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HMRC internal manual

International Manual

Thin capitalisation: practical guidance: accountancy issues: International Financial Reporting Standards (IFRS) and UK Generally Accepted Accounting Practice (UK GAAP)

Entities may prepare their accounts in accordance with one of the following financial reporting frameworks:

  • Current UK GAAP. This includes the Financial Reporting Standards (FRSs) and the Statement of Standard Accounting Practices (SSAPs) issued by the UK Accounting Standards Board.
  • New UK GAAP. This includes FRS 100 and one of FRS 101 or FRS 102. FRS 101 draws heavily on IFRS for measurement and recognition purposes. Hence IFRS requirements should be assumed to apply to preparers using FRS 101 unless otherwise stated.
  • FRS 102 is based on IFRS in large parts, but has its own measurement and recognition criteria and hence will be looked at separately.
  • EU endorsed IFRS. This includes the IASs and IFRSs issued by the International Accounting Standards Board that have been endorsed by the European Union. These accounting standards include IAS 32 and IAS 19 which will be looked at in this section of this manual.

The term “IFRS” is used in this chapter to refer to the application of EU endorsed international accounting standards.

What is IFRS?

The terms IFRS and IAS are often used interchangeably, as effectively they mean the same thing. The International Accounting Standards Board is responsible for the development and issue of IFRSs. Only EU endorsed standards may be used by entities in the UK.

The term IFRS embraces IFRSs, IASs, Interpretations by the International Financial Reporting Interpretations Committee (IFRIC) and its predecessor, the Standing Interpretations Committee (SIC).

In the UK, IFRS is mandatory for the group accounts of listed entities for accounting periods commencing on or after 1 January 2005. For the stand-alone listed company, and for the individual accounts of subsidiaries of the listed companies, the entity currently has a choice of either using either Current UK GAAP, New UK GAAP or IFRS.

What is Current UK GAAP?

UK GAAP principally refers to the accounting framework which utilises accounting standards issued by the Accounting Standards Board (the UK body responsible for issuing UK standards at that time).

Prior to the introduction of New UK GAAP (see below), UK GAAP was the alternative reporting framework to IFRS. Entities preparing their accounts under UK GAAP needed to ensure that they complied not only with UK accounting standards (SSAPs and FRSs) but also the Companies Act. For the purposes of this manual we use the term ‘Current UK GAAP’ to refer to entities that prepare their accounts in accordance with this guidance. Note that for accounting periods beginning on or after 1 January 2015 Current UK GAAP will no longer be permitted.

What is New UK GAAP?

New UK GAAP encompasses the new accounting standards FRS 100, FRS 101 and FRS 102. These new standards were issued in late 2012/early 2013 and are mandatory for accounting periods beginning on or after 1 January 2015. They will replace Current UK GAAP. Early adoption of these new standards is also permitted, so New UK GAAP may be adopted by qualifying entities in earlier accounting periods.