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  1. 1. The future of UK GAAP and plans for convergence with International Financial Reporting Standards (IFRS) David Loweth Accounting Standards Board 20 November 2008 1
  2. 2. Coverage • 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? 2
  3. 3. 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 European Commission. 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 … 3
  4. 4. 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 companies; and • Providing thought leadership on accounting issues. • And on convergence of UK standards with IFRS … 4
  5. 5. 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. 5
  6. 6. 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 period). 6
  7. 7. 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 half 2009. • Which could result in future UK reporting requirements as follows: 7
  8. 8. Tier 1: who has public accountability? • IASB definition: an entity has public accountability if – 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. 8
  9. 9. 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. • Co-operatives. Are these entities “publicly accountable”? Would full IFRS be appropriate or onerous? 9
  10. 10. Tier 2: UK implications • IASB PE standard: determining the cut-off points – is it suitable for the very large and/or the small? • Implications of EU Commission‟s simplification project. • Compatibility with the EU Accounting Directives. • Does the UK adopt it wholesale, or amend? 10
  11. 11. 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 “internationalise” it. • Potential implications of Commission proposal on micro-entities and UK Government‟s simplification project on micro- entities. 11
  12. 12. 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. 12
  13. 13. Generic Implications • ASB needs to compile full impact assessment of any proposals: costs and benefits. • Implications for all categories of entities that might be affected – co-operatives etc. • Cannot forget implications for the Republic of Ireland. 13
  14. 14. Future of UK GAAP: main messages • Lots of thinking going on – if not much „above the waterline‟. • But that will come: working towards another public consultation. • Some big issues to address, so … • Looking for constituents to engage in the debate. • Hope for a regime that is as simple as possible, and not complex. 14
  15. 15. Future of UK GAAP: will it work? • Planning and strategy important, but need to consider practicalities. • Session now moves on to consider the realities of: – Implementing IFRS; and – Living with IFRS. 15