What's changing?

The UK Accounting Council has developed three new Financial Reporting Standards (FRSs) - FRS 100, 101, and 102 - to replace existing UK GAAP (other than the FRSSE) and introduce a reduced disclosure framework for certain IFRS preparers. Companies will face major decisions as to which reporting standard to adopt and a potentially significant compliance burden in managing the change.

For periods beginning on or after 1 January 2015, three new financial reporting standards (FRSs 100-102) are in force, replacing all UK FRSs, SSAPs and UITFs and bringing with them a number of decisions and challenges for all UK entities and groups.

The new UK financial reporting standards were developed by the Financial Reporting Council to:

  • replace current UK GAAP with a single comprehensive financial reporting standard more closely aligned to IFRSs (FRS 102); and
  • introduce a reduced disclosure framework enabling most subsidiaries and parents to use the recognition and measurement bases of IFRSs in their individual financial statements, while being exempt from having to make a number of disclosures required by full IFRSs (FRS 101).

What are the key considerations?

A change in GAAP will have far-reaching implications, and it is necessary to consider not only the effects of the change on the financial statements themselves, but also the wider business effects of the change, including tax, distributable profits, banking arrangements, systems and performance management. The challenges will vary from business to business depending on industry, structure and size.

Deloitte has published ‘Changing your GAAP’, a document that summarises the options available under the new reporting framework, explains key differences in GAAPs, the impact on tax, answers a number of the frequently asked questions that have arisen to date on GAAP transition and considers the practical implications of changing GAAP.

What are the key tax considerations?

  • Cash tax - the change of UK GAAP may result in changes in the timing and amounts of cash tax payable. In particular, the taxation of transitional adjustments will need careful consideration
  • Compliance requirements - new and more areas of tax legislation could require consideration.
  • Tax accounting calculations and processes to the FRS 102 or IFRS/FRS 101 may increase the compliance burden on tax reporting teams because of their wider scope in respect of deferred tax. Specifically, FRS 102’s ‘timing difference plus’ and IFRS/FRS 101’s ‘temporary difference’ approach may give rise to different deferred tax balances
  • Tax systems and processes, Tax reporting and compliance software or spreadsheets and underlying accounting systems may need to be amended for the new GAAP, which could provide the perfect opportunity to efficiencies and effectiveness.

What should you be doing now?

Many companies have already chosen their GAAP and started to plan for the transition process. A number of groups and companies have also opted to adopt the new standards early. If your business is not already planning its conversion process, it needs to start now. Other critical actions to take include:

  • undertaking a GAAP conversion impact assessment on the financial statements
  • performing an assessment of the impact of the GAAP conversion on key business functions (including finance, treasury, IT, human resources, investor relations and tax)
  • arranging detailed training for your project leaders; and
  • communicating with key stakeholders in the business and identifying key advisers to plan for the change.

Deloitte has produced a wealth of resources to help you evaluate the effects of the new regime on your business and prepare for the conversion process. These, together with news, insights and publications on all other aspects of UK accounting, reporting and corporate governance, can be found at  

If your business is not already planning for the conversion process, it needs to start now

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