Regulation and Compliance
We’re here to prepare your accounts and report financial transactions to comply with the relevant rules and regulations of your industry. Our compliance services keep you on the right side of the law.
Company Secretarial Services
GAAP vs IFRS Accounting Standards
The Companies Act 2006 required all UK businesses to prepare their financial statements according to the standards set out by either the UK GAAP (Generally
Accepted Accounting Practice), or the International accounting standards known as the IFRS (International Financial Reporting Standards). There are many similarities, but also some differences between these two standards.
Which should you use?
Most businesses in the UK comply with the UK GAAP FRS 102 accounting standards rather than the IFRS International standards. This is because the local requirements are less complex and demanding, so the accounts take less time to prepare and it therefore costs less money.
With that said, if your business is part of a wider International group then you will probably want to comply with the IFRS standards so that everything is consistent across the board.
It is vital that you choose the right one, as it will have a major impact on your balance sheet and tax position.
So, what are the differences between UK GAAP and IFRS standards?
IFRS requires that all leases be classed as assets and liabilities if the lease is for longer than 12 months. But according to FRS 102, a lease is classified as either a finance lease or an operating lease, depending on if it transfers substantially all the risks and rewards incidental to ownership (finance lease) or if it does not (operating lease).
The IFRS states that the life of an intangible asset is indefinite, whereas under FRS 102 it should last for no more than 10 years. Also the IFRS standards state that all development costs must be capitalised, and for FRS 102, you can recognise development costs in the profit and loss.
Under FRS 102, goodwill is written off systematically throughout its expected life, which should be no more than 10 years if it can’t be measured reliably. With the IFRS rules however, goodwill cannot be written off, or amortised, although it has to be the subject of an annual impairment review.
When a business purchases or builds property, under FRS 102, there is a choice of whether to capitalise or expense the cost of borrowing for this. But under IFRS, the costs always have to be capitalised. FRS 102 requires that all property measurements are measured at fair value, and with IFRS standards, the business is allowed to choose between holding it at fair value or depreciated cost.
IFRS standards dictate that all incremental purchases made for the purposes of obtaining a contract are classed as assets and therefore must be amortised. Meanwhile, FRS 102 recognises purchases made during a specific period of time, for example commission paid to an employee during a certain month.
IFRS rules recognise revenue generated over time, whereas FRS 102 recognises revenue only when costs can be reliably measured and it is obvious that the business is likely to make money.
FRS 102 standards allow small businesses to use the Small Companies Regime. This means that they can prepare their accounts with certain reduced disclosures.
This doesnot apply under the IFRS standards, where there are no exemptions for reduced disclosures.
Contact us, and we will ensure you comply with the relevant rules and regulations of your industry.