Accounting framework: interaction of International Financial Reporting Standards (IFRS) and company law
From 1 January 2005 all UK listed companies are required to use IFRS when preparing consolidated accounts, and the UK has chosen under the EU Directive to allow IFRS to be used in preparing the consolidated accounts and individual accounts of any company. A document on HMRC internet ‘International Accounting Standards - the UK tax implications’ gives more details. FA04/S50 redefines ‘generally accepted accounting practice’ to include both EC-adopted International Accounting Standards and UK GAAP. So wherever (as in FA98/S42) a provision refers to GAAP it will include a reference to International Accounting Standards.
UK groups may therefore use IFRS in parent company individual accounts and at subsidiary level or they may use UK GAAP for the parent company and subsidiary accounts. The directors of a parent company must secure that the individual accounts of the parent and each subsidiary are all prepared using the same financial reporting framework, except to the extent that in their opinion there are good reasons for not doing so - section 407 CA 2006.
It is a legal requirement to follow the accounting format as laid down in Schedule 3 to SI2008/410. But where insurers use IFRS, UK company law provides an exclusion. Nevertheless, the ABI SORP is based on UK company law and insurance company accounts are likely to remain in the prescribed format until Phase II of the IASB’s project sets a new standard for insurance accounting.