Reforms could end in tiers

CLAIRE SUTHERLAND, Baker Tilly East Anglia audit partner, warns of accounting changes ahead for small and medium- sized enterprises

It proposed a three-tier approach: Tier 1 – publicly accountable companies to apply full IFRS; Tier 2 – all other UK companies other than small companies to apply IFRS for Small and Medium-sized Enterprises (IFRS for SMEs); and Tier 3 – small companies could choose to continue to follow the Financial Reporting Standard for Smaller Entities (FRSSE), at least for a transitional period. Tier 2 and Tier 3 companies would have the option of using full IFRS if they wished.

The ASB, having considered the responses it received, concluded that there were some major issues that would need to be addressed, including the timetable for adoption, the future of Statements of Recommended Practice (SORPs), amendments to the IFRS for SMEs and possible exemptions for some categories of subsidiary. The ASB has indicated that it will issue a Financial Reporting Exposure Draft (FRED) on its final proposals later this year.

For many companies currently reporting under UK GAAP, the big change will be having to apply the IFRS for SMEs.

In this context, SMEs are defined as non-publically accountable entities that publish general purpose financial statements for external users.


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Currently, the proposed implementation date is for accounting periods commencing on or after January 1, 2013. This would mean companies with a December 31 year-end having to prepare comparative information under new accounting rules for the year ending December 21, 2012, with a conversion of opening balances required at January 1, 2012 (date of transition).

The impact of the IFRS for SMEs will depend entirely on the circumstances of the company and the current accounting policies being applied under UK GAAP. The IFRS for SMEs, for example, does not permit revaluation of tangible and intangible assets or allow capitalisation of development or borrowing costs.

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It does, however, require certain financial instruments such as foreign currency forward contracts or interest rate swaps to be measured at fair value. It also proposes a different measurement basis for deferred tax and presentational changes to the components of the financial statements.

The ASB has stated that it intends to keep changes to the IFRS for SMEs to a minimum but some changes will be necessary to ensure compliance with EU Accounting Directives. A much clearer picture on the precise impact of the proposed changes will emerge after publication of the FRED.

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