Efforts to converge the United Kingdom Generally Accepted Accounting Principles (UK GAAP) with the International Financial Reporting Standards (IFRS) have been going on for some. UK standards issued in recent times were all IFRS compliant. The Accounting Standards Board (ASB), that issues the UK standards, has now proposed full migration to IFRS under a 3-tier structure as under:
| Tier | Description | Applicable Accounting Standards |
|---|---|---|
| Tier 1 | Entities accountable to the public (e.g. listed companies) | IFRS (International Financial Reporting Standards) |
| Tier 2 | All other entities | IFRS for Smaller Entities (IFRSSE) |
| Tier 3 | Small companies as defined under Companies Act 2006 | UK GAAP for Smaller Entities (FRSSE) |
Under the proposal the UK GAAP will cease to exist by 2013 when all entities would have the option to adopt full IFRS voluntarily. Entities not publicly accountable could choose either the EU-adopted IFRS with certain exemptions including simplified disclosure requirements, or the IFRS for SMEs
The full move from UK GAAP to IFRS will have significant impact in certain key areas like ‘Deferred Tax’. However, those switching to IFRSSE from UK GAAP will find significant impact on their reported results particularly when a) revaluation of tangible fixed assets or intangible fixed assets becomes unavailable under IFRS for SMEs as also b) with regard to the cash tax impact of expensing all internal development costs and borrowing costs compared to capitalising these under the UK GAAP.
Firms providing accounting services have another two years to gear up to the new reporting regime.
