transactions;
- The application of the funding commitment requirements to entities other than public benefit entities;
- Changes to the accounting for retirement benefit schemes to align with the requirements of full IFRS;
- The recognition of deferred tax using a ‘timing difference plus’ approach;
- Consolidation relief for subsidiaries held as part of an investment portfolio; and
- The introduction of accounting requirements for pension schemes.