bridging the gaap

Accountants & business advisers

Bridging the GAAP A summary of differences

between IFRS and UK GAAP

Assurance & Advisory

Table of contents Introduction ........................................................................................................................................................ 3 Presentation of financial statements.................................................................................................................. 4 Statement of financial position........................................................................................................................... 5

Non-current assets......................................................................................................................................... 5 Property, plant and equipment ................................................................................................................... 5 Investment property.................................................................................................................................... 6 Intangible assets......................................................................................................................................... 7 Impairment of assets .................................................................................................................................. 8

Current assets.............................................................................................................................................. 10 Inventories ................................................................................................................................................ 10

Liabilities ...................................................................................................................................................... 10 Provisions, contingent liabilities and contingent assets ........................................................................... 10

Statement of comprehensive income .............................................................................................................. 11 Income ......................................................................................................................................................... 11

Revenue ................................................................................................................................................... 11 Construction contracts.............................................................................................................................. 11 Accounting for government grants ........................................................................................................... 12

Expenses ..................................................................................................................................................... 13 Employee benefits .................................................................................................................................... 13 Share-based payments ............................................................................................................................ 15 Borrowing costs ........................................................................................................................................ 15

Statement of cash flows................................................................................................................................... 16 Accounting policies, changes in accounting estimates and errors.................................................................. 17 General topics.................................................................................................................................................. 18

Consolidated and separate financial statements ......................................................................................... 18 Investments in associates............................................................................................................................ 19 Interests in joint ventures ............................................................................................................................. 20 Business combinations ................................................................................................................................ 21 Financial instruments, equity and hedging .................................................................................................. 24 Deferred tax and income taxes .................................................................................................................... 25 The effects of changes in foreign exchange rates ....................................................................................... 26 Leases.......................................................................................................................................................... 28 Non-current assets held for sale and discontinued operations.................................................................... 29 Agriculture .................................................................................................................................................... 31

Disclosure topics.............................................................................................................................................. 32 Earnings per share....................................................................................................................................... 32 Events after the reporting date..................................................................................................................... 32 Related party disclosures............................................................................................................................. 32 Segment information.................................................................................................................................... 33 Interim financial reporting............................................................................................................................. 35 Financial reporting in hyperinflationary economies...................................................................................... 36

Index ................................................................................................................................................................ 37

Introduction This document aims to highlight and to assist you in understanding areas where there are significant differences between International Financial Reporting Standards (‘IFRS’) and United Kingdom Generally Accepted Accounting Practice (‘UK GAAP’). It is not intended to be an exhaustive comparison of the two sets of accounting standards nor a full explanation of IFRS standards. For an overview of each IFRS standard and interpretation please refer to the ‘IFRS Summary 2010’ publication. The paper also sets out to emphasize the differences related to recognition, measurement, and presentation and does not deal specifically with disclosure differences unless the topic being compared is disclosure related or a disclosure difference is considered to be of importance. The differences between the FRSSE and IFRS, and differences relating to the following topics have also not been included: First time adoption of international financial reporting standards IFRS 1 Insurance contracts IFRS 4 Exploration and evaluation of mineral resources IFRS 6 Accounting and reporting by retirement benefit plans IAS 26 The document takes into account standards and interpretations that are currently in issue. This includes references to standards and interpretations that are not yet effective, and certain recent accounting developments. The comparison also includes source references to accounting standards and company legislation to assist the user in referring to the original frameworks. References to the Companies Act are references to the Companies Act 2006 and related regulations. Examples of source references and abbreviations that have been used are: IAS 1 para 68 Paragraph 68 of International Accounting Standard 1 IFRS 3 para 2 Paragraph 2 of International Financial Reporting Standard 3 FRS 3 para 20 Paragraph 20 of Financial Reporting Standard 3 SSAP 4 para 25 Paragraph 25 of Statements of Standard Accounting Practice 4 S.I. 2008 No.410 Sch1 Schedule 1 of The Large and Medium-sized Companies and Groups (Accounts and

Reports) Regulations 2008 UITF 34 para 15 Paragraph 15 of Urgent Issues Task Force Abstract 34 SIC 27 para 2 Paragraph 2 of Standing Interpretations Committee 27 IFRIC 12 para 3 Paragraph 3 of International Financial Reporting Interpretations Committee 12 LR 9.9.8R(4) Sub-section 4 of Rule 9.9.8R, of the London Stock Exchange Listing Rules AIM Rule 18 Rule 18 of the Alternative Investment Market Listing Rules ASB:IR para 55 Paragraph 55 of the Accounting Standards Board’s Interim Reports statement The future of UK GAAP It is worth noting at this point that UK GAAP as we know it will cease to exist within the next few years, and a comparison of the two reporting frameworks will no longer be considered necessary. During 2009 the Accounting Standards Board (ASB) issued a consultation paper setting out its proposals for the future reporting requirements for UK entities. The ASB proposed a three-tier approach, under which:

• publicly accountable entities would apply EU adopted IFRS (tier 1) • all other UK entities (except those who can apply the FRSSE would apply the IFRS for SMEs (tier 2). • small entities could choose to continue to apply the FRSSE (tier 3).

Entities would also have the option to apply the standards applicable to a higher tier. The ASB has since published further exposure drafts for consultation. The effective date has been extended to periods commencing on or after 1 July 2013.

Important This document is intended as general information only and should not be

relied upon as a substitution for reading the full standards. No responsibility for loss occasioned by any person acting or not acting as a result of this material can be accepted by PKF (UK) LLP.

Introduction 3

Presentation of financial statements

IFRS UK GAAP

IAS 1 FRS 18, FRS 3, FRS 28, CA06 General No guidance is provided on the format of primary statements. States line items that should be disclosed as a minimum on the face of the Statement of comprehensive income (‘SOCI’) (previously Income Statement) and Statement of Financial Position (‘SOFP’) (previously Balance Sheet). [IAS 1 paras 54-58 ,,81-83] Comparative information should be disclosed in respect of the previous period for all amounts reported in the financial statements. [IAS 1 para 38] Statement of comprehensive income (‘SOCI’) Disclosure of an operating profit line item on the face of the SOCI is not required, but is permitted. [IAS 1 para 85] The profit or loss from discontinued operations and the gain or loss on the disposal of a discontinued operation is shown after tax as a separate single line item on the face of the SOCI. Additional disclosure is required in the notes by IFRS 5. [IAS 1 para 82e] Statement of changes in equity (‘SOCIE’) A SOCIE is now required. [IAS 1 paras 106,107] A “SORIE” is no longer permitted. Notes Disclosure is required of the significant judgements that management have made in the process of applying the entity’s accounting policies, and the key sources of estimation uncertainty and key assumptions used in preparing the accounts. [IAS 1 paras 122,125] Disclosure of objectives, policies and processes for managing capital is required to be provided by all entities. [IAS 1 para 134]

General The format and content of financial statements is more strictly regulated by the UK Companies Act 2006. [S.I. 2008 No. 410 Sch1] FRS 28 requires corresponding amounts to be shown for all items shown in the financial statements, except for some limited exceptions. [FRS 28 paras 6,10,11] Profit and loss account Disclosure of an operating profit line item on the face of the profit and loss account is required by FRS 3. [FRS 3 para 14] The revenue and operating profit or loss from discontinued operations is required to be separately disclosed on the face of the profit and loss account. Further disclosure is required in the notes to the financial statements but may be provided on the face of the profit and loss account. [FRS 3 para 20] Statement of recognised gains and losses (‘STRGL’) A STRGL, which is similar to the other comprehensive income section of the SOCI, is required to be presented in the financial statements. A SOCIE is not permitted. A note to the financial statements is required to show movements in other equity line items. [FRS 3 para 27] Notes An entity is only required to disclose a description of the estimation techniques adopted that are significant in preparing the financial statements. [FRS 18 paras 55(b), 57] The disclosures requirements relating to capital management are identical to those required by IFRS however the relevant paragraphs are included in appendix E to FRS 29, a standard which is only applicable to listed companies or companies that voluntarily adopt the fair value accounting rules. [FRS 29 para E1]

Presentation of financial statements 4

Statement of financial position

Non-current assets

Property, plant and equipment

IFRS UK GAAP

IAS 16 FRS 15

Scope The scope of IAS 16 does not apply to non-current assets held for sale, biological assets, investment properties, and assets arising from the exploration for and evaluation of mineral resources, as other standards require or permit a different accounting treatment. [IAS 16 paras 3,5] Measurement Property, plant and equipment (‘PPE’) acquired in exchange for a non-monetary asset is measured at the fair value of the asset given up unless the fair value of the asset received is more clearly evident. If the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset given up is reliably measurable then the cost is measured at the carrying value of the asset given up. [IAS 16 paras 24,26] Depreciation The residual value, useful life and depreciation method applied to an asset should be reviewed at least at each financial year end. [IAS 16 paras 51,61] The residual value of an asset is the estimated amount that an entity would currently obtain (i.e. taking into account price changes up to the reporting date) from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful life. [IAS 16 para 6] Renewals accounting The renewal accounting approach is not permitted under IAS 16.

Scope The scope of FRS 15 applies to all tangible fixed assets, with the exception of investment properties. [FRS 15 para 4] Measurement There is no guidance on measuring the initial cost of a tangible asset acquired in exchange for a non-monetary asset. Depreciation The residual value and useful life should be reviewed at least annually. There is no requirement to review the depreciation method at least annually. [FRS 15 paras 93,95] Unlike IFRS, residual values are based on prices prevailing at the date of the acquisition (or revaluation) of the asset and do not take account of price changes between acquisition (or revaluation) date and balance sheet date. [FRS 15 para 2] Renewals accounting Specific guidance is given on renewals accounting for infrastructure assets. [FRS 15 paras 97,98]

Statement of financial position 5

Revaluation A revaluation decrease is debited directly to equity to the extent of any credit balance existing in revaluation surplus in respect of that asset. Any further decrease is recognised in profit or loss. [IAS 16 para 40]

Revaluation A revaluation loss caused by a clear consumption of economic benefits should be recognised in profit or loss. Other revaluation losses should be recognised in STRGL until the carrying amount reaches its historical cost, and thereafter in profit or loss, unless it can be shown that the recoverable amount of the asset is greater than its revalued amount, in which case the loss should be recognised in STRGL to the extent that the recoverable amount of the asset is greater than its revalued amount. [FRS 15 para 65]

Investment property

IFRS UK GAAP

IAS 40 SSAP 19

Definition Investment property is property held to earn rentals or for capital appreciation or both, rather than for: use in the production or supply of goods or

services or for administrative purposes; or sale in the ordinary course of business. [IAS 40

para 5] If an entity owns property that is leased to, and occupied by, its parent or another subsidiary, the property does not qualify as investment property in the consolidated financial statements, because the property is owner-occupied from the perspective of the group. However, from the perspective of the entity that owns it, the property is investment property. Therefore, the lessor treats the property as investment property in its individual financial statements. [IAS 40 para 15] IAS 40 applies to existing investment property that is being redeveloped for continued future use as investment property. [IAS 40 para 9] A property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property if, and only if, the property would otherwise meet the definition of an investment property and the lessee uses the fair value model for the asset recognised and for all other investment properties. [IAS 40 para 6]

Definition The definition under UK GAAP is similar, except that: any rental income should be negotiated at arm’s

length; a property let to and occupied by another group

entity is not an investment property for the purposes of its own accounts or the group accounts; and

there is no mention of redeveloped investment

properties. [SSAP 19 paras 7,8] Although not specifically stated, the definition of investment property would include property interests held by a lessee under an operating lease.


Measurement An entity should choose as its policy either the fair value model or cost model and apply that policy to all of its investment property. [IAS 40 para 30] A gain or loss arising from a change in the fair value of investment property should be recognised in profit or loss for the period in which it arises. [IAS 40 para 35]

Measurement Investment properties should be included in the balance sheet at their open market value. Cost model alternative is not permitted. [SSAP 19 para 11] Changes in the market value should be taken to the STRGL (being a movement on an investment revaluation reserve), unless a deficit (or its reversal) on an individual investment property is expected to be permanent, in which case it should be charged (or credited) in the profit and loss account of the period. [SSAP 19 para 13]

Intangible assets

IFRS UK GAAP

IAS 38 FRS 10, SSAP 13

Definition A wider range of intangible assets is recognised under IFRS, such as software licences. An intangible asset is an identifiable when it is separable or it arises from contractual or other legal rights (regardless of whether those rights are separable from the entity. [IAS 38 para 12] Recognition An intangible asset arising from development (or from the development phase of an internal project) should be recognised if, and only if, an entity can demonstrate certain criteria. [IAS 38 para 57] Measurement Unlike UK GAAP goodwill may not be amortised. After initial recognition goodwill acquired in a business combination should be measured at cost less any accumulated impairment losses. [IFRS3 para B63] There is no rebuttable presumption of 20 years under IFRS. An entity should assess whether the useful life of an intangible asset is finite or indefinite. [IAS 38 para 88]

Definition Under UK GAAP software licences are regarded as tangible assets. [FRS 10 para 2] Under FRS 10, an asset is identifiable only when it is capable of being sold separately from the entity. Separability is therefore a necessary condition for identifiably. [FRS 10 para 2] Recognition SSAP 13 requires and entity to demonstrate similar criteria as IAS 38 before capitalising development costs. However unlike IFRS, SSAP 13 also allows an entity to choose whether to capitalise or expense development expenses. [SSAP 13 para 25] Measurement Purchased goodwill and intangible assets are amortised over their useful economic lives. There is a rebuttable presumption that the useful economic lives of purchased goodwill and intangible assets are limited to periods of 20 years or less. If the presumption is rebutted an annual impairment review of the intangible asset or goodwill is required. Like IFRS the useful lives of intangible assets and goodwill may be regarded as indefinite. [FRS 10 para 19]


Bargain purchase If the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the sum of the purchase consideration; the amount of any non-controlling interest; and the amount of previously held interest, the acquirer should subject to reassessing the amounts involved recognise the excess immediately in profit or loss. [IFRS 3 para 34,36]. For further discussion on bargain purchases please refer to the section on business combinations.

Negative goodwill Negative goodwill is calculated differently as the amount the acquirer’s interest in the net fair value of the assets and liabilities acquired exceeds the purchase consideration. Negative goodwill should be recognised and separately disclosed on the face of the balance sheet. Negative goodwill up to the fair values of the non-monetary assets acquired should be recognised in profit and loss in the periods in which the non-monetary assets are recovered. Any negative goodwill in excess of the fair values of the non-monetary assets acquired should be recognised in profit and loss in the periods expected to benefit. [FRS 10 paras 48,49,50]

Impairment of assets

IFRS UK GAAP

IAS 36, IFRIC 10 FRS 11

Recognition An impairment loss should be recognised immediately in profit or loss, unless the asset is carried at a revalued amount. Any impairment loss of a revalued asset should be treated as a revaluation decrease and recognised in other comprehensive income to the extent of any credit balance in the revaluation surplus in respect of that asset. There is no exception if the impairment is caused by a clear consumption of economic benefits. [IAS 36 paras 60,61] An impairment loss for a cash generating unit (‘CGU’) is allocated firstly to reduce the carrying amount of any goodwill allocated to the CGU, and then, to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. [IAS 36 para 104] A reversal of an impairment loss for a CGU should be allocated to the assets of the unit, including intangible assets, except for goodwill, pro rata with the carrying amounts of those assets. [IAS 36 para 122]

Recognition An impairment loss on a revalued fixed asset should be recognised in the profit and loss account if it is caused by a clear consumption of economic benefits. Other impairments of revalued fixed assets should be recognised in the statement of total recognised gains and losses until the carrying amount of the asset reaches its depreciated historical cost and thereafter in the profit and loss account. [FRS 11 para 63] An impairment loss of an income-generating unit (‘IGU’) is allocated firstly, to any goodwill in the unit thereafter, to any capitalised intangible asset in the unit, and finally, to the tangible assets in the unit, on a pro rata or more appropriate basis. [FRS 11 para 48] The reversal of an impairment loss on intangible assets and goodwill should be recognised if certain conditions are met. [FRS 10 para 36]



Testing for impairment annually Irrespective of whether there is any indication of impairment, an entity should test goodwill for impairment annually. Unlike UK GAAP goodwill may not be amortised under IFRS but should be measured at cost less any accumulated impairment losses. [IAS 36 para 10] Intangible assets with an indefinite useful life and intangible assets not yet available for use should be tested for impairment annually. [IAS 36 para 10] Business are merged There no requirement under IFRS to estimate the value of internally generated goodwill when an acquired business is merged with an existing business. However purchased goodwill is required to be allocated to the acquirers pre-existing CGU’s that are expected to benefit from the synergies of the combination. [IAS 36 para 80] Value in use Estimates of future cash flows should not include estimated future cash inflows or outflows that are expected to arise from a future restructuring to which an entity is not yet committed, or from improving or enhancing the asset’s performance. [IAS 36 para 44] Under IFRS management should only assess the reasonableness of the assumptions on which its current cash flow projections are based by examining the causes of differences between past cash flow projections and actual cash flows. There is however no requirement to recognise any impairment losses for differences that arose between forecast cash flows and actual cash flows achieved. [IAS 36 para 34]

Testing for impairment annually Unlike IFRS not all goodwill is required to be tested for impairment annually. Goodwill that is amortised over period of 20 years or less (which is the most frequently adopted treatment under UK GAAP), is not required to undergo an annual impairment test unless there is an indication of impairment. [FRS 10 para 34] An annual impairment review of an intangible asset is only required if the 20 year useful life presumption has been rebutted. There is no requirement to annually test intangible assets not yet available for use. [FRS 10 para 37] Business are merged FRS 11 requires the value of internally generated goodwill of an existing business to be estimated where an acquired business is merged with an existing business that results in an IGU that contains both purchased and internally generated goodwill. FRS 11 also provides guidance on the treatment of any subsequent impairment losses. [FRS 11 paras 50,51,52] Value in use FRS 11 contains similar provisions to IAS 36 but permits the inclusion of estimated future cash flows that are expected to arise from a future restructuring to which an entity is not yet committed. FRS 11 states that in some cases in assessing the future cash flows of an investment, the costs and benefits of reorganisations up to the end of the first full year after acquisition may be taken into account in those and subsequent impairment reviews, to the extent that the investment or reorganisations are still to be incurred. [FRS 11 para 39] Under UK GAAP for the five years following each impairment review the cash flows achieved should be compared with those forecasted. If the actual cash flows are so much less than those forecast that use of the actual cash flows could have required recognition of an impairment in previous periods, the original impairment calculations should be re-performed using the actual cash flows. Any impairment identified should be recognised in the current period unless the impairment has reversed and the reversal of the loss is permitted to be recognised. [FRS 11 para 54]

Current assets

Inventories

IFRS UK GAAP

IAS 2 SSAP 9

Measurement An entity may purchase inventories on deferred settlement terms. When the arrangement effectively contains a financing element, that element, for example a difference between the purchase price for normal credit terms and the amount paid, is recognised as interest expense over the period of the financing. [IAS 2 para 18]

Measurement No equivalent guidance is given in SSAP 9.

Liabilities

Provisions, contingent liabilities and contingent assets

IFRS UK GAAP

IAS 37 FRS 12

There are no significant differences between UK GAAP and IFRS.

There are no significant differences between UK GAAP and IFRS.


Statement of comprehensive income

Income

Revenue

IFRS UK GAAP

IAS 18 FRS 5, Application note G, Revenue recognition

International accounting standards establish the principles of revenue recognition in one standard. Different types of revenue are accounted for based on these principles. However specific guidance is given in the appendix to IAS 18 and in the following areas: Construction contracts – IAS 11 Leases – IAS 17, IFRIC 4, SIC 15, SIC 27 Barter transactions – SIC 31

In most situations the requirements of FRS 5, Application note G are consistent with those of IAS 18. Specific guidance is also given in the following areas: Long-term contracts – SSAP 9 Accounting for start-up costs – UITF 24 Barter transactions – UITF 26 Operating lease incentives – UITF 28 Pre-contract costs – UITF 34 Contract for sales of capacity – UITF 36 Revenue recognition and service contracts –

UITF 40 Revenue recognition under these UITFs is consistent with the principles or specific guidance in IFRS.

Construction contracts

IFRS UK GAAP

IAS 11 SSAP 9

Recognition Costs that relate directly to a contract and are incurred in securing the contract are also included as part of the contract costs if they can be separately identified and measured reliably and it is probable that the contract will be obtained. [IAS 11 para 21] When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. There is no mention of prudence. [IAS 11 para 22]

Recognition Pre-contract costs should be recognised as expenses as incurred, except that directly attributable costs should be recognised as an asset when it is virtually certain that a contract will be obtained [UITF 34 para 15] Where it is considered that the outcome of a long-term contract can be assessed with reasonable certainty before its conclusion, the prudently calculated attributable profit should be recognised in the profit and loss account as the difference between the reported turnover and the related costs for that contract. [SSAP 9 para 29]

Statement of comprehensive income 11

Presentation An entity should present the gross amount due from customers for contract work as an asset and the gross amount due to customers for contract work as a liability. [IAS 11 para 42]

Presentation An entity should present two separate line items in the balance sheet notes. An amount should be shown under stocks (‘Long-term contract balances’), which comprises the total costs incurred, less amounts transferred to the profit and loss account in respect of work carried out to date, and less foreseeable losses and applicable payments on account. If turnover exceeds payments on account an 'amount recoverable on contracts’ is separately disclosed within debtors. If payments on account are greater than turnover to date, the excess is classified as a deduction from any balance on that contract in stocks, with any residual balance in excess of cost being classified within creditors. [SSAP 9 para 30]

Accounting for government grants

IFRS UK GAAP

IAS 20 SSAP 4

Presentation Government grants related to assets, including non-monetary grants at fair value, should be presented in the SOFP either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset. [IAS 20 para 24] Non-monetary government grants A government grant may take the form of a transfer of a non-monetary asset, such as land or other resources, for the use of the entity. In these circumstances it is usual to assess the fair value of the non-monetary asset and to account for both grant and asset at that fair value. An alternative that is sometimes used is to record both asset and grant at a nominal amount. [IAS 20 para 23]

Presentation SSAP 4 is similar to IAS 20 in that an entity can choose to either credit a deferred income account or deduct the grant value from the cost of the related asset. However, if an entity is governed by the Companies Act 2006 it will not be permitted to deduct the value of the grant from the cost of the asset, as the Act states that the purchase price of an asset should be the actual price paid plus any expenses incidental to its acquisition. [SSAP 4 para 25, CA 85 Sch 4] Non-monetary government grants Where a government grant takes the form of a transfer of non-monetary assets, the amount of the grant is the fair value of the assets transferred. The alternative of using a nominal amount is not permitted under UK GAAP. [SSAP 4 para 16]


Expenses

Employee benefits

IFRS UK GAAP

IAS 19 FRS 17

Scope IAS 19 should be applied by an employer in accounting for all employee benefits, except those to which IFRS 2 Share-based Payment applies. Employee benefits include those provided: under formal plans and agreements; under legislative requirements, or through industry arrangements; or by those informal practices that give rise to a constructive obligation. [IAS 19 paras 1,3] Defined benefit plans that share risks between various entities under common control, for example, a parent and its subsidiaries, are not multi-employer plans. An entity participating in such a plan should obtain information about the plan as a whole measured in accordance with IAS 19 on the basis of assumptions that apply to the plan as a whole. If there is a contractual agreement or stated policy for charging the net defined benefit cost for the plan as a whole measured in accordance with IAS 19 to individual group entities, the entity should, in its separate or individual financial statements, recognise the net defined benefit cost so charged. If there is no such agreement or policy, the net defined benefit cost should be recognised in the separate or individual financial statements of the group entity that is legally the sponsoring employer for the plan. The other group entities should, in their separate or individual financial statements, recognise a cost equal to their contribution payable for the period. [IAS 19 paras 34, 34A] Recognition and measurement The amount recognised as a defined benefit liability should be the net total of: the present value of the defined benefit obligation; plus any actuarial gains (less any actuarial losses) not recognised; minus any past service cost not yet recognised; minus the fair value at the reporting date of plan assets (if any) out of which the obligations are to be settled directly. [IAS 19 para 54]

Scope The FRS only covers retirement benefits that an employer is committed to providing, whether the commitment is statutory, contractual or implicit in the employer's actions. [FRS 17 para 4] Subsidiaries are not exempt from the FRS and, where possible, will account for defined benefit schemes in accordance with its requirements. However, some group schemes are run on a basis that does not enable individual companies within the group to identify their share of the underlying assets and liabilities. In these circumstances, the individual companies (including the parent entity) within the group will account for the scheme as a defined contribution scheme and will give the additional disclosures required. From the point of view of the group entity, a group defined benefit scheme is not a multi-employer scheme and is treated as any other defined benefit scheme. [FRS 17 para 12] Recognition and measurement The amount recognised as a defined benefit liability should be the net total of: the present value of the defined benefit obligation; minus any past service cost not yet recognised; minus the fair value at the balance sheet date of plan assets (if any) out of which the obligations are to be settled directly. Actuarial gains and losses are recognised immediately in the STRGL for the period. [FRS 17 para 57]


An entity should determine the present value of defined benefit obligations and the fair value of any plan assets with sufficient regularity that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the reporting date. An entity is not required to involve a qualified actuary in the measurement of all material post-employment benefit obligations. [IAS 19 paras 56,57] Past service costs Past service cost arises when an entity changes the benefits payable. [IAS 19 para 97]. Past service cost may be either positive (where benefits are introduced or improved) or negative (where existing benefits are reduced). [IAS 19 para 7] Actuarial gains and losses The portion of actuarial gains and losses to be recognised in profit or loss for each defined benefit plan is the excess, determined using the ‘corridor approach’, divided by the expected average remaining working lives of the employees participating in that plan. However, an entity may choose to adopt any systematic method that results in faster recognition of actuarial gains and losses in profit or loss, provided that the same basis is applied to both gains and losses and the basis is applied consistently from period to period. [IAS 19 paras 92,93] Similar to the required FRS 17 treatment, if an entity chooses to adopt a policy of recognising actuarial gains and losses in the period in which they occur, it may recognise them outside of profit or loss in other comprehensive income. An entity may only adopt such a policy provided it does so for all of its defined benefit plans and all of its actuarial gains and losses. [IAS 19 paras 93A,93B] Presentation The defined benefit asset or liability is not required to be presented separately on the face of the SOFP. However additional line items, headings and subtotals should be presented on the face of the SOFP when such presentation is relevant to an understanding of the entity's financial position. [IAS 1 paras 68,69] Unlike FRS 17, the deferred tax asset / liability is not offset against the defined benefit obligation / asset but is included within the deferred tax assets / liabilities line item on the face of the SOFP. [IAS 1 para 68]

Full actuarial valuations by a professionally qualified actuary should be obtained for a defined benefit scheme at intervals not exceeding three years. The actuary should review the most recent actuarial valuation at the balance sheet date and update it to reflect current conditions. [FRS 17 para 35]. Assets in a defined benefit scheme should be measured at their fair value at the balance sheet date. [FRS 17 para 14] Past service costs Past service costs arise when the employer makes a commitment to provide a higher level of benefit than previously promised. [FRS 17 para 61] Actuarial gains and losses Unlike IFRS an entity does not have a policy choice when recognising actuarial gains and losses. Under UK GAAP actuarial gains and losses are recognised immediately in the STRGL in the period in which they arise and may never be recognised in profit or loss. [FRS 17 para 57] Unlike IFRS an entity does not have a policy choice when recognising actuarial gains and losses. Under UK GAAP actuarial gains and losses are recognised immediately in the STRGL in the period in which they arise and may never be recognised in profit or loss. [FRS 17 para 57] Presentation The defined benefit asset or liability should be presented separately on the face of the balance sheet. [FRS 17 para 47] The deferred tax relating to the defined benefit asset or liability should be offset against the defined benefit asset or liability and not included with other deferred tax assets or liabilities. [FRS 17 para 49]


This Standard does not specify whether an entity should present current service cost, interest cost and the expected return on plan assets as components of a single item of income or expense on the face of the SOCI. [IAS 19 para 119] Disclosure Years commencing on or after the 6 April 2007 disclosure is same in UK GAAP as IFRS. Prior to this there are differences.

Current service cost, past service cost, settlements and curtailments should be included within operating profit in the profit and loss account. [FRS 17 paras 51,60,64]. The net of the interest cost and the expected return on assets should be included as other finance costs (or income) adjacent to interest. [FRS 17 para 56] Disclosure Years commencing on or after the 6 April 2007 disclosure is same in UK GAAP as IFRS. Prior to this there are differences.

Share-based payments

IFRS UK GAAP

IFRS 2 FRS 20, UITF 38

There are no differences between UK GAAP and IFRS.

There are no differences between UK GAAP and IFRS.

Borrowing costs

IFRS UK GAAP

IAS 23 FRS 15

Recognition An entity should capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. [IAS 23 para 8] Borrowing costs eligible for capitalisation To the extent that an entity borrows funds specifically for the purpose of obtaining a qualifying asset, the entity should determine the amount of borrowing costs eligible for capitalisation as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. [IAS 23 para 12]

Recognition An entity need not capitalise finance costs. However, if an entity adopts a policy of capitalisation, then it should be applied consistently to all tangible fixed assets. Finance costs may only be capitalised if they are directly attributable to the construction of tangible fixed assets. [FRS 15 paras 19,20] Borrowing costs eligible for capitalisation Where the entity has borrowed funds specifically for the purpose of financing the construction of a tangible fixed asset, the amount of finance costs capitalised is limited to the actual costs incurred on the borrowings during the period in respect of expenditures to date on the tangible fixed asset. [FRS 15 para 22]


Statement of cash flows

IFRS UK GAAP

IAS 7 FRS 1

Scope IAS 7 does not have any exemptions from its scope. [IAS 7 para 1] Definition IAS 7 defines cash flows as movements in both cash and cash equivalents. Cash equivalents are defined as short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. An investment normally qualifies as a cash equivalent only when it has a short maturity of three months or less from the date of acquisition. Bank overdrafts which are repayable on demand are included as a component of cash and cash equivalents. [IAS 7 paras 6,7,8] Presentation of a statement of cash flow IAS 7 classifies cash flows under three headings: 'cash flows from operating activities', 'cash flows from investing activities', and 'cash flows from financing activities'. [IAS 7 para 10] IAS 7 does not require a reconciliation of the movement in cash flows to the movement in net debt. Foreign currency cash flows The effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the statement of cash flow in order to reconcile cash and cash equivalents at the beginning and the end of the period. [IAS 7 para 28] The cash flows of a foreign subsidiary should be translated at the rates between the functional currency and the foreign currency at the dates of the cash flows. An exchange rate that approximates the actual rate may be used. [IAS 7 paras 26,27]

Scope The FRS gives exemption to small entities, subsidiary undertakings 90 per cent of whose voting rights are controlled within the group, mutual life assurance companies, pension funds and certain open-ended investment funds. Building societies that prepare a statement of source and application of funds in the prescribed format are permitted two years' exemption from the effective date of the FRS. [FRS 1 para 5] Definition FRS 1 defines cash flows to include only movements in cash. Cash is defined as cash in hand and deposits repayable on demand, less overdrafts. Deposits are repayable on demand if they can be withdrawn at any time without notice and without penalty or if a maturity or period of notice of not more than 24 hours or one working day has been agreed. The narrower definition of cash in the FRS is consistent with the definition of 'cash' in IAS 7. Cash flows relating to ‘cash equivalents’ are included in the 'management of liquid resources' section of the cash flow statement. [FRS 1 paras 2,26] Presentation of a cash flow statement FRS specifies a fuller analysis using nine headings. [FRS 1 para 7] FRS 1 requires a note reconciling the movement of cash in the period with the movement in net debt. This should be given either adjoining the cash flow statement or in a note. [FRS 1 para 33] Foreign currency cash flows The effect of rate changes on cash held or due in a foreign currency is not reported in the cash flow statement as these are considered to be non-cash items. These differences will instead be shown in the reconciliation of net debt. [FRS 1 para 33] The cash flows of a foreign entity are to be included in the cash flow statement on the basis used for translating the results of those activities in the profit and loss account of the reporting entity. [FRS 1 para 41]

Statement of cash flows 16

Accounting policies, changes in accounting estimates and errors

IFRS UK GAAP

IAS 8 FRS 3, FRS 18

Selecting accounting policies In developing accounting policies, in the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or condition, management should refer to, and consider the applicability of: the requirements and guidance in Standards and Interpretations dealing with similar and related issues; the definitions, recognition criteria and Framework; the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices. [IAS 8 paras 11,12] Errors An entity should correct material prior period errors retrospectively, unless considered impracticable. Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud. [IAS 8 paras 5,42,43] Retrospective restatement Hindsight should not be used when applying a new accounting policy to, or correcting amounts for, a prior period. [IAS 8 para 53] Retrospective application is required for a change in accounting policy, or for correcting a prior period error except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the change. [IAS 8 paras 23,43] Disclosure When an entity has not applied a new Standard or Interpretation that has been issued but is not yet effective, the entity should disclose this fact, together with known or reasonably estimable information relevant to assessing the possible impact that application of the new Standard or Interpretation will have on the entity's financial statements in the period of initial application. [IAS 8 para 30]

Selecting accounting policies No similar hierarchical guidance in UK GAAP although in practice the approach in developing accounting policies under UK GAAP would be similar Errors In exceptional circumstances it may be found that financial statements of prior periods have been issued containing fundamental errors, being those errors which are of such significance as to destroy the true and fair view and hence the validity of those financial statements. Errors have to be considered fundamental and not just material to require a prior period adjustment. [FRS 3 paras 7,60] Retrospective restatement There is no guidance on whether hindsight may or may not be used. No similar exemption in UK GAAP. Disclosure No similar requirement in UK GAAP.

Accounting policies, changes in accounting estimates and errors 17

General topics

Consolidated and separate financial statements IFRS UK GAAP

IAS 27 FRS 2, FRS 5 Scope IAS 27 should be applied in accounting for investments in subsidiaries, jointly controlled entities and associates when an entity presents separate financial statements. [IAS 27 paras 1,3] The existence and effect of potential voting rights that are currently exercisable or convertible, are considered when assessing whether an entity has the power to govern the financial and operating policies of another entity. [IAS 27 para 14] Exemption from consolidation IAS 27 contains no such exemption. IAS 27 does not include an exemption from consolidation where severe long-term restrictions exist. However control is unlikely to exist under such restrictions and therefore the subsidiary will probably not be consolidated. [IAS 27 para 13] If on acquisition a subsidiary meets the criteria to be classified as held for sale in accordance with IFRS 5 it shall be accounted for in accordance with that standard. [IAS 27 para 12] IAS 27 contains no such exemption. Changes in stake IAS 27 requires that transactions which result in a change of ownership interest that do not result in change of control are accounted for as equity transactions (i.e. transactions with owners in their capacity as owners). Any difference between the amount by which the non-controlling interests (‘minority interest’) are adjusted and the consideration paid or received should be recognised directly in equity. [IAS 27 paras 30,31]. Non-coterminous year ends Where the period end of a subsidiary is different from that of the holding company, IFRS allows consolidation where the subsidiary’s period end is within 3 months, before or after that of the holding company’s period end. [IAS 27 para 23]

Scope FRS 2 does not apply to the presentation of the parent’s separate financial statements. [FRS 2 para 18] Options and warrants are only considered in assessing whether an entity has control when they are exercised. [FRS 2 para 87] Exemption from consolidation A parent is exempt from preparing consolidated accounts if the group is small and is not an ineligible group. [FRS 2 para 21(a)] A subsidiary undertaking is to be excluded from consolidation if severe long-term restrictions substantially hinder the exercise of the parent undertaking's rights over the assets or management of the subsidiary undertaking. [FRS 2 para 25(a)] If the interest in a subsidiary undertaking is held exclusively with a view to subsequent resale and the subsidiary undertaking has not previously been consolidated then the subsidiary is to be excluded from consolidation. [FRS 2 para 25(b)] FRS 2 permits a subsidiary to be excluded from consolidation if its inclusion is not material for the purpose of giving a true and fair view; but two or more undertakings may be excluded only if they are not material taken together. [FRS 2 para 76(a)] Changes in stake Unlike IAS 27, when a group increases its interest in a subsidiary, the assets and liabilities of that subsidiary should be fair valued and goodwill arising on the increase in interest should be calculated and recorded. Furthermore, where a group reduces its interest in a subsidiary, it should record any profit or loss arising, taking into account any related goodwill, in the profit and loss account. [FRS 2 paras 51,52] Non-coterminous year ends UK GAAP only permits subsidiaries with different period ends to the parent to be consolidated when their period ends fall within 3 months before that of the holding company, and not after.

General topics 18

Investments in associates

IFRS UK GAAP

IAS 28 FRS 9

Definition IAS 28 defines an associate as an entity over which the investor has significant influence. Significant influence is defined as the power to participate in the financial and operating policy decisions of the investee. IAS 28 would therefore apply to investors that had the ability to exercise significant influence but were not actually exercising it. [IAS 28 para 2] Significant influence IAS 28 contains a rebuttable presumption of significant influence where an investor holds, directly or indirectly through subsidiaries, 20 per cent or more of the voting power of the investee. [IAS 28 para 6] Exemptions IAS 28 contains no such exemption. An investor that does not prepare consolidated financial statements is still required to equity account investments in associates. [IAS 28 para 13] Loss making associates If an investor's share of losses of an associate equals or exceeds its interest in the associate, the investor discontinues recognising its share of further losses. [IAS 28 para 29]

Definition FRS 9 defines an associate as an entity in which an investor has a participating interest and over whose operating and financial policies the investor exercises significant influence. Exercising significant influence means that the investor is actively involved and is influential in the direction of its investee through its participation in policy decisions. The emphasis in the FRS is on the actual exercise of significant influence. [FRS 9 para 4] Significant influence There is a similar presumption of the exercise of significant influence. A holding of 20 per cent or more of the voting rights in another entity suggests, but does not ensure, that the investor exercises significant influence over that entity. The 20 per cent threshold is rebutted if the investor does not fulfil the criteria for the exercise of significant influence. [FRS 9 paras 4,16] Exemptions An entity that prepares consolidated financial statements should include its associates in those statements using the equity method. An entity is therefore exempt from equity accounting if it is not required to prepare consolidated accounts. [FRS 9 para 26]. A parent entity is exempt from preparing consolidated financial statements if the group is small and is not an ineligible group. [FRS 2 para 21(a)] Where an investor does not prepare consolidated financial statements, it should present the relevant amounts for associates by preparing a separate set of financial statements or by showing the relevant amounts, together with the effects of including them, as additional information to its own financial statements. Investing entities that are exempt from preparing consolidated financial statements, or would be exempt if they had subsidiaries, are exempt from this requirement. [FRS 9 para 48] Loss making associates The investor should continue to record changes in the carrying amount for each associate even if application of the equity method results in an interest in net liabilities rather than net assets. [FRS 9 para 44]

General topics 19

Interests in joint ventures

IFRS UK GAAP

IAS 31 FRS 9

Definitions IAS 31 does not include an explicit definition of an entity, and therefore there is no requirement that a jointly controlled entity carry out a trade or business of its own. Accounting treatment A venturer should recognise its interest in a jointly controlled entity using proportionate consolidation or the equity method. Proportionate consolidation has a choice of two reporting formats: including the investor's share of its joint ventures either line-by-line; or as separate line items for assets, liabilities, profit and expenses. It is however worth noting that ED 9 proposes to remove the proportionate consolidation option. [IAS 31 paras 30,34,38,40] The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor's share of the profit or loss of the investee. [IAS 31 para 40] Exemptions IAS 31 contains no such exemption.

Definitions The FRS provides guidance on whether an entity exists, which depends on whether the joint activities amount to the carrying on of a trade or business of its own and not just part of the trades or businesses of entities that have interests in it. [FRS 9 para 4] Accounting treatment In consolidated financial statements an investor should include its joint ventures using the gross equity method in all its primary financial statements. FRS 9 does not permit the use of proportionate consolidation. [FRS 9 para 20] The gross equity method is a form of the equity method under which the investor's share of the aggregate gross assets and liabilities underlying the net amount included for the investment is shown on the face of the balance sheet and, in the profit and loss account, the investor's share of the investee's turnover is noted. [FRS 9 para 4] Exemptions A reporting entity that prepares consolidated financial statements should include its joint ventures in those statements using the gross equity method. A reporting entity is therefore exempt from gross equity accounting if it is not required to prepare consolidated accounts. [FRS 9 para 20]. A parent undertaking is exempt from preparing consolidated financial statements if the group is small and is not an ineligible group. [FRS 2 para 21(a)]

General topics 20

An investor that does not prepare consolidated financial statements is still required to equity account or proportionately consolidate its investments in joint ventures. [IAS 31 paras 31,39] Loss making joint ventures If an investor's share of losses of a joint venture being equity accounted equals or exceeds its interest in the associate, the investor discontinues recognising its share of further losses. An impairment loss is recognised irrespective of whether it is considered to be short term. [IAS 28 para 29]

Where an investor does not prepare consolidated financial statements, it should present the relevant amounts for joint ventures by preparing a separate set of financial statements or by showing the relevant amounts, together with the effects of including them, as additional information to its own financial statements. Investing entities that are exempt from preparing consolidated financial statements, or would be exempt if they had subsidiaries, are exempt from this requirement. [FRS 9 para 48] Loss making joint ventures The investor should continue to record changes in the carrying amount for each joint venture even if application of the gross equity method results in an interest in net liabilities rather than net assets. [FRS 9 para 44]

Business combinations

IFRS UK GAAP

IFRS 3 FRS 6, FRS 7, FRS 10 Scope IFRS 3 applies in accounting for business combinations, whereby one reporting entity the acquirer obtains control of one or more other businesses, the acquiree. IFRS 3 does not apply to business combinations involving: joint ventures; or entities or businesses under common control. [IFRS 3 par 2] Method of accounting All business combinations should be accounted for by applying the acquisition method. Merger accounting is not permitted. [IFRS 3 para 4]

Scope FRS 6 and 7 is framed in terms of an entity becoming a subsidiary undertaking of a parent company that prepares consolidated financial statements, but also apply where an individual entity or other reporting entity combines with a business other than a subsidiary undertaking. FRS 6 and FRS 7 therefore apply to all business combinations and do not provide for any scope limitations. [FRS 6 para 4, FRS 7 para 4] Method of accounting FRS 6 'Acquisitions and Mergers' sets out the circumstances in which the two methods of accounting for a business combination - acquisition accounting (‘purchase method’) and merger accounting - are to be used. [FRS 6 para 5]

General topics 21

Cost of business combination Under IFRS 3 acquisition related costs are required to be expensed to profit and loss as incurred. [IFRS 3 para 53] Contingent consideration IFRS 3 requires contingent consideration to be recognised as part of the cost of the combination at its acquisition date fair value, irrespective of whether payment is probable at acquisition date. Subsequent changes in fair value are recognised in accordance with other IFRSs, usually in profit or loss, rather than by adjusting goodwill. [IFRS 3 paras 39,40,58] Recognition of intangible assets The acquirer shall recognise, separately from goodwill, the identifiable intangible assets acquired in a business combination. An intangible asset is identifiable if it meets either the separability criterion or the contractual-legal criterion. [IFRS 3 paras B31], Business combination achieved in stages In IFRS 3 goodwill is calculated by reference to the fair value of all the net assets of the acquired business at the date when control is obtained. These are compared to the consideration paid and the carrying value of the non-controlling interest plus the fair value of the investments previously held(at the date on which the entity obtains control). Any difference between the fair value of the previous investments and their carrying value at the acquisition date is recognised in the profit and loss, or comprehensive income, where appropriate, akin to a profit or loss on disposal. [IFRS 3 para 42] Initial accounting determined provisionally The acquirer should recognise any adjustments to provisional fair values and the corresponding adjustment to goodwill within twelve months of the acquisition date. Adjustments to fair values and goodwill should be recognised from acquisition date as if the fair values were determined from that date. Comparative information should be presented as if the initial accounting had been completed from the acquisition date. [IFRS 3 para 45] Non-controlling interest Under IFRS 3 the entity has an option to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s fair valued identifiable net assets. [IFRS 3 para 19]

Cost of business combination Unlike IFRS 3 fees and similar incremental costs incurred directly in making the acquisition should be included in the cost of acquisition. [FRS 7 para 28] Contingent consideration Unlike IFRS 3 the cost of acquisition should include a reasonable estimate of the fair value of contingent consideration expected to be paid in the future. The cost of acquisition should be adjusted when revised estimates are made, with consequential corresponding adjustments continuing to be made to goodwill until the ultimate amount is known. [FRS 7 para 27] Recognition of intangible assets UK GAAP is more restrictive than IFRS when it comes to separately recognising intangible assets at acquisition. Intangible assets are therefore more likely to be included within goodwill under UK GAAP than under IFRS. [FRS 7 para 5] Business combination achieved in stages Like IFRS 3 , where a subsidiary undertaking is acquired in stages, its net identifiable assets and liabilities are to be included in the consolidation at their fair values on the date it becomes a subsidiary undertaking, rather than at the date of the earlier purchases. Unlike IFRS3, investments previously held are not remeasured to fair value, when calculating the total consideration (investment) at the date when control is obtained. However, and also unlike IFRS 3 where this results in a misleading calculation of goodwill, goodwill should be calculated as the sum of goodwill arising from each purchase of an interest in the relevant undertaking. Initial accounting determined provisionally Any necessary adjustments to provisional fair values and the corresponding adjustment to purchased goodwill should be incorporated in the financial statements for the first full financial year following the acquisition. Adjustments should be recognised in the year in which they are made and comparatives should note be restated. [FRS 7 para 25] Non-controlling interest (‘Minority Interest’) UK GAAP does not allow an alternative measurement of minority interest. The minority interest in the acquiree is stated at the minority’s proportion of the net fair value of those items. [FRS 6 para 20]

General topics 22

Goodwill IFRS 3 (revised) requires that goodwill is calculated as the consideration paid plus the amount of any non-controlling interest less the entire net assets of the acquired business measured in accordance with the standard. [IFRS 3 para 32] Goodwill acquired in a business combination should not be amortised. Instead, the acquirer should test goodwill for impairment annually, irrespective of whether there is any indication of impairment, or should test goodwill for impairment more frequently if events or changes in circumstances indicate that it might be impaired. IAS 36 para 10] Bargain purchase The acquirer should: reassess the identification and measurement of the acquiree's identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination. Any remaining gain is recognised in profit or loss. [IFRS 3 para 34-36] IFRS 3 only permits the cost of the acquisition and the resulting goodwill to be adjusted within one year of acquisition date. Any adjustment is required to be accounted for retrospectively. [IFRS 3 par 45] Reverse acquisitions In reverse acquisitions, the ‘acquirer’ is the entity whose equity interests have been acquired and the issuing entity is the ‘acquiree’, if the ‘acquirer’ has the power to govern the financial and operating policies of the ‘acquiree’ so as to obtain benefits from its activities.[IFRS 3 par B19]

Goodwill Goodwill is calculated as the difference between the cost of an acquired entity and the aggregate of the acquirer’s interest in the net fair values of the entity’s identifiable assets and liabilities. [FRS 10 para 2] Where goodwill is regarded as having a limited useful economic life, it should be amortised on a systematic basis over that life. Where goodwill is regarded as having an indefinite useful economic life, it should not be amortised. Goodwill that is amortised over a period exceeding 20 years or is not amortised should be reviewed for impairment at the end of each reporting period. [FRS 10 paras 15,17,37] Negative goodwill If an acquisition gives rise to negative goodwill, the fair values of the acquired assets should be tested for impairment and the fair values of the acquired liabilities checked carefully to ensure that none have been omitted or understated. Negative goodwill remaining should be recognised and separately disclosed on the face of the balance sheet. Negative goodwill up to the fair values of the non-monetary assets acquired should be recognised in the profit and loss account in the periods in which the non-monetary assets are recovered, whether through depreciation or sale. Any negative goodwill in excess of the fair values of the non-monetary assets acquired should be recognised in the profit and loss account in the periods expected to benefit. [FRS 10 paras 48,49,50] Under UK GAAP adjustments to purchased goodwill should be incorporated in the financial statements for the first full financial year following the acquisition. Adjustments should be recognised in the year in which they are made and comparatives should not be restated. [FRS 7 para 25] Reverse acquisitions Reverse acquisitions are not compatible with companies’ legislation in the UK. Section 258 of the Companies Act 2006 provides that a parent undertaking should be a member of the subsidiary undertaking and control a majority of the voting rights in the subsidiary undertaking. There is therefore no scope for reverse acquisition situations, however in practice true and fair overrides have been invoked under UK GAAP to use reverse acquisition accounting.

General topics 23

Financial instruments, equity and hedging

IFRS UK GAAP

IFRS 7, IAS 32, IAS 39 FRS 4, FRS 13, FRS 25, FRS 29, FRS 26 Financial instruments: presentation [IAS 32] The presentation requirements of FRS 25 are identical to presentation requirements of IAS 32. Disclosure [IFRS 7] The requirements of FRS 29 are identical to requirements of IFRS 7. The standard should be applied by all entities. Recognition, measurement, and hedging The requirements of FRS 26 are identical to requirements of IAS 39. The standard should be applied by all entities.

Financial instruments: presentation [FRS 25] The presentation requirements of FRS 25 are identical to presentation requirements of IAS 32. Disclosure [FRS 29 / FRS 13] The requirements of FRS 29 are identical to requirements of IFRS 7. The standard should be applied by an entity that is listed on a regulated market in the EU, such as the LSE, or prepared in accordance with the fair value accounting rules set out in the Companies Act 2006 except for: subsidiary undertakings, 90% or more of whose

voting rights are controlled within the group, provided the entity is included in publicly available consolidated financial statements which include disclosures that comply with FRS 29; or

parent companies in respect of their single-entity financial statements, provided the entity is included in publicly available consolidated financial statements which include disclosures that comply with FRS 29.

FRS 13 applies to entities that have any of their capital instruments listed or publicly traded on a stock exchange or market, such as AIM, except that it does not apply: if the entity is listed on a regulated market in the

EU, such as the LSE; if the entity is prepared in accordance with the fair

value accounting rules set out in the Companies Act 2006; or

to a parent’s own financial statements when those statements are presented together with the parent’s consolidated financial statements.

Recognition, measurement, and hedging The requirements of FRS 26 are identical to requirements of IAS 39. The standard should be applied by an entity that is listed on a regulated market in the EU, such as the LSE, or prepared in accordance with the fair value accounting rules set out in the Companies Act 2006. FRS 4 applies to all entities, other than where: the entity is listed on a regulated market in the

EU, such as the LSE; or the entity applies the fair value accounting rules of

the Companies Act 2006.

General topics 24

Deferred tax and income taxes

IFRS UK GAAP

IAS 12 FRS 16, FRS 19

Recognition Subject to certain exceptions a deferred tax liability/asset should be recognised for all taxable/deductible temporary differences. Temporary differences are differences between the carrying amount of an asset or liability in the SOFP and its tax base. [IAS 12 paras 5,15,24] Revaluation of assets The difference between the carrying amount of a revalued asset and its tax base is a temporary difference and gives rise to a deferred tax liability or asset. This is true even if: the changes in value are recognised directly in equity; the entity does not intend to dispose of the asset; or tax on capital gains is deferred if the proceeds of the disposal of the asset are invested in similar assets. [IAS 12 para 20] Investments in subsidiaries, branches and associates and interests in joint ventures An entity should recognise a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures, except to the extent that: the parent, investor or venturer is able to control the timing of the reversal of the temporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future. [IAS 12 para 39] Foreign currency The non-monetary assets and liabilities of an entity are measured in its functional currency. If the entity's taxable profit or taxable loss (and, hence, the tax base of its non-monetary assets and liabilities) is determined in a different currency, changes in the exchange rate give rise to temporary differences that result in a recognised deferred tax liability or asset. [IAS 12 para 41]

Recognition Subject to certain exceptions a deferred tax liability/asset should be recognised in respect of all timing differences that have originated but not reversed by the balance sheet date. Timing differences are differences between an entity's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in financial statements. [FRS 19 paras 2,7] Revaluation of assets Deferred tax should only be recognised on timing differences arising if: an asset is continuously revalued to fair value with

changes in fair value being recognised in the profit and loss account; or

the reporting entity has entered into a binding agreement to sell the revalued assets, has recognised the gains and losses expected to arise on sale, and the taxable gain will not be rolled over. [FRS 19 paras 12,14,15]

Investments in subsidiaries, branches and associates and interests in joint ventures Tax that could be payable on any future remittance of the past earnings of a subsidiary, associate or joint venture should be provided for only to the extent that, at the balance sheet date: dividends have been accrued as receivable; or a binding agreement to distribute the past earnings in future has been entered into by the subsidiary, associate or joint venture. [FRS 19 para 21] Foreign currency No timing difference results and therefore no deferred tax is recognised.

General topics 25

Equity-settled share based payments The difference between the tax base of the employee services received to date (being the amount the taxation authorities will permit as a deduction in future periods), and the carrying amount of nil, is a deductible temporary difference that results in a deferred tax asset. If the amount of the tax deduction (or estimated future tax deduction) exceeds the amount of the related cumulative remuneration expense, this indicates that the tax deduction relates not only to remuneration expense but also to an equity item. In this situation, the excess of the associated current or deferred tax should be recognised directly in equity. [IAS 12 paras 68B, 68C] Business combinations The cost of a business combination is allocated by recognising the identifiable assets acquired and liabilities assumed at their fair values at the acquisition date. Temporary differences arise when the carrying amount of an asset is increased to fair value but the tax base is unaffected. [IAS 12 para 19] Discounting Deferred tax assets and liabilities should not be discounted. [IAS 12 para 53] Disclosure IAS 12 requires an explanation of the relationship between total tax (current and deferred) and accounting profit. [IAS 12 para 81(c)]

Equity-settled share based payments UK GAAP is similar in that a timing difference arises between the amount deductible for tax purposes and the amount that is recognised as a share-based payment expense in the profit and loss account, which results in a deferred tax asset. However unlike IFRS if the tax deduction exceeds the amount that will be expensed, i.e. the fair value at the date of grant, the excess is considered to be a permanent difference and no deferred tax is recognised. [FRS 19 paras 2,34] Business combinations Adjustments to record assets and liabilities of the acquired entity at their fair values are treated in the same way as they would be if they were timing differences arising in the acquired entity's own accounts. For example a building would be valued on acquisition at its market value. Deferred tax will only be recognised on the fair value adjustment if the acquired entity would of recognised deferred tax on the timing difference that arises. I.e. If the conditions mentioned above under ‘revaluation of assets’ are met. [FRS 7 para 74] Discounting Reporting entities are permitted but not required to discount deferred tax assets and liabilities to reflect the time value of money. [FRS 19 para 42] Disclosure FRS 19 requires a reconciliation of the current tax charge or credit for the period to the current tax charge that would result from applying a standard rate of tax to the profit. [FRS 19 para 64(a)]

The effects of changes in foreign exchange rates

IFRS UK GAAP

IAS 21 FRS 23, SSAP 20 Scope FRS 23 is the same as IAS 21. There are no scope exemptions, and IAS 21 should therefore be applied by all entities to account for the effects of changes in foreign exchange rates. [IAS 21 para 3]

Scope FRS 23 is the same as IAS 21, and applies to all entities that fall within the scope of FRS 26. That is entities that are listed and entities that voluntarily adopt the fair value accounting rules. For all other entities SSAP 20 should be applied to account for the effects of changes in foreign exchange rates. [FRS 23 paras 2A,2B]

General topics 26

Initial recognition A foreign currency transaction should be recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. Use of a forward exchange rate or a contract rate is not permitted under IAS 21. IAS 21 specifically scopes out derivative financial instruments that are within the scope of IAS 39. [IAS 21 paras 3,21] Under the hedge accounting rules set out in IAS 39, certain derivatives can qualify as hedging instruments and be used to hedge against foreign currency fluctuations, which effectively results in transactions being translated at the contracted forward rate. Translation of a foreign operation Income and expenses should be translated at exchange rates at the dates of the transactions or an average rate for the period. IAS 21 does not permit the use of the closing rate. [IAS 21 paras 39(b),40] Presentation currency An entity may present its financial statements in any currency or currencies, known as its ‘presentation currency or currencies’. [IAS 21 para 38] Net investment in a foreign operation Exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation should be recognised in profit or loss in the separate financial statements of the reporting entity or the foreign operation. In the consolidated financial statements such exchange differences should be recognised initially in a separate component of equity and recognised in profit or loss on disposal of the net investment. [IAS 21 paras 15,32,48, IAS 39 para 102] Fair value hedge accounting may be applied in the separate financial statements of the parent entity if the hedging relationship can be defined as a fair value hedge and meet the onerous hedging criteria set out in IAS 39. In this case exchange differences arising on the foreign borrowings and exchange differences on the equity investment would be offset in profit and loss.

Initial recognition Under SSAP 20 each asset, liability, revenue or cost arising from a transaction denominated in a foreign currency should be translated into the local currency at the exchange rate in operation on the date of the transaction. Where the transaction is to be settled at a contracted rate, that rate should be used. Where a trading transaction is covered by a related or matching forward contract, the rate of exchange specified in that contract may be used. [SSAP 20 para 46]. Translation of a foreign operation Amounts in the profit and loss account of a foreign enterprise should be translated at the closing rate or at an average rate for the accounting period. [SSAP 20 para 17] Presentation currency SSAP 20 does not define a ‘presentation currency’. SSAP 20 requires an entity to present its financial statements in its local currency. The definition of local currency is similar to the IAS 21 definition of ‘functional currency’. Net investment in a foreign operation SSAP 20 distinguishes between long term inter-company loans that form part of net investment in a foreign enterprise and foreign borrowings used to hedge investments in foreign enterprises. The accounting treatment of the exchange differences arising on long term inter-company loans is similar to IFRS in that differences are recognised in reserves in the consolidated financial statements. However amounts accumulated in reserves are not recycled through profit and loss on disposal of a foreign enterprise. [SSAP 20 paras 12,20]. In the separate financial statements of the parent entity such long-term inter-company loans are recorded at the historical exchange rate and are not retranslated as they are considered to be part of the investment in the subsidiary. Unlike IFRS exchange differences on foreign borrowings used to finance, or provide a hedge against, its foreign equity investments should subject to certain conditions be taken to reserves in both the separate financial statements of the reporting entity and in the consolidated accounts. In this situation the investment in the subsidiary is also required to be retranslated in the separate financial statements of the parent. Furthermore amounts accumulated in reserves are again not recycled through profit and loss on disposal of a foreign enterprise. [SSAP 20 paras 51,57]

General topics 27

Leases

IFRS UK GAAP

IAS 17 SSAP 21

Classification of leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. [IAS 17 para 4] The land and buildings elements of a lease should be considered separately for the purposes of lease classification. IAS 17 provides further guidance on how to go about separately classifying land and building elements. [IAS 17 para 15] Finance leases - Lessors The recognition of finance income should be based on a pattern reflecting a constant periodic rate of return on the lessor's net investment in the finance lease. [IAS 17 para 39] Finance leases - Lessees At the commencement of the lease term, lessees should recognise finance leases as assets and liabilities in the SOFP at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. [IAS 17 para 20] Initial direct costs directly attributable to activities performed by the lessee for a finance lease are added to the amount recognised as an asset. [IAS 17 para 24] Disclosure IAS 17 requires lessees to disclose the total of future minimum lease payments analysed between payments required to be made within the next year, between two to five years, and more than five years. [IAS 17 para 35]

Classification of leases SSAP 21 definition of a finance lease is similar. However SSAP 21 also includes a presumption that such a transfer of risks and rewards occurs if at the inception of a lease the present value of the minimum lease payments, including any initial payment, amounts to substantially all (normally 90 per cent or more) of the fair value of the leased asset. The presumption may be rebutted. [SSAP 21 paras 15,16] There is no requirement in SSAP 21 to separately consider land and buildings for the purposes of lease classification. Finance leases - Lessors The total gross earnings under a finance lease should normally be allocated to accounting periods to give a constant periodic rate of return to the lessor's net cash investment in the lease in each period. The net cash investment in a lease is different to the IFRS definition of ‘net investment’ in a lease as it takes into account other cash flows, notably the effect of taxation cash flows. [SSAP 21 paras 23,39] Finance leases - Lessees At the inception of the lease the sum to be recorded both as an asset and as a liability should be the present value of the minimum lease payments. The fair value of the asset will often be a sufficiently close approximation to the present value of the minimum lease payments and may in these circumstances be substituted for it. [SSAP 21 paras 32,33] There is no similar guidance/requirement in SSAP 21. However in practice such costs would be capitalised to the leased asset. Disclosure SSAP 21 requires disclosure of the amount that the lessee is committed to pay within the following year analysed by the period when the lease to which a payment relates expires, and not when the actual cash flows will occur. [SSAP 21 para 56]

General topics 28

Non-current assets held for sale and discontinued operations

IFRS UK GAAP

IFRS 5 FRS 3

Scope IFRS 5 sets out the requirements for the classification, measurement, and presentation of non-current assets held for sale or disposal groups held for sale. [IFRS para 5] Definitions A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale. [IFRS 5 App. A] The definition of discontinued operation includes a subsidiary acquired exclusively with a view to resale. [IFRS 5 para 32] Classification In order for a disposal group to be classified as held for sale it must be available for immediate sale in its present condition and its sale must be highly probable. The sale of a disposal group should be expected to qualify for recognition as a completed sale within one year from the date of classification as held for sale. [IFRS 5 paras 7,8] Measurement An entity should not depreciate (or amortise) a non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale. [IFRS 5 para 25]

Scope FRS 3 sets out requirements for the presentation of discontinued operations, but there is no comparable UK standard setting out the requirements for the classification, measurement, and presentation of non-current assets held for sale or disposal groups held for sale. Definitions The UK GAAP definition of a discontinued operation is different as UK GAAP does not classify discontinued operations as held for sale. FRS 3 defines a discontinued operation as an operation of the reporting entity that is sold or terminated. [FRS 3 para 4] Under UK GAAP a subsidiary undertaking should be excluded from consolidation, where the interest in the subsidiary undertaking is held exclusively with a view to subsequent resale, and should be recorded in the consolidated financial statements as a current asset at the lower of cost and net realisable value. [FRS 2 para 25] Classification Under UK GAAP a discontinued operation will be potentially recognised as such a lot later than under IFRS. To meet the definition of a discontinued operation the sale or termination is required to be completed before the earlier of three months after the commencement of the subsequent period and the date on which the financial statements are approved. [FRS 3 para 4] Measurement Unlike IFRS UK GAAP does not distinguish between non-current assets held for sale and other non-current assets. UK GAAP requires that the depreciable amount of all tangible fixed assets should be allocated on a systematic basis over its useful economic life. [FRS 15 para 77]

General topics 29

Disclosure An entity should disclose: a single amount on the face of the SOCI comprising the total of: the post-tax profit or loss of discontinued operations; and the post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group constituting the discontinued operation. [IFRS 5 para 33(a)] Either on the face of the SOCI or in the notes an entity should analyse this single amount into: the revenue, expenses and pre-tax profit or loss of discontinued operations; the related income tax expense; the gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group constituting the discontinued operation; and the related income tax expense. [IFRS 5 para 33(b)] An entity should present a non-current asset classified as held for sale and the assets of a disposal group classified as held for sale separately from other assets in the SOFP. The liabilities of a disposal group classified as held for sale should be presented separately from other liabilities in the SOFP. Those assets and liabilities should not be offset and presented as a single amount. [IFRS 5 para 38] The major classes of assets and liabilities classified as held for sale should be separately disclosed either on the face of the SOFP or in the notes. [IFRS 5 para 38] An entity should present separately any cumulative income or expense recognised directly in equity relating to a non-current asset (or disposal group) classified as held for sale. [IFRS 5 para 38] The net cash flows attributable to the operating, investing and financing activities of discontinued operations should also be disclosed. These disclosures may be presented either in the notes or on the face of the statement of cash flow. [IFRS 5 para 33(c)] Abandonment An entity should not classify as held for sale a non-current asset (or disposal group) that is to be abandoned. This is because its carrying amount will be recovered principally through continuing use. However, if the disposal group to be abandoned meets the definition of a discontinued operation, the entity should present the results and cash flows of the disposal group as a discontinued operation at the date on which it ceases to be used. [IFRS 5 para 13]

Disclosure On the face of the profit and loss account the aggregate results of continuing and discontinued operations should be disclosed separately. The minimum disclosure required is an analysis of turnover and operating profit. [FRS 3 para 14] The analysis between continuing operations and discontinued operations of each of the other statutory profit and loss account format items between turnover and operating profit should be given by way of note where not shown on the face of the profit and loss account. [FRS 3 para 14] There are no similar disclosure requirements as non-current assets and disposal groups held for sale are not separately defined and dealt with in UK GAAP. There are no similar disclosure requirements as non-current assets and disposal groups held for sale are not separately defined and dealt with in UK GAAP. There are no similar disclosure requirements as non-current assets and disposal groups held for sale are not separately defined and dealt with in UK GAAP. There are no similar disclosure requirements under UK GAAP. Abandonment There is no difference between discontinued operations that have been sold and those that have been terminated, provided the activities have ceased permanently. [FRS 3 para 4]

General topics 30

Agriculture

IFRS UK GAAP

IAS 41

Scope This Standard should be applied to account for the following when they relate to agricultural activity: biological assets; agricultural produce at the point of harvest; and government grants. [IAS 41 para 1] Measurement A biological asset should be measured on initial recognition and at each reporting date at its fair value less estimated point-of-sale costs. [IAS 41 para 12] Agricultural produce harvested from an entity's biological assets should be measured at its fair value less estimated point-of-sale costs at the point of harvest. Such measurement is the cost at that date when applying IAS 2 or another applicable Standard. [IAS 41 para 13] A gain or loss arising on a change in fair value less estimated point-of-sale costs of a biological asset should be included in profit or loss for the period in which it arises. [IAS 41 para 26]

Scope There is no comparable UK standard that applies specifically to the accounting for agricultural activity and biological assets. SSAP 9 would apply to the accounting for agricultural produce as this would fall within the definition of stocks. [SSAP 9 para 16] Measurement There is no comparable UK standard. SSAP 9 applies and agricultural produce should be measured at the lower of cost and net realisable value. [SSAP 9 para 26] There is no comparable UK standard

General topics 31

Disclosure topics

Earnings per share IFRS UK GAAP

IAS 33 FRS 22

The requirements of FRS 22 are identical to IAS 33.


Events after the reporting date IFRS UK GAAP

IAS 10 FRS 21



Related party disclosures IFRS UK GAAP

IAS 24 FRS 8

Scope exemptions Unlike UK GAAP. Related party transactions and outstanding balances with other entities in a group are disclosed in an entity’s financial statements. [IAS 24 para 4]. There are no such exemptions under IAS 24. There is no such exemption under IAS 24. Disclosure Although IAS 24 does not explicitly require disclosure of the names of related parties, such disclosure may be necessary. IAS 24 requires sufficient disclosure for an understanding of the potential effect of the relationship on the financial statements where there have been transaction between the parties. [IAS 24 para 17]

Scope exemptions The FRS does not require disclosure of transactions entered into between two or more members of a group, provided that any subsidiary undertaking which is a party to the transaction is wholly owned by a member of that group. [FRS 8 para 3(c)] The FRS does not require disclosure of pension contributions paid to a pension fund and of emoluments in respect of services as an employee of the reporting entity. [FRS 8 paras 3(d),3(e)] Related party disclosure provisions do not apply in circumstances where to comply with them conflicts with the reporting entity's duties of confidentiality arising by the operation of the law (although operation of the law would not include the effects of terms stipulated in a contract). [FRS 8 para 16] Disclosure The disclosure should include the names of the transacting related parties. [FRS 8 para 6],except where related party transaction are not material, in which case the aggregate per class of related party may be disclosed (and the names of individual related parties omitted). [FRS 8 para 21]

Disclosure topics 32

Segment information

IFRS UK GAAP

IFRS 8 SSAP 25 Scope exemption No such exemption exists under IFRS 8. Definitions IFRS 8 defines an operating segment as a component of an entity whose results are regularly reviewed by the entity’s chief operating decision maker. [IFRS 8 para 5] Reportable segments The IFRS 8 determination of reportable segments is different to the SSAP 25 determination for the revenue and assets criteria. Under IFRS 8 segments are reportable if revenue from sales to external customers and from transactions with other segments is 10 per cent or more of the total revenue, external and internal, of all segments; or its assets are 10 per cent or more of the total assets of all segments. [IFRS 8 para 13] IFRS 8 does not specify from which source revenue must be earned. A segment that earns revenue from other operating segments can still meet the definition of an operating segment. [IFRS 8 para 5] If total external revenue attributable to reportable segments constitutes less than 75 per cent of the total consolidated or entity revenue, additional segments should be identified as reportable segments, even if they do not meet the 10 per cent thresholds, until at least 75 per cent of total consolidated or entity revenue is included in reportable segments. [IFRS 8 para 15] Measurement IFRS 8 states that the amount of each segment item reported should be the measure reported to the chief operating decision maker. [IFRS 8 para 25]

Scope exemption Where, in the opinion of the directors, the disclosure of any information required by this accounting standard would be seriously prejudicial to the interests of the reporting entity, that information need not be disclosed. The fact that any such information has not been disclosed must be stated. [SSAP 25 para 43] Definitions SSAP 25 does not specifically define a segment but defines the characteristics a segment would have, being: returns different from the rest of the business; different degrees of risk; different growth rates; and different future prospects. [SSAP 25 para 8] Reportable segments Under SSAP 25 segments are reportable if its third party turnover is ten per cent or more of the total third party turnover of the entity; or its net assets are ten per cent or more of the total net assets of the entity. [SSAP 25 para 9] SSAP 25 considers only third party turnover when determining reportable segments. [SSAP 25 para 9] There is no similar requirement under SSAP 25. Measurement The measurement of segment information is not specifically dealt with in SSAP 25 although in practice the measurement of segment information is consistent with the financial statements of the entity.


Disclosure An entity should disclose segment revenue for each reportable segment. Segment revenue from sales to external customers and segment revenue from transactions with other segments should be separately reported. [IFRS 8 para 23] An entity should disclose the total carrying amount of segment assets for each reportable segment. [ IFRS 8 para 23] The following must also be disclosed for each reportable segment: segment liabilities; capital expenditure; depreciation and amortisation; and other significant non-cash expenses. [IFRS 8 para 23] In measuring and reporting segment revenue from transactions with other segments, inter-segment transfers should be measured on the basis that the entity actually used to price those transfers. The basis of pricing inter-segment transfers and any change therein should be disclosed in the financial statements. [IFRS 8 para 27] IFRS 8 also requires the following disclosures to be made : factors used to identify the entity’s reportable

segments, including the basis of organisation [IFRS 8 para 22];

an explanation of the measurement of segment profit or loss, segment assets, and segment liabilities for each reportable segment [IFRS 8 para 27];

interest revenue, interest expense, and tax for each reportable segment [IFRS 8 para 23]; and

specific entity-wide disclosures including information about products and services, geographical areas, and major customers. [IFRS 8 paras 31-34]

Disclosure SSAP 25 includes the same requirement, but also states that the reporting entity should disclose the geographical segmentation of turnover by origin and by destination (or state where appropriate that this amount is not materially different from turnover to third parties by origin). [SSAP 25 para 34] SSAP 25 is different in that it requires the net assets of each reportable segment to be disclosed. [SSAP 25 para 24] There is no similar requirement under SSAP 25. There is no similar requirement under SSAP 25. There is no similar requirements under SSAP 25


Interim financial reporting

IFRS UK GAAP

IAS 34 ASB’s Statement, Interim reports Listing Rules, AIM Rules

Disclosure The nature and amount of changes in estimates of amounts if those changes have a material effect in the current interim period. [IAS 34 para 16(d)] IAS 34 contains no equivalent disclosure requirements. IAS 34 requires an entity to state if its interim financial report is in compliance with IAS 34. An interim financial report should also not be described as complying with IFRS unless it complies with all of the standards and interpretations of IFRS in its interim financial report. In other words presents a full set of IFRS compliant financial statements for the interim period and not just condensed statements. [IAS 34 para 19] Presentation IAS 34 requires the following comparatives and columns: SOFP: only a comparative SOFP as at the end of the immediately preceding financial year.

SOCI: cumulative figures for the current financial year to date, with comparative SOCIs for the comparable interim periods (current and year-to-date) of the immediately preceding financial year.

Statement of changes in equity: cumulatively for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year.

Cashflow statement: cumulatively for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year. [IAS 34 paras 20]

Disclosure Changes in estimates are not specifically recommended to be disclosed. The ASB Statement recommends that the interim report should: give a brief explanation of the effective tax rate; the period covered by the report; and the date on which it is approved by the board of directors. [ASB:IR paras 22,58] The ASB Statement contains no equivalent recommendation to make a statement of compliance. Presentation For all primary statements presented the Listing rules and AIM rules require corresponding comparatives for the prior year interim period end. The ASB Statement recommends that the last annual financial statements should also be disclosed as comparatives. Unlike IFRS only the current interim period information is required to be presented and there is no requirement to report cumulative year to date information for the profit and loss account and the STRGL. However as interim statements are usually only done for a 6 month period in the UK, in practice there will be no difference in the columns presented. [LR 9.9.8R(4), AIM Rule 18, ASB:IR paras 55,56]

For further guidance on Interim Financial Reporting refer to: Assurance and advisory database > Specialist areas > AIM > Half-yearly report guidance.


Financial reporting in hyperinflationary economies

IFRS UK GAAP

IAS 29

FRS 24, UITF 9

Scope FRS 24 is the same as IAS 29. There are no scope exemptions, and IAS 29 should therefore be applied to the financial statements, including the consolidated financial statements, of any entity whose functional currency is the currency of a hyperinflationary economy. [IAS 29 para 1] Restatement of financial statements The financial statements of an entity (‘the reporting entity’) whose functional currency is the currency of a hyperinflationary economy should be stated in terms of the measuring unit current at the reporting date. The corresponding figures for the previous period and any information in respect of earlier periods should also be stated in terms of the measuring unit current at the reporting date. The gain or loss on the net monetary position should be included in profit or loss and separately disclosed. [IAS 29 para 8,9]

Scope FRS 24 is the same as IAS 29, and applies to all entities that fall within the scope of FRS 26. That is entities that are listed and entities that voluntarily adopt the fair value accounting rules. [FRS 24 paras 1,1A] For all other entities UITF 9 should be applied. UITF 9 only considers the issue of incorporating into the group financial statements a foreign enterprise that operates in a country in which a very high rate of inflation exists. [UITF paras 1,5] Restatement of financial statements Unlike IFRS under UITF 9 two methods of eliminating the distortions are acceptable: adjusting the local currency financial statements to reflect current price levels before the translation process is undertaken and taking any gain or loss on the net monetary position through the profit and loss account; or using a relatively stable currency as the functional currency for the relevant foreign operations. The functional currency would in effect be the “local currency”. The UITF does not mention how comparatives should be restated. [UITF 9 para 6]


Index Abandonment, 30 Accounting estimates, 17 Accounting policies, 4, 17 Agriculture, 31 Amortisation, 34 Assets held for sale, 5, 29 Associates, 18, 19, 25 Barter transactions, 11 Borrowing costs, 15 Business combinations, 21, 26 Cash and cash equivalents, 16 Cash flow statements, 16 Comparatives, 22, 23, 35, 36 Consolidated financial statements, 6, 19, 20, 21,

24, 27, 29, 36 Construction contracts, 11 Contingent assets, 10 Contingent liabilities, 10 Control, 13, 18, 21, 23, 25 Deferred tax, 14, 25, 26 Depreciation, 5, 23, 34 Discontinued operations, 4, 29, 30 Dividends, 25 Earnings per share, 32 Employee benefits, 13 Equity, 4, 6, 19, 20, 23, 25, 26, 27, 30, 35 Events after the balance sheet date, 32

Fair value, 5, 6, 7, 12, 13, 14, 24, 25, 26, 28, 30, 31, 36

Financial instruments, 24 Foreign currency, 16, 25, 27 Goodwill, 7, 8 Government grants, 12, 31 Hyperinflationary economies, 36 Impairment, 7, 8, 9, 21, 23 Intangible assets, 7, 8, 22 Interim reports, 35 Inventories, 10 Investment property, 6, 7 Joint ventures, 20, 21, 25 Leases, 11, 28 Merger, 21 Negative goodwill, 8 Property, plant and equipment, 5 Provisions, 10 Related party, 32 Residual values, 5 Revaluation, 5, 6, 7, 8, 25 Revenue, 11, 27, 30, 33, 34 Segments, 33, 34 Share-based payment, 13, 15, 26 Significant influence, 19 Taxation, 26, 28 Value in use, 9

Index 37

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