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Q. Who will the new regime affect?


A. The Accounting Standards Board (ASB) proposes no changes for entities which are publicly accountable or those entities which are eligible to use FRSSE. The ASB’s proposal is for unquoted entities and others which currently apply full financial reporting standards to adopt FRSME which is based on the IASB’s International Financial Reporting Standard for Smaller Medium Entities (IFRS for SMES).

Q. When is the proposal planned to take effect?

A. The consultation period will be open until 30 April 2011. The new framework is proposed to apply to accounting periods commencing on or after 1 July 2013.  Earlier adoption is permitted.

Q. What is meant by ‘publicly accountable’?

A.The ASB has defined an entity as publicly accountable if:

  • as at the reporting date, its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
  • as one of its primary businesses, it holds assets in a fiduciary capacity for a broad group of outsiders and/or it is a deposit taking entity for a broad group of outsiders. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds or investment banks.

Q. What will happen to FRSSE?

A. FRSSE will be amended to become the Financial Reporting Standard for Smaller Entities (effective July 2013). The ASB will withdraw its Financial Reporting Standards (FRSs), Urgent Issues Task Force Abstracts (UITFs), Statements of Standard Accounting Practice (SSAPs) and as a consequence, FRSSE will simply refer to Financial Reporting Standard for Medium-Sized Entities and no reference will be made to FRSs/SSAPs/UITFs as they will be redundant.The ASB will consult at a later date on the future options for FRSSE.

Q. What will happen if a transaction or event is not covered in FRSSE and all the current mainstream standards have disappeared?

A. If the entity does not have an accounting policy for the transaction or event which is not covered by FRSSE, management will look to the FRSME. This differs significantly from the IFRS for SMEs because if a transaction is not covered in IFRS for SMEs, management must develop its own policy, thus FRSME is not a standalone standard.

Q. What is a ‘qualifying subsidiary’?

The ASB has defined a qualifying subsidiary as one that is:

  • not publicly accountable
  • included in consolidated accounts of a parent whose financial statements are publicly available; and
  • not subject to any objection from shareholders.

Q. I have a client which uses Statements of Recommended Practice (SoRP).  Will my client be affected?

The ASB have confirmed that SORPS will be retained where there is a clear and demonstrable need. However, the ASB will retain and update SORPS relating to:

  • pension schemes
  • limited liability partnerships
  • investment companies
  • authorised funds
  • further and higher education
  • accounting and reporting by charities; and
  • registered social landlords.

In addition, the ASB will withdraw/phase out the following SORPS:

  • insurance business
  • oil and gas exploration
  • leases; and
  • banks – segments.

Q. What benefits will entities see from the proposed FRSME?

In developing FRSME, the ASB has looked at the cost versus benefits and has concluded the benefits of these proposals include:

  • A tiered system which provides targeted responses to reporting requirements
  • Reduced volume of literature
  • Simplified accounting
  • Increased stability
  • Increased comparability with quoted international entities
  • Improved access to capital markets and other finance sources
  • Reduced burden for subsidiaries
  • Streamlined continuing training based on one framework.

Q. With three reporting tiers, will an entity be able to move between tiers?


Under the UK Companies Act, sections 395 and 493 prohibit an entity or group that prepares financial statements under international standards from preparing Companies Act accounts unless there is a relevant change in circumstances. However, the Department for Business Innovation & Skills has informed the ASB that it will consult on amending these sections of the Companies Act to enable the definition of a relevant change in circumstances to include the implementation of the proposals set out in the exposure draft. The effect of this would enable a subsidiary which has always prepared its financial statements under EU-adopted IFRS for consistence with its parent company to move to tier 2 as well as not being prohibited from applying either of the reduced disclosure frameworks as a one-off change.


Q. Will we see any changes to the format of the financial statements under the proposals?

Yes, there will be a change in terminology and a change to some line item descriptions as follows:

Profit and Loss Account               
Companies Act
Income from participating interests
Share of the profit or loss of investments in associates and jointly controlled entities accounted for using the equity method
Interest payable and similar charges
Finance costs
Tax on profit or loss on ordinary activities before taxation
Tax expense
Profit/loss on ordinary activities after taxation
A single amount comprising the total of:
(i) the post-tax profit or loss of a discontinued
      Operation, and
(ii) the post-tax gain or loss recognised on the
     measurement to fair value less costs to sell
     or on the disposal of the net assets
     constituting the discontinued operation
Profit/loss for the financial year
Profit or loss
Balance Sheet
Companies Act
Tangible assets
Property, plant and equipment, and
Investments property carried at fair value through profit or loss
Investments in associates, investments in jointly-controlled entities, deferred tax liabilities and deferred tax assets (deferred tax assets/liabilities will always be classified as non-current)
Inventories, biological assets carried at cost less accumulated depreciation and impairment and biological assets carried at fair value through profit or loss
Trade and other receivables
Cash at bank and in hand
Cash and cash equivalents
Creditors falling due within one year
Trade and other payables, certain financial instruments and liabilities and assets for current tax
Creditors falling due after one year
Deferred tax liabilities and deferred tax assets will always be classified as non-current
Provisions for liabilities
Profit and loss account
Non-controlling interests (previously known as minority interests) will be presented within equity separately from the equity attributable to the owners of the parent.