Financial Reporting

The End of
Irish GAAP
By Irene O'Keeffe, FCA and
Fiona Hackett, ACA

The initial consultation period for the UK Accounting Standards Board's (ASB) proposals
on the future of UK/Irish GAAP ran to 1 February 2010. Irene O'Keeffe, Assurance
Partner, PricewaterhouseCoopers and Fiona Hackett, Assurance Senior Manager,
PricewaterhouseCoopers answer some topical questions on the ASB's proposals and
the tFRS for SMEs, and outline some practical actions worth considering in advance of
a proposed change in the financial reporting framework of the majority of Irish entities.
How does the future of
financial reporting look?
In 2005 the ASB indicated that its
overarching strategy was to achieve
convergence with International
Financial Reporting Standards ('full
IFRS'). True to its word, over the last
number of years, UK/Irish GAAP has
steadily been moving closer to IFRS
as the ASB has pursued this
convergence agenda. The ASB's view
is that the IFRS platform provides a
high-quality, fit-for-purpose
financial reporting framework for
all entities that are required to
prepare financial statements, and its
recent proposals would see the end
of UK/Irish GAAP as we currently
know it and a transformation of the
reporting framework of thousands
of Irish entities.
The lASB's publication of the IFRS
for SMEs in July 2009 led the ASB to
request comments on its proposals
of a move to a financial reporting
framework based on IFRS (either
IFRS or IIRS for SMEs}, for all but
the very smallest companies in the
UK and Ireland. (IFRS for SMEs is
the lASB's simplified IFRS for
companies not 'publicly
accountable'.)

The ASB believes that its proposals will

lead to improved financial reporting in
the UK and Ireland, by simplifying and
aligning it to an entity's accountability
obligations, while also delivering
comparability and consistency for
preparers and users. The ASB also
believes its proposals will leave It better
positioned to influence the
International Accounting Standards
Board's (IASB) activities and ensure
that IFRS satisfies the needs of UK and
Irish reporters.

ASB's proposed
reporting framework
At the heart of the ASB's proposals is a
new three-tier system of reporting;
based largely on the concept of 'public
accountability'. (See Fable 1 below.)
The proposals would see most UK and
Irish companies having to report under

IFRS or IFRS for SMEs. The Financial

Reporting Standard for Smaller Entities
(FRSSE) would continue to be an
option for qualifying entities.
Within the three-tier structure all
entities in tiers 2 and 3 would be able
to voluntarily opt up to a higher level
in determining the most appropriate
reporting framework for them. For
example, if an entity currently in tier 2
plans to IPO in the near future it could
choose to prepare IFRS financial
statements in anticipation of a future
listing.

Your questions
answered
How about very large private
companies, will they be publicly
accountable?
The new three-tier structure is not

Table 1: ASB's proposed financial reporting framework

Tier

Reporting framework

Criteria

Tier 1

EU-adopted IFRS

publicly accountable companies

Tier 2

IFRS for SMEs

companies not publicly accountable

Tier 3

FRSSE

companies that qualify

Accountancy Ireland APRIL 2010 Vol.42 No.2

based on company size. A large private

company that is not publicly
accountable could use IfRS for SMEs.

charities and other not for

profit organisations (NPOs) be
required to adopt a new
accounting framework?
A key focus of the ASB's proposals is
accounting by charities and NPOs
(referred to as public benefit entities in
the proposals). 'Hiere is an indication
that a dual track approach may Ix
adopted for profit-seeking entities and
'public benefit entities' to prevent a delay
in the mandatory adoption of IFiiS/IFRS
for SMEs by profit-seeking entities.

What about a fourth tier allowing

'fuir IFRS reporting with SME
disclosures for wholly-owned
subsidiaries of public
companies?
Under the proposals, publicly
accountable subsidiaries should apply
IFRS. However, many subsidiaries within
a group where the parent qualifies as
publicly accountable would he
aitegorised as 'tier 2' entities and entitled
to use IFRS or IFRS for SMEs.
Initial indications from the responses to
the ASB suggest that a number of
respondents would favoLir a '4th tier'
within the financial reporting
framework which would see subsidiaries
of IFI<S reporters preparing IFRS financial
statements, but with reduced disclosures.

How is IFRS for SMEs different

to IFRS?
Although IFI^ for SMEs is a simplified
IFIS standard {2.'() pages rather than the
2,()(X)-page IFRS bound volume), it is a
standard that stands on its own.
CiiKxlwill, for example, is one area of
significant difference between IFRS for
SMEs and IFRS. Under IFRS for SMEs
gotxlwill is amortised as opposed to
being subject to an annual impairment
test under IFRS.
Furthermore, IFRS for SMEs does not
contain some of the more complicated
aspects of IFRS; e.g. no option for
valuation of fixed assets, no option or
requirement to capitalise development
costs or borrowing costs attributable to
constructingfixedassets.

What are the advantages of

IFRS for SMEs compared to
IFRS?
Should the ASB's proposals come to
fruition the majority of Irish entities will
be faced with a decision; do I adopt IFRS
for SMF:s or IFRS? The main advantages
of IFRS for SMEs are that the accoujiting
is simpler when compared to IFRS
(usually only one possible accounting
treatment) and it contains only about
15-20% of the quantum of disclosures of
IFRS.

Subscribe to
Accountancy
Ireland

In addition, the IASB is publishing

detailed training material that will
provide additional guidance and will aid
the user-friendly nature of the IFRS for
SMEs.

Should I move to IFRS or wait

for the final outcome of the
ASB's proposals?
IFRS for SMEs is simpler than IFRS in
tenns of accounting and disclosure;
however, it may not be the right choice
for all tier 2 entities. The decision for
many enfities is much more than an
accounting one. 1 his conundrum is
unique as, unlike the listed entifies that
moved to IFRS in 2005, those entities
affected now have the option to pick a
set of standards that will best suit them.
Likewise, for those entities that are
publicly accountable, moving to IFRS
now rather tiian when a change is
mandated may ensure a well-planned
approach to the conversion process. The
best time to change accounting
framework will need to be assessed on a
case by case basis. For example, large
multinationals may benefit from tbe use
of shared service centres for the
preparation of entit>' financial
statements if IFRS is applied in several
countries. Similarly, where the parent
company is already reporting under
IFRS, the need for UK/Irish GAAP to
make IFRS adjustments for group
reporting purposes will also be removed.
Statutory accounting would have a
similar framework to group reporting.
In many cases, a fear of the unknown
prevents early action in transitioning to
a new accounting framework. However,
UK/Irish GAAP is now more closely
aligned to IF1S than it was in 2005 and
there is also a much greater depth of
knowledge and experience of IFRS in the
UK and Ireland.

Name
Company
Address .

Email
Daytime phone
Cheques should be made payable to
Chartered Accountants Ireland

or subscribe by credit card online at

www.accountancyireland.je
Any personal data provided by you to Chartered
Accountants Ireland will be held in accordance
with the Data Protection Act, 1988 and the Data
Protection (Amended) Act. 2003.

Return this form with you payment to

Accountancy Ireland
Chartered Accountants House

47 - 49 Pearse Street
Dublin 2

Accountancy Ireland APRIL 2010 Vol.42 No.2

Financial Reporting

The impact on distributable reserves,

tax, covenants and guarantees, as
well as the future direction of the
entity and the wishes of stakeholders,
should be the key factors in driving
such a decision. Only when these
areas have been assessed properly can
an entity effectively conclude which
set of standards would be right for it.
It is worth noting that since 2005
there have been a number of private
entities that have voluntarily
adopted IFRS in order to streamline
their consolidation process, while
many others have considered the
benefits of transitioning before
concluding that these were
outweighed by the upheaval of
implementing a new basis of
accounting. However, the key change
since 2005 is that a move away from
current UK/Irish GAAP is inevitable
whether this is now, or in the near
future.

What is the likeiy tinning of the

proposed changes?
The ASB is proposing that IFRS for
SMEs or IFRS would be applicable for
periods beginning on or after 1
January 2012. For those entities in tier
2 early adoption of IFRS for SMEs is
currently not an option. Under UK
and Irish law an entity can currently
only apply EU-endorsed IFRS or
UK/Irish GAAP, and the IFRS for SMEs
has not yet been endorsed by the EU.

Who would be eligible to use

IFRS for SMEs?
Entities that do not meet the ASB's
definition of 'public accountability'
would be eligible to use the IFRS for
SMEs.
Based on the proposals, an entity has
'public accountability' if:
its debt or equity instruments are
traded in a public market, or if it is
in the process of issuing such
instruments for trading in such a
market; or
> it is a 'deposit-taking entity' or it
holds assets in a fiduciary capacity
for a broad group of outsiders as
one of its primary businesses. This
is typically the case for banks, credit
unions, insurance companies,
securities brokers/dealers, mutual
funds and investment banks.
22

lble 2: Proposed adoption timeline

Aug 2009

ASB released a consultation paper on the proposed mandatory

adoption of IFRS for all UK/ Irish entities (excluding those that
qualify for reporting under FRSSE).

Feb2010

Deadline for comments on the consultation paper

Mid 2010

ASB exposure draft expected

2011

Final standard expected

Table 3: Stage of adoption in other countries

Plan to require

Plan to permit

Plan to require or permit

Bahamas
Brazil
Cyprus
Ireland
Portugal
Saudi Arabia
Singapore
South Africa
Turkey
United Kingdom

Argentina

Australia

Austria

Hong Kong

Chile

New Zealand

Denmark

Norway

United States

Romania
Iceland
Netherlands
Slovakia
Sweden

Note: This information is based on the preparation of both entity and consolidated financial
statements for companies in scope of using the standard, and is subject to specific local
requirements.

The definition of 'public accountability'

is the linchpin of the ASB's proposals
and has been the primary focus of a
number of the comment letters received
by the ASB.

What stage of adoption are

other territories at?
Adoption of the IFRS for SMEs depends
on legislation in each country. The
status of certain country plans for
adoption as at December 2009 is set out
in Table 3 above.
I

What action should

management take now?

Under the proposals comparatives

would be required for the year ended 31
December 2011 and an opening balance
sheet would be required at 1 January
2011. Management teams will therefore
need to know what impact IFRS for
SMEs would have on their business and
results by 31 December 2010.
Management teams should start
monitoring developments from the ASB
and consider the impact of IFRS on
current projects and transactions, such

Accountancy Ireland APRIL 2010 Vol.42 No.2

as corporate restructurings and

development of shared services centres,
Someone within the organisation
should be appointed to be responsible
for monitoring developments.
Management should identify those
areas that will be affected by conversion
to IFRS or IFRS for SMEs, including tax,
distributable reserves, bank or loan
covenants, contractual arrangements
(where they are CjAAP dependent in any
way), and management bonus schemes
and should consider the commercial
implications of increased disclosures
which may be commercially sensitive,
such as key sources of estimation
uncertainty.
For the majority of Irish entities, the
future of financial reporting will
inevitably be IFRS or IFRS for SMFs. Early
planning will be critical for a smooth
transition.
Irene O'Keeffe. FCA is an Assurance Partner
with PricewaterhouseCoopers in Dublin and
Fiona Hackett, ACA is a Senior Manager with the
same firm.

Copyright of Accountancy Ireland is the property of Institute of Chartered Accountants in Ireland and its
content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's
express written permission. However, users may print, download, or email articles for individual use.