Business matters: Is now the right time to change the UK financial reporting framework?

The ASB recently released an exposure draft for the future of financial reporting in the UK and Republic of Ireland in October, which outlines how the UK plans to ditch UK GAAP in favour of a new tiered system based on international standards.

While the ASB has rolled back a bit from replacing UK GAAP in full with IFRS equivalent as originally proposed in its first consultation, we at the QCA are not persuaded that the case for changing from the existing arrangements has been made well enough – especially not in terms of a cost/benefit basis.

At the moment in the economic cycle, businesses should not be worrying about changing how they prepare their accounts. They should be focused on running their businesses and growing. This is key to the UK’s economic recovery.

There also are a plethora of international accounting standards under review by the International Accounting Standards Board, including revenue recognition, financial statement presentation, lease accounting and so on. This could cause the cost/benefit calculations and impact assessments of the UK‘s proposed changes to be subject to substantial uncertainty.

Finally, any cost/benefit calculations have not been done with smaller growth companies in mind and instead the focus has been on larger companies in the FTSE-350. Any change must demonstrate a significant and sustainable benefit otherwise it is not worth implementing. All constituents of UK plc need to receive a material benefit, not just the largest ones.

The ASB would argue that UK GAAP is outdated and needs updating or replacing. However, we are not aware of significant evidence to support this argument.

So, we see that there is a pretty strong case for delaying this change and we suspect that many other finance directors may think so too.

Tim Ward is chief executive of the Quoted Companies Alliance (QCA), the membership organisation of the small and mid-cap quoted sector working in the UK and Europe. His past roles have included head of issuer services and head of marketing at the London Stock Exchange and finance director at FTSE, the index company.