The future of Irish and UK financial reporting

The Financial Reporting Council issued an exposure draft in October 2010 on the future of financial reporting in the UK and Ireland (LINK). It has been known for some time that the UK and Ireland accounting standards are to be replaced by the International Financial Reporting Standard for Small and Medium Sized Entities (IFRSSME). The IFRSME has been modified to comply with EU/Irish/UK law and will be known as FRSME.

SME is a bit of a misnomer in this context as the IFRSSME can apply to any non-quoted or non public interest entity regardless of size.

The main points of the exposure draft are:
1. A 3 tier accounting standard hierarchy is proposed (Full IFRS, IFRSSME and Financial Reporting Standard for Small Entities (FRSSE – more on this later).
2. Small credit unions will be able to adopt the IFRSSME
3. A new standard is to be developed for charities
4. Some industry specific statements of practice are to be abolished, others will be retained.

The FRSSE is the current UK/Irish standard for micro enterprises. It is not widely used in Ireland but is very popular in the UK. It is proposed that this be retained and therefore companies reporting under this standard will see no change.

As few companies in Ireland use the FRSSE it seems most companies in Ireland will have to change: either to FRSME or to FRSSE. There could be significant costs in doing this.

When will this all happen? It is proposed that the new standard will apply to accounting periods beginning on or after 1 July 2013. So if a company has a year end of 31 December its first year under the new standard will be the year to 31 December 2014. However, under the switchover rules the comparative year figures must also have been prepared under the new standard. This means that 2 sets of accounts must be prepared for 2013 – one under the old standard and one under the new standard.  The key date is therefore 1 January 2013 as opening balances will need to be converted at this date.

Companies with a June year end will be the first to convert.  The key date for them will be 1 July 2012 – not that long away.

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