Consultation on the future of financial reporting in the UK continues, following the recent publication by the Accounting Standards Board (ASB) of its revised proposals, and the publication of an alternative view of one of its members
In proposing a fundamental overhaul of current financial reporting standards, the ASB defined its objective as being, 'to enable users of accounts to receive high-quality, understandable financial reporting proportionate to the size and complexity of the entity and users' information needs'.
The alternative view is that this objective has led the ASB on a tangent, as it allows users' information needs to be subordinated to 'high-quality, understandable financial reporting'.
Instead, the alternative view suggests that the project objective should have been, 'to provide users of accounts with the information that they need, in an accessible format, subject only to cost/benefit constraints'.
The ASB's revised proposals (published on 30 January 2012) replace the previous draft proposals issued in October 2010 and March 2011, and are intended to apply to all entities that are required to prepare financial statements that give a true and fair view.
In general, the proposals recommend:
- replacing the various standards that apply in the UK and Republic of Ireland with a single financial reporting standard
- introducing a reduced disclosure framework for certain entities
- a further consultation on how to update the financial reporting standards that will apply to smaller entities following new European Commission proposals
The alternative view argues for a more basic assessment of the accounting requirements believing that:
- accounts are prepared solely to communicate information to users (whose needs primarily revolve around whether an entity has sufficient funding to remain a going concern and to execute its business plan)
- the ASB should have set out a clearer account of the nature of information that major classes of users find useful as, without this benchmark, the ASB is unable to properly assess whether its proposals meet its objectives
- the proposals should be redrafted as a consequence of the focusing on the information needs of users of accounts
The alternative view suggests that by 'eliminating unnecessary complexity and cutting clutter' the ASB would further reduce the burden of regulation and influence future developments of international financial reporting standards.
It is clear that reducing complexity and red tape continues to be an important factor in shaping the future of financial reporting.
The ASB's attempts at streamlining the nature of financial reporting are part of the wider attempts to reduce the burden, and increase the effectiveness, of the reports businesses are required to prepare (see New audit and accounting proposals could save companies £600m per annum and The future of narrative reporting: a further consultation).
The ASB is seeking views both on its revised proposals and on the alternative view, with comments to be received by the ASB before 30 April 2012.
Further information on the consultation can be found on the ASB website.