UK Accounting Standards - A Strategy for Convergence with IFRS
Comments from ACCA
June 2004
ACCA is pleased to have this opportunity to comment on the above Discussion Paper (DP). which was considered at a recent meeting of ACCA's Financial Reporting Committee.
Q1. Considerations underlying ASB's convergence strategy
We agree that in setting the convergence plan
- maintaining the quality of UK financial reporting and
- minimising the burden of change by avoiding successive changes
are vital.
The most important factors, however, in the plan are that convergence should be completed in the medium term and that convergence means having standards with virtually identical text. The two considerations identified by ASB should be used to plot the convergence plan, but subject to achieving convergence in the medium term. It is important therefore for the ASB to have in mind the other relevant considerations:
- maintaining comparability between unlisted and unlisted companies in the UK post 2005
and
- assessing an acceptable pace of transition for the UK unlisted sector and then programming the appropriate number of standards to replace each year (given that there are about 30 to do)
Avoiding double changes is stressed a good deal in the DP. This is right in principle, but we would not want it to jeopardise the achievement of convergence within the medium term. The significance of double changes depends on the sort of changes that might be involved � relatively minor improvements that would not for instance entail systems changes can be handled without too much difficulty. Also IFRS are changing themselves and look set to continue to do so. One has only to think about IAS39, US GAAP convergence or the effect of revisions to measurement to see that some double changes are going to be a fact of life however convergence is handled. IFRS are a moving train and at some point the UK has to jump to get on board.
Q2. Other comments on Section 2
It would be helpful if from 2005 UK standards could address themselves wholeheartedly to the unlisted companies that will be its main constituents. We consider that the DTI should make IFRS mandatory for any listed company that does not prepare consolidated accounts. Failing this the ASB could make clear that such companies should use IFRS and not its standards.
Q3. Specific proposals for the immediate future in Sections 3 and 4
We support these proposals.
We note in paragraph 4.40 the question is left whether IAS24 should be implemented with a scope exclusion for the accounts of wholly-owned subsidiaries. IASB removed the exclusion from IAS24, as without these disclosures the accounts cannot present fairly on a stand alone basis. UK users are probably well aware of the limitations of the published accounts of wholly-owned subsidiaries and do not look at them on a stand alone basis. The information which would need to produced is likely to be voluminous and costly. This is an appropriate adjustment to make to the IAS when adopting it in the UK context.
Q4. Subjects awaiting outcome at IASB
It is a matter of judgement when the UK should make the change on a particular standard and in most cases we will support ASB's judgement on this. As noted under Q1 above, convergence must be completed in the medium-term at a reasonable pace of change for UK unlisted companies
On investment property, however, we consider that ASB should replace SSAP19 now with IAS40, but without its depreciated cost option. If this is not done the UK property sector (listed and unlisted) may be using three fundamentally different models of reporting. The fair value model of IAS40 is superior to that of SSAP19.
We also have the following observations on some particular standards where a more rapid IFRS conversion might be considered.
- It is not made clear in what respects FRS5 is noticeably superior to IAS39 in terms of derecognition of financial instruments. Differences in this area can have very significant impacts on balance sheets. There does not seem any evidence that IAS39 will be altered in this respect in the near future. So it seems difficult to see how the decision to delay convergence fits with ASB's guiding principles.
- Five UK standards are linked to the business combinations project. Not to take on board the impairment-only model and all the other associated treatments included in IFRS3 as the DP proposes, would leave UK accounting significantly at variance with IFRS. The ASB should consider carefully the risk of double changes on the one hand and on the other the risk to the reputation and quality of UK standards by staying out of line for a significant length of time.
- Deferred tax is an area where UK standards and IFRS take different approaches. The amendments to IAS12 in the offing do not seem likely to be radical. The ASB should consider that at some point UK users will have to understand and get used to the new model. So if there were delays in finalising adjustments to the model from US GAAP convergence this should not be allowed to hold back that process too much.
Q5. Maintaining the policies towards SORPs and the FRSSE
We agree with the proposals.
Q6. ASB's future role
We have no comments to make.
Q7. How quickly should FRED28 be implemented?
ASB having issued FRS5 Application Note G should make no further changes until a new revenue recognition standard is produced by IASB.
Q8. Should ASB implement a UK standard based on IAS41?
Yes. A lengthy (but definite) transitional period before it becomes mandatory would be appropriate.
Q9. Should ASB proceed with convergence on IAS21, and should that include recycling?
If possible ASB should progress convergence by replacing SSAP20 with most of IAS21, but should omit the recycling requirements until that issue is resolved by the performance reporting project.
Q10. Amendment of SSAP21 for the disclosure of operating lease commitments
We agree with the proposed amendment as an interim measure, while retaining SSAP21 until the new leasing standard is produced.