Chapter 14 UK GAAP

Question 1

1.1 UK GAAP

Answer 1

In the UK listed groups of companies (public companies with a stock exchange listing) must prepare financial statements under international accounting standards. Other companies may prepare financial statements under UK GAAP or opt to use international standards if they wish.
UK GAAP are the rules, regulations, concepts, and conventions which govern accounting in the UK. UK GAAP is made up of UK accounting standards and company law.
UK accounting standards: the financial reporting council (FRC) in the UK is responsible for issuing UK accounting standards, previously undertaken by the accounting standards board. The most important is financial reporting standard 102 (FRS 102).
Company Law: companies act in the UK requires companies to prepare annual financial statements in specific format which must show a true and fair value. The documents in the financial statements are a profit and loss account, a balance sheet, a director’s report, and an auditor’s report (where the accounts have been audited).

Question 2

1.2 Companies using international standards

Answer 2

The international accounting standards board (IASB) sets international standards. These comprise international financial reporting standards (IFRS standards) or international accounting standards (IAS standards). IFRS and IAS standards carry the same status, IAS are just older.
A listed company following international standards must also comply with the listing rules issued by the stock exchange they are a member of.
Companies following international standards must comply with company law, although they are allowed to use the formats for financial statements specified in the international standards.

Question 3

1.3 Terminology

Answer 3

Below is the international standards terminology with the UK terminology:
- Statement of profit or loss: profit and loss account or income statement
- Revenue: turnover
- Finance costs: interest payable
- Statement of financial position: balance sheet
- Non-current assets: fixed assets
- Property, plant, and equipment: tangible assets
- Carrying amount: net book value
- Inventory: stock
- Receivables: debtors
- Allowance for receivables: provision for doubtful debts
- Irrecoverable debt: bad debt
- Cash and cash equivalents: cash at bank/ in hand
- Retained earnings: profit and loss account
- Non-current liabilities: creditors falling due in more than 12 months
- Loan notes: dentures
- Current liabilities: creditors falling due in less than 12 months
- Payables: creditors

Question 4

1.4 Statement of financial position format

Answer 4

In the UK the statement of financial position takes on a different form to IAS 1. The top part of the financial position shows total net assets (fixed assets + current assets – current liabilities – long-term liabilities). The bottom part of the statement of financial position shows shareholders’ funds (share capital + reserves).