|UK SMEs Eager for Accounting Switchover|
UK businesses strongly support the introduction of International Financial Reporting Standards (IFRS) and Financial Reporting Standards for small and medium-sized Entities (FRSME) as a replacement for UK GAAP, believing that now is the right time to move towards the new model of financial reporting, a new survey from Ernst & Young shows.
In an online Ernst & Young poll of 290 companies attending a web seminar on the future of UK GAAP, two thirds said they thought a move to the two IFRS-based frameworks was appropriate for the UK at this time; without further delay to the proposed timetable set out by the Accounting Standards Board (ASB). Just 27% expressed a wish to delay the introduction beyond 2014. Only 6% opposed the introduction of IFRS or FRSME altogether.
Ernst and Young surmised that the survey results will surprise many, particularly as the UK government has been battling for a review of the convergence timetable. With the financial cost of moving from UK GAAP to IFRS frequently cited as an unnecessary burden to SMEs, support for an early switch indicates a prevailing view, noted by Ernst and Young, that UK GAAP has run its course.
As early as last month the House of Lords Economic Affairs Committee recommended that IFRS should not be extended to SMEs. Yet the survey shows that the prevailing view among users and the preparers of accounts is that current UK GAAP’s day is done, with majority opinion favouring the move, which could persuade the government to back the ASB’s proposals.
Andrew Davies, Ernst & Young partner in Financial Accounting Advisory Services comments: “This is a clear vote in favour of wider IFRS application in the UK and is consistent with the views being expressed in most comment letters submitted to the ASB [as of mid-April 2011].”
“Participants in the web seminar represented a broad selection of UK corporates, with many coming from private UK companies or subsidiaries of non-IFRS preparers, who have had no experience of IFRS reporting to date. Their willingness to embrace IFRS frameworks is therefore particularly striking.”
Davies adds: “UK entities reporting under UK GAAP cannot move to IFRS with reduced disclosures or the FRSME today, but a number are expected to early adopt once the ASB’s proposed standard has been finalised. This could help consistency of reporting globally, remove the need for reconciliations and improve corporate governance. Every company in the UK and Ireland reporting under UK GAAP or Irish GAAP will be affected. The ASB does listen, so it is important that everyone with an opinion makes their views known now.”
Just over a third (35%) of seminar participants said they expect to adopt EU-endorsed IFRS, while 24% propose to adopt the FRSME. The remainder (41%) were undecided or did not know.
“These responses, considered together with a response that 50% of companies already have a conversion project underway, may suggest some are making their IFRS framework choice without first considering the related (tax and accounting) issues,” said Ernst and Young.
Under current timetables, the first mandatory non-UK GAAP financial statements would apply to June 30, 2014 year-ends, with a July 1, 2012 transition balance sheet. Ernst and Young’s director in its Financial Accounting Advisory Services team, Geoff Ransom warned firms not to defer implementing frameworks, warning that it can take one to two years "to consider, in a structured way, all the implications and to embed the new accounting framework in systems, culture and processes.”
“I have been advising a mid-tier company with UK-only operations which has taken two years to go through this process. In this case there was a lot of complexity in certain aspects of the company’s operations and contracts. Analysis had to be performed alongside business as usual.”
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on May 6, 2011