Introduction

1. History of the UK and Republic of Ireland Standard-Setting Body
2. Issuance of the New UK GAAP
3. Structure of the New UK GAAP
4. Smaller Companies and the Financial Reporting Standard for Smaller Entities

Interpretation and Application of UK GAAP for Accounting Periods Commencing on or After 1 January 2015 is aimed at providing preparers of financial statements with comprehensive guidance and information that will allow financial statements prepared under the new UK GAAP to conform to the new regime. This publication brings to life much of the theory contained in UK GAAP and offers a practical approach to understanding the requirements of UK GAAP from a real-life perspective.

Standard-setting around the world has evolved considerably over recent years and International Financial Reporting Standards (IFRS) have gathered faster pace, with many countries adopting an international-based framework. At the time of writing the introduction of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland was part of a significant overhaul of UK GAAP. At the time of going to print, the UK and Republic of Ireland were about to have a four-tiered structure to financial reporting, which is shown in the following table:

* At the time of writing the FRSSE was being tentatively withdrawn by the Financial Reporting Council (FRC) for accounting periods commencing on or after 1 January 2016 and companies reporting under the small companies regime are to be brought under the scope of FRS 102 (as amended for smaller companies). Consultations issued by the Department for Business Innovation and Skills and the FRC on 29 August 2014 outline the proposed new structure. The way forward for the small companies regime was to be outlined in Exposure Drafts to be issued towards the end of 2014/early 2015, with final standards expected in the summer of 2015. For 'micro-entities', which are dealt with in Chapter 4, such entities can apply the micro-entities legislation if they so wish.

The main objective of standard-setters around the globe is to enhance transparency. Adopting an international-based financial reporting framework has the intended objective of producing financial statements that are based on high-quality financial reporting standards, which, in turn, strengthens understandability and transparency across all entities. Accounting has evolved considerably over the years, with the concept of fair value accounting moving higher up the ranks and as such there was a need to introduce a new UK GAAP.

History of the UK and Republic of Ireland Standard-Setting Body

The Financial Reporting Council (FRC) was established by the government back in 1990 and was charged with the promotion of good-quality financial reporting. This objective was to be achieved through two subsidiary bodies:

• Accounting Standards Board (ASB) and
• The Financial Reporting Review Panel (FRRP).

Prior to the establishment of the ASB, standards were issued by the Accounting Standards Council (ASC). The standards issued by the ASC were known as Statements of Standard Accounting Practice (SSAPs) and between 1971 and 1990, 34 SSAPs were issued by the ASC. A number of these SSAPs were adopted by the newly formed ASB in 1990, although going forward the ASB would not issue further SSAPs; rather they would be charged with issuing Financial Reporting Standards (FRSs).

In 1991, a new department was formed to assist the ASB in carrying out their work, known as the Urgent Issues Task Force (UITF). This department was set up to undertake investigations in areas where conflicts with accounting standards existed or where interpretative guidance was needed following ambiguous points, or clarification was sought by financial statement preparers. The first UITF Abstract was issued on 24 July 1991 titled Convertible bonds - supplemental interest/premium.

Due to well-publicised corporate collapses in the United States, the government decided in 2004 that the regulatory system in the UK needed to be further strengthened in an attempt to restore confidence. This resulted in the FRC becoming the UK's single independent regulator of the accounting and auditing profession, which would be solely responsible for issuing accounting standards and enforcing their application.

The ASB survived a 22-year lifespan that ended on 2 July 2012 when it was integrated with the FRC's new Codes and Standards Division. This restructuring was brought about because of the need for enhanced independence and the need to ensure effective governance of the regulatory activities under the responsibility of the FRC board. During this 22-year lifespan, the ASB issued 29 FRSs; however, it had become clear that due to the intention by the ASB to aid a smooth transition to an international-based financial reporting framework, the ASB had essentially become more of an advisory body as opposed to a standard-setting body. This was due to the fact that many of the later FRSs were merely IFRSs/IASs that had been rebadged in the UK. For example, FRS 20 Share-based Payment was a UK version of IFRS 2 Share-based Payment, FRS 21 Events after the Balance Sheet Date was IAS 10 Events after the Reporting Period and FRS 22 Earnings per Share was essentially IAS 33 Earnings per Share. In addition to this, many of the later FRSs had hardly any impact on private companies that make up the vast majority of the UK and Republic of Ireland business market (such as FRS 24 Financial Reporting in Hyperinflationary Economies, FRS 27 Life Assurance, FRS 29 Financial Instruments: Disclosures and FRS 30 Heritage Assets).

The Codes and Standards Committee was formed during this restructuring exercise and the objective of this committee was to advise the board of the FRC on the maintenance of an effective framework of UK codes and standards. The ASB was replaced with the Accounting Council, which provides an advisory role to the Codes and Standards Committee and the board of the FRC. In addition, the UITF was disbanded as a result of the reforms. Accounting standards previously issued by the ASB became the responsibility of the board of the FRC on 2 July 2012 when the restructuring was finalised.

Issuance of the New UK GAAP

The process of modernising the old UK GAAP was a long and arduous one. The ASB had already acknowledged prior to the issuance of Exposure Drafts that the UK GAAP in its old form had become overly complex and voluminous. They had also expressed a desire for the UK and Republic of Ireland to adopt an international-based financial reporting framework to provide consistency in the way financial reporting works but within a high-quality and 'fit for purpose' framework. This intention was further accentuated in 2009 when the ASB announced that to essentially dispose of old FRSs/SSAPs and UITF Abstracts would be a significant task, but they viewed the project as an opportunity to simplify UK GAAP with the intention of ensuring that UK GAAP produced more relevant, comparable and understandable information.

FREDs 43 to 45 were published outlining the proposed changes to UK GAAP and these FREDs were based on the International Accounting Standard Board's IFRS for SMEs that was planned to become (and was exposed as) the Financial Reporting Standard for Mid-Sized Entities in the UK. The name of the proposals was coined the 'FRSME'.

This Exposure Draft caused a significant amount of outcry amongst the accountancy profession as it was based around the concept of 'public accountability', which was a very difficult concept to apply or define in the UK and Republic of Ireland. In addition, the Exposure Draft eliminated some of the more common accounting practices that have become established in the UK and Republic of Ireland (such as the withdrawal of the revaluation method for fixed assets, the writing-off of borrowing costs directly to profit or loss with no option to capitalise such costs and the requirement to calculate deferred tax using a 'temporary difference' approach rather than a 'timing difference' approach, as was the case in FRS 19 Deferred Tax).

Having listened to feedback on FREDs 43 to 45, the ASB went back and redrafted the proposals that became FREDs 46 to 48 and were exposed for comment. The revised Exposure Drafts:

• Eliminated the tier system for large, small-medium and micro-companies,
• Introduced accounting treatments permitted under the old UK GAAP and
• Incorporated guidance for public benefit entities into FRED 48.

FREDs 46 to 48 were to become FRSs 100, 101 and 102 respectively. FRS 103 Insurance Contracts is an industry-specific FRS, which was published in March 2014 and which deals with insurance contracts. Due to its specialist nature, FRS 103 is outside the scope of this book.

FRS 102 is part of a 'family' of standards, with the others being:

• FRS...