UK vs IFRS – Accounting Considerations

The accounting frameworks available to companies registered in the UK.

UK vs IFRS – Accounting Considerations

The accounting frameworks available to companies registered in the UK are:

  • UK Generally Accepted Accounting Practice (UK GAAP)
  • International Financial Reporting Standard (IFRS)

The specific accounting standards available are:

  • EU adopted IFRS
  • FRS 102
  • FRS 101
  • FRS 103, FRS 104, FRS 105 for insurance contracts, interim reporting and micro-entities

EU adopted IFRS and FRS 101 follow the recognition and measurement criteria of IFRS, whereas FRS 102 is a UK GAAP reporting standard developed for UK entities and therefore there are some key differences arising under this approach.

 

FRS 102

IFRS

Accounting Treatment

Can differ significantly from other international GAAPs.

Aligns closely with other international GAAPs.

Revenue

Simple method of recognition based on the transfer of significant risks and rewards or on the percentage of completion method.

IFRS 15 dictates a five-step approach to recognise revenue based on the identification, valuation and satisfaction of performance obligations. This is similar to the recognition criteria under ASC 606, US GAAP.

Lease Accounting

A distinction is made between operating and finance leases with an expense being recognised for the former on a straight line basis and the latter recognised as an asset with a corresponding liability based on future payments.

IFRS 16 focuses on an entity’s right to control the use of an asset as the key element of a lease contract. In simple terms, the impact is that many rental leases will be recognised by way of an asset and corresponding liability based on future payments. There are similarities with ASC 842, US GAAP; see more on this here.

Intangible Assets

Research costs are always expensed, whereas there is a choice under FRS 102 on whether to capitalise development costs, subject to certain conditions.

All intangible assets are assumed to have a finite life.

Research costs are always expensed, whereas if development costs meet the criteria for recognition, they must be capitalised.

Disclosure Exemptions

Small companies may adopt the provisions of Section 1A of FRS 102 which gives numerous disclosure exemptions, including the need to file a profit & loss account or its supporting notes.

Non-small companies who are members of a group preparing publicly available financial statements which include the company in question can take advantage of the “reduced disclosure exemptions” of FRS 102. These exemptions include a cash flow statement and certain disclosures with respect to share based payments and related parties.

A member of a group where the parent of that group prepares publicly available financial statements and that member is included in the consolidation is considered to be a qualifying entity for FRS 101.

FRS 101 sets out the disclosure exemptions available to qualifying entities otherwise applying EU adopted IFRS. These exemptions include a cash flow statement and certain disclosures with respect to share based payments, related parties, revenue and leasing.

Updated April 2020. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For more information about which accounting standard is best for your UK company, please contact Louise Morriss below.

Louise Morriss, BFP ACA FCCA, Managing Director

+44 (0)20 7430 5892 / lmorriss@zedra.com