The UK Accounting Standards: Read about the development and most used accounting Standards in the United Kingdom
The UK accounting standards are used in accounting to maintain consistency across the industry.
The UK Accounting Standards are also used to promote transparency, ensure that the information is consistent, pertinent, and save time and resources for both the provider and the party being examined. Accounting standards are essential for companies in tax and accounting to provide clear and coherent information to their clients and authorities.
- Independent observers can use the standards to gather and review information with clarity, and they can then make informed business decisions. This is done in the UK by adhering to a set of Generally Accepted Accounting Principles. These principles include a number of measures that encourage transparency and consistency. They provide transparency and consistency to investors and shareholders and help them keep track of how the business is doing.
- GAAP is used mainly by listed companies. Non-listed firms use the International Finance Reporting Standards to optimize their approach and ensure compliance.
- The UK Accounting Standards and the UK GAAP (Generally Accepted Accounting Practice) is the general body of regulations that govern how company accounts are prepared in the United Kingdom. Companies’ accounts must be prepared according to applicable company law. This includes the Companies Act 2006 for UK companies and the Companies Act 2006. For companies in the Channel Islands or the Isle of Man, these laws apply to them.
- The UK Taxes Acts make a term called “Generally Accepted Accounting Practice” a statutory term. As an abbreviation of the term “UK GAAP”, which is used in other jurisdictions, Generally Accepted Accounting Principles or Generally Accepted accounting Policies, the abbreviation is also acceptable.
Method for setting the UK Accounting Standards
Proposed standards are subject to formal exposure by the ASB. Discussion Papers are used to release early concepts. These papers are made available to the public for comments. A Financial Reporting Exposure Draft is available for comment when a new standard is being proposed. Only after all comments have been received or addressed, the final standard is issued. This standard is intended to address criticisms of the ASC’s comment process, which was less thorough.
The Urgent Issues Task Force (UITF) is responsible for addressing urgent issues. The UITF is made up of senior executives from accounting firms and industries. It meets as needed to address pressing issues.
UK GAAP and the UK Accounting Standards
The UK Accounting Standards have a new framework for financial reporting effective January 1, 2015. Therefore. five standards were published by the UK’s Financial Reporting Council, which together form the basis for the new UK regime. For those who are eligible, the Financial Reporting Standard for Smaller Entities (FRS) will be available for use, but it will not change fundamentally for the moment.
FRS 102 was issued by the FRC in March 2013. This is the UK Accounting Standards that are applicable in the UK and also in the Republic of Ireland. FRS 100 Application to Financial Reporting Requirements was issued in March 2013. FRS 101, The Reduced Disclosure Framework, was published in November 2012. These standards together make up what accountants refer to as the new UK GAAP. This takes effect for accounting periods beginning on or after January 2015.
FRS 102 replaces nearly 3000 pages of UK and Ireland GAAP, with just over 300. Its main purpose is to make reporting obligations proportional to the entity’s size. This includes changes in disclosure, measurement, and recognition.
How were the UK Accounting Standards developed during the years?
The Taxation and Financial Relations Committee (T&FR), of the ICAEW, was created in 1942. It was requested by the council to ‘consider and give recommendations to the council regarding certain aspects of accounts of companies’ and publish ‘approved suggestions for the information of members’ (The Accountant 12/12/42).
- In December 1942, the first “Recommendations on Accounting Principles” were published on the topics of Tax Reserve Certificates, War Damage Contributions, and Premiums. These and subsequent recommendations provided early guidance for ICAEW members on accounting practice.
- 1969, at a press conference about the 11th December, the ICAEW published a ‘Statement Of Intent on Accounting Standards In the 1970s’. This stated the council’s determination to improve accounting standards and set out the steps that the institute believed would be necessary.
- In January 1970, the ICAEW created the Accounting Standards Committee with the object of developing definitive standards in financial reporting.
- In 1971, the Accounting Standards Steering Committee was established by the Institute of Cost and Management Accountants, and the Association of Certified Accountants.
- In January 1971, was issued the first Statement of Standard Accounting Practice (SSAP1) on Accounting for results of associated companies (SSAP 1). Between 1971 and 1990, 34 statements (or revisions) were issued.
- CIPFA joined 1976 the Accounting Standards Steering Committee. The name of the Accounting Standards Steering Committee was abbreviated to the Accounting Standards Committee (ASC)
- The UK government established the Financial Reporting Council in 1990. Two subsidiary bodies were created by the FRC to promote good financial reporting: the Accounting Standards Board (which replaced the ASC in August 1990) and the Financial Reporting Review Panel.
- The UK Accounting Standards Board (ASB), upon its creation, adopted a number SSAPs previously issued by the ASC. They were included in the legal definition of accounting standards according to the Companies Act 1985. As Financial Reporting Standards (FRS), all accounting standards that were developed by the ASB since 1990 were published.
- An Urgent Issues Taskforce (UITF), which was established to assist the newly-established ASB, held its first meeting in 1991. The Urgent Issues Task Force was created to investigate any areas in which there are conflicts or unsatisfactory interpretations of accounting standards or provisions under the Companies Act.
- Following the collapse of major US corporations, the UK government decided to strengthen its regulatory system and the UK Accounting Standards. The FRC was made the sole independent regulator of the auditing and accounting professions. It also had the responsibility for issuing and enforcing accounting standards.
The current FRC and its subsidiaries are jointly funded by the government, the accounting profession, and the financial community.
- In July 2012, reforms were made to allow the FRC to function as a single regulatory body with greater independence. To ensure that all FRC regulatory activities are managed effectively, a new structure was created. This is the ultimate responsibility of the FRC Board.
- The Codes and Standards Committee was created to assist the FRC Board in maintaining a framework of the UK Accounting Standards and codes. The Accounting Council (ASB) was also disbanded. It now serves as an advisory body to both the Codes & Standards Committee, and the FRC Board. As a result, the UITF was also defunct.
Accounting standards used to be set by the ASB. However, the FRC Board took over this responsibility in 2012.
- Effective January 2015, the FRSs (also known as new UK GAAP), are the UK Accounting Standards. These FRSs replace the FRC’s existing financial reporting standards for reporting periods beginning on or after January 2015.
Who established the Accounting Standards in UK?
The UK has many bodies that are responsible for setting up accounting standards. Below are some details about the UK Accounting Standards bodies in the United Kingdom and the process of implementation.
Financial reporting standards and financial reporting exposure drafts.
All UK accounting standards were issued beginning in 1990 by the Accounting Standards Board (ASB). However, the FRC Board took over responsibility for establishing accounting standards on 2 July 2012.
Financial Reporting Standards (FRSs) are the name given to all accounting standards that have been developed and published by the ASB. FRSSE is the Financial Reporting Standard for Smaller Entities. FRSs are usually first issued as Exposure Drafts, which are also known as Financial Reporting Exposure Drafts.
Statements of Standard Accounting Practices (SSAPs)
SSAPs were an earlier generation of accounting standards that were approved by the ICAEW, other accountancy bodies and issued in accordance with the ASC’s recommendations.
The ASB adopted a number SSAPs that were issued by the ASC as part of its first decision. This allowed them to be included in the legal definitions of accounting standards under the Companies Act 1985. SSAPs remain in effect today.
URGENT ISSUES TASK FORCE (UITF).
The UITF was a part of the earlier standard-setting arrangements. It assisted the ASB in investigating areas where conflicts or unsatisfactory interpretations of accounting standards or Companies Act provisions existed or could have developed in the future. To present a fair and accurate view of accounts, they must conform to UITF Abstracts.
As a result of reforms to Financial Reporting Council (FRC), the UITF was dissolved on July 2, 2012. Its role was and is now a part of the Accounting Council.
Statements Of Recommended Practice (SORPs)
The ASC was the one to develop the first SORPs. These standards are specific to particular sectors or industries. The FRC recognizes the power of other bodies to create SORPs to guide the application and maintenance of accounting standards in specific sectors or industries. SORPs can be obtained from the appropriate bodies in the relevant industries or sectors. For example, the Charity Commission issues the charity SORP.
SORPs are typically first issued to be reviewed as Exposure Drafts. These SORPs are not approved by the FRC. If they are created in accordance to certain guidelines, the FRC issues a “negative assurance statement” to be attached to the SORP. This confirms that it doesn’t contain any provision that is inconsistent with FRC policy and principles.
Generally Accepted Accounting Practice (GAAP)
The UK accounting standards most used are the GAAP. The acronym GAAP stands to indicate ‘Generally accepted accounting practice’, or alternatively Generally accepted accounting principles’ or Generally acceptable accounting policies’. GAAP refers to the generally accepted accounting principles or policies that are applicable to accounting practices, as laid out by standards, legislation, or upheld by accounting professionals.
What is the GAAP standard?
There are specific UK GAAP rules for businesses that operate in the UK. The financial reporting framework was updated in 2015 to reflect this.
FRS 100-105 was the basic standard of GAAP in the UK. Two additional standards, Statements of Recommend practice (SORPS), and Financial Reporting Standard for Smaller Entities, was created for companies in specific industries. To improve and replace the existing standards, FRS 100, 101, and 102 have been created.
These changes may have a different impact on your work practice, but the key changes are:
- FRS 102 combines the previous FRS, SSAP, and UITF approaches into one standard;
- For parent entities and subsidies of groups that make publicly-viewable, consolidated statements, there is a new disclosure framework;
- These standards will be applied to the vast majority of medium- and large-sized companies. This applies to all entities that are classified as public benefit entities. They include those that manage retirement benefits plans and other institutions that are directly involved with finance;
- SORP was completely removed and replaced by the new standards;
- Disclosure requirements for parent companies and subsidiaries are reduced.
Below is the current FRS in the United Kingdom
- FRS 100: Financial Reporting Requirements
- FRS 101 The Reduced Disclosure Framework
- FRS102: The Financial Reporting Standard in the UK and ROI
- FRS 103: Insurance Contracts
Two additional standards follow:
- FRS 104: Interim Financial Reporting
- FRS 105: Financial Reporting Standard for Micro-Entities
What is the GAAP principle?
- Economic Entity Assumption – This principle aims to distinguish between transactions performed by the business and those made by the owner;
- Assumption of Monetary Unit: All records should always be in a financial currency. This is usually the currency in which the accounts were prepared;
- Time Period Assumption – A company should report its financial statements within a certain time period. This is commonly called an accounting year;
- Matching Principle: It is important that expenses and revenues are recognized in the same accounting period;
- Revenue Recognition Principle: Commonly used in accrual accounting, this principle establishes that revenues are recognized in the period they were earned and not when cash was received;
- Cost Principles: This principle states that assets should be recorded at their initial cost;
- Full Disclosure Principle: An entity must disclose all relevant information when presenting financial statements to ensure that potential investors and stakeholders have a complete picture of the company’s financial situation;
- The Going Concern Principle: This is a fundamental principle of the UK Accounting Standards. It assumes that a company will finish its plans within the next financial year and then use its assets to fulfill its financial obligations.
What are the benefits of the UK Accounting Standards?
These regulations allow investors and businesses to reap the many benefits, as you will see below.
Informed Decision Making.
- The UK Accounting standards are crucial in the production of annual financial statements. They ensure that materials are robust and fit-for-purpose;
- A clear and readable balance sheet can show how healthy a company’s finances are at any given time. These documents are often used for the planning and allocation of resources;
- Annual statements are produced to protect shareholders and creditors, while also allowing businesses to make important decisions about their tax structure;
- These statements are generated using GAAP practice and show how profitable businesses are.
International Business Trading
- This can streamline communication and give you a clear view of the risks and benefits of engaging with an entity;
- Companies that trade frequently with foreign counterparts were required to follow international accounting standards;
- Recent changes to GAAP procedures allow UK standards closer alignment with European ones;
- Although there are still some discrepancies, this allows businesses, particularly when dealing with EU-listed companies or stock-listed companies, to be more efficient and to save time and resources.
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