Financial reporting – what’s on the horizon

Bill Farren, Deloitte LLP

28th October 2011

With preparers busy with the first wave of iXBRL compliant accounts, the next big thing on the horizon for the UK financial reporting arena is the introduction of the Financial Reporting Standard  for Medium Sized Entities (FRSME), likely to be in 2014.

In the meantime, for companies preparing financial statements under fully-fledged IFRS, the next couple of years will see a number of amendments to existing standards.  Thankfully, the updates coming on line for 31 December 2011 year ends will have limited impact in the smaller quoted sector.  Key changes coming for 2011 are a simplification of the definition of related parties under IAS24, a limited amendment to the IFRIC relating to pension minimum funding requirements, and a tightening of the rules surrounding the options on measurement of non-controlling interests at an acquisition.

For 2012 year ends there are two amendments for which official EU endorsement is pending:

• A further amendment to IAS1 Presentation of financial statements which will mean a change to the way in which items are classified in other comprehensive income.  This will now be done on the basis of whether amounts are to be recycled through profit or loss at a later date.  All preparers will need to consider the impact of this, including on comparative disclosures.  Pending EU approval, this will take effect for 1 July 2012 year ends.
   
• IAS 12 on deferred tax requires an entity to measure deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale.  The amendment recognises that, in the context of investment properties, it can be difficult and subjective to assess whether recovery will be through use and introduces from 1 January 2012 a rebuttable presumption that the carrying value will be recovered entirely through sale.

For 2013, as well as considering the impact of the introduction of the FRSME on subsidiary entities, there are potentially more fundamental changes in the offing.  Preparers and users of IFRS accounts will need to get to grips with the IASB’s new ‘package of five’ standards relating to consolidation accounting and investments in associates and joint ventures.  Among other things, the emphasis for subsidiaries will be on control rather than rights and obligations; for joint ventures the proportionate consolidation option is removed.

Further afield, the IASB’s project for the replacement of IAS39 with a new standard covering financial instruments (IFRS9) will be considered for endorsement by the EU only when the completed standard is finalised by the IASB.  In the light of this, the ASB has proposed delaying mandatory adoption of this new standard until 2015.

Small mercies.....

Bill Farren is Senior Manager at Deloitte LLP and member of the Quoted Companies Alliance Financial Reporting Committee. The views expressed in this article are her own and do not neccessarily represent the views of Deloitte LLP.

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