What is new UK GAAP?

‘New UK GAAP’ is the term for the new suite of accounting standards (FRSs 100-103) that will shortly replace all existing UK accounting standards. It’s the biggest change in such standards in a generation, and will have far-reaching impacts for preparers and auditors of UK financial statements.

The historical context

Existing UK accounting standards (SSAPs, FRSs and UITF Abstracts) have developed over several decades. However around a decade ago, the UK planned to adopt international accounting standards (IASs and IFRSs) instead. For several years, new UK standards were based heavily on IFRSs (in some cases being identical).

The difficulty with this approach was the size and complexity of the IFRSs, which were aimed at listed companies and similar public interest entities. Since 2005, UK listed groups have been forced to use IFRSs in the group accounts, but a growing consensus suggested that these standards would be unsuitable for the vast majority of UK businesses which are owner-managed and relatively small. As an alternative, the UK regulator decided to consider adopting a new international standard drafted for such businesses, the IFRS for SMEs, with some amendments to ensure it was suitable for the UK and compliant with EU law.

[[[FRS 102 will replace all existing UK GAAP for the majority of UK businesses including small entities]]]

The result of these amendments is FRS 102, the central standard in new UK GAAP. FRS 102 will replace all existing UK GAAP for the majority of UK businesses including small entities.

The new standards

FRS 100

Sets the framework for new UK GAAP (in essence, who does what and when).

FRS 101

Provides reduced disclosure for entities using IFRSs (as adopted in the EU) and who are members of groups, on the basis that the group accounts will include equivalent group-wide disclosures.

FRS 102

The financial reporting standard for the UK and Ireland, FRS 102 is a single standard that will apply to entities who don’t need (or choose) to use IFRSs. The standard contains a section (1A) dealing with simplifications in presentation and disclosure for small entities.

FRS 103

This FRS deals specifically with insurance contracts and is thus broadly relevant to insurers only. Such entities will also follow FRS 102 for all other areas of UK GAAP (or can choose to adopt IFRSs instead of FRSs 102/103).

FRS 104

This FRS applies specifically to interim financial statements and as such will not be directly relevant to most UK entities.

FRS 105

This standard (currently in draft) provides the accounting framework for micro-entities. FRS 105 is based on FRS 102 but with substantial simplifications, resulting in a document less than half the length of the main standard.