For financial reporting purposes business entities currently fall into three categories: publicly accountable (quoted) groups that report to their shareholders using the EU-adopted International Financial Reporting Standards (IFRS), other entities using the UK GAAP (UK FRS) and the third being smaller companies using the simplified Financial Reporting Standards for Smaller Entities (FRSSE). Going forward the prescribed standard for the second category is a condensed version of the IFRS called International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs) as the UK GAAP will cease to exist. However, on 29 October 2010, the UK Accounting Standards Board (ASB) issued a proposal to introduce Financial Reporting Standards for Medium-sized Entities (FRSME) that would replace UK GAAP for accounting periods commencing on or after 1 July 2013. FRSME is based on IFRS for SMEs and will apply to all those business entities that do not need to report under IFRS and that are not eligible to use FRSSE.
FRSME proposes to change the format of financial statements as also the disclosure contents. Compared to the UK GAAP, FRSME incorporates several changes with regard to measurement of various items and treatment of various items of gains and losses. Notable changes being:
| Item | UK GAAP | FRSME |
|---|---|---|
| Acquisitions and Mergers | FRS 6: Merger Accounting | Acquisition (purchase) accounting |
| Associates and Joint Ventures | FRS 9: Joint Ventures – gross equity method, Associates – equity method | Three choices: Cost model, Equity method and Fair Value model |
| Intangible Assets | FRS 10: Revaluation allowed in certain circumstances | Revaluation NOT allowed |
| Fixed Assets | FRS 15: Revaluation allowed | Revaluation NOT allowed |
| Borrowing Costs | FRS 15: Capitalised | Expensed to Profit or Loss (Income) Statement |
| Deferred Taxation | FRS 19: ‘Timing Differences’ method | ‘Temporary Differences’ method |
| Inventory Valuation | SSAP9: LIFO method | FIFO or weighted average method |
| Development Costs | SSAP13: Capitalised | Expensed to Profit or Loss (Income) Statement |
| Investment Properties | SSAP19: Market value through STRGL | Fair value through Profit or Loss (Income) statement |
