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HMRC internal manual

Corporate Finance Manual

Accounting for corporate finance: Accounting standards and groups of companies

Switching between IFRS and UK GAAP

UK company law restricts a company’s ability to switch from preparing IFRS individual accounts to UK GAAP individual accounts.

A company which has prepared its individual accounts using IFRS for a financial year cannot switch back to UK GAAP in subsequent years unless there is a relevant change in circumstances, which are:

  • The company becomes a subsidiary of an undertaking that does not use IFRS. This is intended to apply to the sale of a company out of a group generally using IFRS and into one using UK GAAP. It is not intended to apply to internal group reorganisations.
  • The company ceases to be publicly traded.
  • Any parent company of the company ceases to be publicly traded.
  • In the case of individual accounts, a company ceases to be a subsidiary.

However, the directors may change from preparing IFRS accounts to preparing UK GAAP (‘Companies Act’) accounts for a reason other than a relevant change in circumstance provided they have not changed to UK GAAP accounts in the previous five years.

Consistency within groups

Section 407 of the Companies Act requires that the directors of the parent company must secure that the individual accounts of the parent and each of its subsidiaries are prepared under the same accounting framework, except where, in the directors’ opinion, there are good reasons for not doing so.

However, Old UK GAAP, FRSSE, FRS 101 and FRS 102 are all part of UK GAAP (and therefore represent ‘Companies Act accounts’). Therefore, a group can have all of its UK subsidiaries on:

  • IFRS (‘IFRS accounts’); or
  • One or more of Old UK GAAP, FRSSE, FRS 101 or FRS 102 (‘Companies Act accounts’).