Bridging GAAP in accounting
INNOVATION PROFILE/PwC:THE INTRODUCTION of a new accounting standard may not appear at first sight to be the most interesting event on the business calendar over the next few years. But the impending replacement of the Generally Applied Accounting Principles (GAAP) for Ireland and the UK with a single accounting standard – Financial Reporting Standard (FRS) 102 – will make Ireland a more attractive location for inward investment whilst also assisting Irish firms trading internationally. It will also introduce enhanced levels of transparency and consistency in financial reporting by companies, thereby increasing overall business confidence.
The new standard has been in development for a long period, says PwC assurance partner Irene O’Keeffe. “There has been a global move for consistency in reporting standards for many years and in 2005 all stock exchange listed companies moved to the International Financial Reporting Standard (IFRS). The UK Accounting Standards Body (ASB) has been working on bringing financial reporting standards for other companies up to date since then. In some cases they are dealing with standards that are more than 25 years old and the current standards haven’t kept pace.”
The ASB has essentially been working on a balancing exercise which would lead to the creation of a new set of standards for companies not listed on the stock exchange which conform to IFRS but are proportionate to the size of the company involved. The full IFRS standard would be onerous for a small company with just a few employees but there must still be a minimum standard in place.
“What the ASB has come up with is a compromise solution,” says Fiona Hackett, senior manager in PwC’s Accounting Consulting Services and a member of Chartered Accountants Ireland’s accounting committee. “In a way you could call it IFRS-lite. The new FRS102 is within the IFRS umbrella and will be globally recognised as being fit for purpose and high quality. This is good news for investors, shareholders and other stakeholders.”
The current proposals from the ASB certainly score on simplicity as well. They advocate replacing the current Irish and UK GAAP, which is about 2,500 pages long, with a single accounting standard which runs to around 250 pages. This new FRS 102 standard is largely based on the International Accounting Standards Board’s IFRS for SMEs.
The new standard can be used by all Irish and UK entities that are not already legally required to comply with IFRS. “Allowing this wide scope of companies that can use FRS 102 is a sensible direction for the ASB which should not impede the quality of financial reporting, while providing a welcome relief for many businesses in this economic climate, given the time and cost burden of producing accounts under full IFRS,” says Hackett.