UK GAAP Financial Statement Disclosures Manual

Steven Collings

• Publisher: Wiley
• Year: 2016
• ISBN:
  9781119132776
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Normas contables

A practical manual for preparing UK GAAP-compliant disclosures

UK GAAP Financial Statement Disclosures Manual is the practical handbook accounting professionals need to prepare audit-proof financial statements. The recent establishment of the new UK GAAP has brought significant changes to financial reporting, and this guide collects all of the latest guidelines into one place. Clear, concise and heavily geared toward practical application, this book is designed for easy navigation with stand-alone chapters and real-world examples. You'll find step-by-step guidance for the entire disclosure process, with explicit instruction on what to include, how to include it and why. Financial statements prepared from 2015/2016 in the UK and Republic of Ireland will appear significantly updated, and this manual gives you the guidance you need to understand what's required to achieve full compliance.

Insufficient or incorrect disclosures are frequently the reason why financial statements are rendered deficient. This book provides practitioners with a reference and guide for all aspects of financial statement disclosure preparation.

• Get up to speed on the most recent UK GAAP guidelines
• Understand the 'what' and 'why' of disclosure statements
• Study real-world example statements for practical guidance
• Prepare statements that stand up to auditor and regulator scrutiny

Many practitioners fall afoul of regulators' criticisms with subjective, incomplete, omitted or incorrect disclosures, resulting in sanctions being brought against the practitioner or the firm. Financial statement disclosure emphasis is on transparency at a time when changes in the profession require an entirely new method of preparation. For practitioners who need to stay ahead of the curve, UK GAAP Financial Statement Disclosures Manual is the invaluable reference to keep within arm's reach.

1
The Structure of UK GAAP

1. Introduction
2. FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of Ireland
3. The EU Accounting Directive
4. Response by the Financial Reporting Council
5. The Structure of New UK GAAP
6. Key Points

Introduction

Financial reporting in the UK and Republic of Ireland has undergone considerable change over the last few years. This is because the standard-setters in the UK and Republic of Ireland (the Financial Reporting Council (FRC)) had always foreseen entities reporting under an international-based financial reporting framework. Since 2005, listed companies in the UK and Republic of Ireland have had to report under EU-adopted IFRS and during the transition to IFRS there were considerable problems encountered meaning lessons had to be learned. Since 2005, the FRC (previously the Accounting Standards Board) have been actively producing a framework for private companies to report under, which is based on IFRS. The intention by the (now defunct) Accounting Standards Board was to adopt an IFRS-based framework because IFRS has gathered pace much faster over the years. In addition, having a framework which is based on IFRS is said to improve comparability and consistency and open up capital markets.

FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of Ireland

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland was issued on 14 March 2013. This marked the end of several years' work by the FRC (and the previous Accounting Standards Board) in developing a standard which was based on IFRS and which could be used by private companies. The standard itself was initially 350 pages long, which was a considerable reduction in volume from previous UK GAAP, which was some 3,500+ pages long. Professional accountants had often complained about the sheer volume of UK GAAP and the voluminous disclosures which it mandates. The Accounting Standards Board at the time also acknowledged that UK GAAP had become too voluminous and disjointed and hence it was more cost-effective to develop a new UK GAAP rather than change the previous GAAP.

FRS 102 is itself based on IFRS for SMEs, although it is not identical to IFRS for SMEs because IFRS for SMEs was not compatible with UK and Republic of Ireland companies legislation. In addition, IFRS for SMEs is based on the concept of ‘public accountability’, a concept which proved very difficult to define in the eyes of UK legislation. The initial Exposure Drafts of FRS 102 were based on the concept of public accountability, but this would have meant that certain entities would have had to adopt EU-adopted IFRS (for example, the smallest of pension schemes), which would not have been appropriate because of the associated disclosure requirements which IFRS requires.

FRS 102 was originally issued in March 2013 and was mandatory for accounting periods commencing on or after 1 January 2015 for those companies who were not reporting under the small companies' regime (i.e. the Financial Reporting Standard for Smaller Entities (the FRSSE)). Early adoption was permissible, although the take-up for early adoption was not vast. Initially, medium-sized businesses were the main entities to adopt FRS 102 for their accounting periods beginning on or after 1 January 2015 and the original plan was to ensure that the medium-sized businesses transitioned across to the new regime and then the FRC would see how smoothly those transitions had gone. Small companies would continue to report under the FRSSE and originally the FRC said that they would eventually have to align the FRSSE with FRS 102 to ensure that no significant disparities in accounting and disclosures existed between the two standards.

The EU Accounting Directive

On 26 June 2013, the EU issued Directive 2013/34/EU of the European Parliament and of the Council (referred to as the EU Accounting Directive (the Directive)). It replaced the 4th and 7th Accounting Directives and established minimum legal requirements for financial statements in the EU as well as providing 100 Member State options. The overarching objective of the Directive is to allow more companies to have access to a less burdensome financial reporting regime than was the case under the previous Companies Act 2006. There are three core objectives to the Directive, which are to:

• simplify accounting requirements so as to reduce the administrative burden on companies with particular emphasis focused on smaller companies;
• increase the clarity and comparability of financial statements of companies so as to reduce the cost of capital and increase the level of cross-border trade and merger and acquisition activity; and
• protect essential user needs by retaining necessary accounting information for users.

The Directive's objectives are therefore to simplify the accounting requirements for small entities within its scope and hence reduce the levels of disclosures contained in the financial statements. The Directive achieves this objective by applying a ‘think small first’ approach and this approach:

• introduces a ‘building block’ approach to the statutory accounts whereby disclosure levels are increased depending on the size of the undertaking;
• reduces the number of options available to preparers in respect of recognition, measurement and presentation; and
• creates a largely harmonised small companies' regime and, for the first time, limits the amount of information which Member States are permitted to require small undertakings to place in their annual financial statements.

The Directive states that small, medium-sized and large undertakings should be defined and distinguished by reference to balance sheet total, net turnover and the average number of employees during the financial year because this criterion usually provides objective evidence as to the size of the undertaking. The Directive also allows Member States the option of using maximum mandatory thresholds to determine company sizes or minimum mandatory thresholds. The Department for Business Innovation and Skills (BIS) confirmed that in order to allow more companies access to a less burdensome financial reporting regime, it would apply the maximum mandatory thresholds in the Directive (Chapter 2 examines the new thresholds).

In January 2015, BIS issued their response to the consultation in which it confirmed its decision to take advantage of the maximum thresholds which the Directive permits. This would, according to BIS, allow 11,000 medium-sized companies to be re-categorised and enable them to take advantage of the small companies' regime, thus allowing them to...