The future of UK GAAP and plans for
convergence with International Financial
Reporting Standards (IFRS)
Accounting Standards Board
20 November 2008
• The ASB‟s role now and in the future.
• The future of UK GAAP and its
convergence with IFRS.
• Differential reporting: public
accountability and tiers.
• What about co-operatives?
Role of the ASB: standard-setting
Listed companies in their group accounts are now
required by EU law to apply IFRS, as adopted by the
Others (mostly) have the option to move to IFRS, but
most of them still UK GAAP.
ASB has a role in maintaining an appropriate and
high quality regime for UK accounting standards.
Current UK GAAP partially converged with IFRS, but
sustainable position in the long term? I think not.
And on other aspects of the ASB‟s role …
Role of the ASB: other aspects
• Seeking to influence the IASB on the development of IFRS and
a revised conceptual framework.
• Working with National Standard-Setters (NSS) more widely,
including chairing a global NSS group, in order to facilitate
accounting research and communications.
• Playing a leading role in Europe, in particular with the European
Financial Reporting Advisory Group (EFRAG), both to ensure
appropriate European influence in the development of
international standards and their adoption in the EU.
• Encouraging best practice, notably on narrative reporting by
• Providing thought leadership on accounting issues.
• And on convergence of UK standards with IFRS …
Convergence – the debate so far
• ASB has consulted …extensively.
• March 2004 Discussion Paper.
• March 2005 Policy Statement Exposure Draft.
• May 2006 Tentative Proposals.
• April 2007 Consultation on the IASB‟s
proposed IFRS for SMEs.
• Initially a phased approach – now thinking
more “big bang”.
• Strong view that we cannot sustain two
different sets of accounting standards.
Future UK GAAP: will it lead to tiers?
• Tier 1 – publicly accountable entities – would be
required to follow full IFRS (or IFRS as adopted by
the EU) either by choice under the IAS Regulation or
by incorporating IFRS into UK GAAP.
• Tier 2 – all other UK entities other than small entities
– would be required to follow the IASB‟s standard for
Private Entities (PE standard).
• Tier 3 – small entities could choose to continue to
follow the ASB‟s Financial Reporting Standard for
Smaller Entities (FRSSE) (at least for a transitional
So where are now?
• Board‟s current thinking envisages a
potential central role for the IASB‟s
proposed PE standard.
• IASB deliberating the proposed PE
standard – scheduled for issue in first
• Which could result in future UK
reporting requirements as follows:
Tier 1: who has public accountability?
• IASB definition: an entity has public
– it files, or is in the process of filing, its financial
statements with a securities commission or other
regulatory organisation for the purpose of issuing
any class of instrument in a public market; or
– it holds assets in a fiduciary capacity for a broad
group of outsiders, such as bank, insurance
entity, securities broker/dealer, pensions
fund, mutual fund or investment banking entity.
Tier 1: UK implications
• Is public accountability determined by the nature of
the entity alone? Or should size matter? Think about
• Individual listed companies.
• Large private companies.
• John Lewis, Virgin, Arcadia Group.
• Subsidiaries of listed groups.
• Charities and other not for profits.
Are these entities “publicly accountable”?
Would full IFRS be appropriate or onerous?
Tier 2: UK implications
• IASB PE standard: determining the cut-off
points – is it suitable for the very large and/or
• Implications of EU Commission‟s
• Compatibility with the EU Accounting
• Does the UK adopt it wholesale, or amend?
Tier 3: UK implications
• ASB‟s current thinking is to keep its Financial
Reporting Standards for Smaller Entities
(FRSSE), but for how long?
• Transitional period, or indefinitely?
• If indefinitely, ASB would need to
• Potential implications of Commission
proposal on micro-entities and UK
Government‟s simplification project on micro-
Risks to the strategy?
• Debate on accounting in context of the
current financial crisis could impact on EU
adoption of IFRS.
• US attitude to IFRS could change and have
an impact on the IASB and its work.
• The risks of ever-increasing complexity.
• Still need to assess reactions to the IASB‟s
PE standard when it is finalised.
• ASB needs to compile full impact
assessment of any proposals: costs and
• Implications for all categories of entities
that might be affected – co-operatives
• Cannot forget implications for the
Republic of Ireland.
Future of UK GAAP: main messages
• Lots of thinking going on – if not much „above
• But that will come: working towards another
• Some big issues to address, so …
• Looking for constituents to engage in the
• Hope for a regime that is as simple as
possible, and not complex.
Future of UK GAAP: will it work?
• Planning and strategy important, but
need to consider practicalities.
• Session now moves on to consider the
– Implementing IFRS; and
– Living with IFRS.