FAR: IFRS vs UK GAAP

Question 1

Conceptual Framework

Answer 1

IFRS:
- Qualitative framework split into fundamental and enhancing
- Two main measurement bases permitted: historical cost and current value
- Current value is either the fair value or value in use

UK GAAP
- Only one tier of qualitative characteristics
- Only two measurement bases (cost and fair value)

Question 2

IAS 1- Primary Financial Statements

Answer 2

IFRS
- Must prepare a SOCIE regardless
- Terminology: Statement of Financial Position, Statement of Profit or Loss, Retained Earnings
- Abnormal material items of income & expenses should be disclosed separately on the SPL. The term ‘exceptional item’ does not exist

UK GAAP
- Only need to produce single income statements and retained earnings if no OCI.
- Terminology: Balance Sheet/Statement of financial position Profit and loss account/Income
statement, Profit and loss account (reserve)
- Extraordinary items are
presented as an individual item within the P&L.

Question 3

IAS 2 - Inventory

Answer 3

IFRS
- Requirements like UK GAAP

UK GAAP
- Inventories held for distribution at no or nominal consideration, are measured at adjusted cost.
- Additional guidance is provided on what should be included in production overheads.
- Impairment losses can be reversed if changes in
economic circumstances which led to the impairment no longer exist.

Question 4

IAS 8 - Accounting Policies, Changing in Accounting Estimates and Errors

Answer 4

IFRS
- No such requirements

UK GAAP
- The standard explicitly states that a change to the cost model when a reliable measure of fair value is no longer available is not a change in accounting policy.

Question 5

IAS 10 - Events after the
Reporting Period

Answer 5

IFRS
- Dividends declared after the year-end are not recognised but disclosed in the notes.

UK GAAP
- Dividends declared after the year-end are not a liability but may be presented as a separate part of equity.

Question 6

IAS 12 – Tax

Answer 6

IFRS
- No requirements

UK GAAP
- FRS 102 specifically states that current tax should not be discounted.

Question 7

IAS 16 - Property, Plant and
Equipment

Answer 7

IFRS
- IAS 16 has extensive disclosure requirements

UK GAAP
-Under FRS 101 entities do not have to present comparative information in respect of reconciliations of property, plant and equipment.

Question 8

IFRS 16 – Leases

Answer 8

IFRS
- IFRS 16 does not, for lessees, distinguish between finance
and operating leases, but
requires nearly all leases to be recognised in the statement of financial position.
- There are exemptions for short leases and leases of low-value assets

UK GAAP
- FRS 102 makes a distinction, for lessees, between finance leases (substantially all the
risks and rewards of ownership transferred) and operating leases (all other leases).

Question 9

IFRS 5 – Discontinued
Operations & Assets Held For
Sale

Answer 9

IFRS
- Discontinued operations are presented as a single line inSPL. Analysis appears in a note or statements of comprehensive income.
- Assets classified as ‘held for sale’ if meet criteria.

UK GAAP
- Discontinued operations are presented in a separate column to continuing operations.
-No equivalent concept so
continue to depreciate until sale.

Question 10

IFRS 15 - Revenue from
Contracts with Customers

Answer 10

IFRS
- IFRS 15 adopts a five-step
approach to revenue recognition.
- Revenue is recognised as or when the performance
obligation(s) is/are satisfied (Step 5).

UK GAAP
- FRS 102 does not contain the five-step approach. It focuses on the issue of control, which is only one aspect of Step 5 under IFRS 15. Control under
FRS 102 focuses on
transferring risks and rewards.

Question 11

IAS 20 - Accounting for
Government Grants and
Disclosure of Government
Assistance

Answer 11

IFRS
- Grants accounted for using capital or income approach.
- Capital approach allows choice of deferred income or netting off.

UK GAAP
- A government grant may be recognised using either the performance model or the accrual model, made on a class by class basis
- Under the accrual model the deferred income method must be used.

Question 12

IAS 21 - The Effects of Change
in Foreign Exchange Rates

Answer 12

IFRS
- Cumulative foreign exchange differences are shown as a separate component of equity.

UK GAAP
- No such requirement

Question 13

IAS 23 - Borrowing Costs

Answer 13

IFRS
- IAS 23 requires borrowing costs to be capitalised when criteria is met.

UK GAAP
- Entities are allowed the choice of whether to capitalise borrowing costs or to recognise them as an
expense as incurred.

Question 14

IAS 24 - Related Party
Disclosures

Answer 14

IFRS
- Intercompany transactions cancelled on consolidation do not need disclosing in the group accounts.

UK GAAP
- No disclosure of related party transactions required between two or more members of a group as long as any subsidiary is wholly owned.

Question 15

IAS 38 - Intangible Assets

Answer 15

IFRS
- Must capitalise development expenditure when criteria met.
- IAS 38 permits both intangible assets with finite and indefinite useful lives.
- There is no such requirement with IAS 38.
-In addition IAS 38 requires the disclosure of a reconciliation of carrying amounts (net book value) of intangible assets at the beginning and end of the period when presenting comparative information.

UK GAAP
- Have the option to capitalise development expenditure.
- All intangible assets are
considered to have a finite
useful life. If no reliable estimate can be made, it
should not exceed 10 years.
- An intangible asset acquired in a business combination is not recognised when it
arises from legal or other
contractual rights but there is no history or evidence of exchange transactions on which to base an estimated fair
value.
- Entities applying FRS 101 are exempt from this requirement.

Question 16

IAS 32 / IFRS 9 / IFRS 7 /
IFRS 13 -
Financial Instruments

Answer 16

IFRS
- No such exemptions.
- Initially measure at fair value.
- Various categories of subsequent measurement.

UK GAAP
- Exemptions from disclosure of IFRS 7 & IFRS 13 provided disclosures given in group accounts.
- Initially measure at transaction price.
- Subsequent measurement is generally amortised cost or FV through P&L.

Question 17

IAS 7 – Cash flows

Answer 17

IFRS
- Applies to all entities.

UK GAAP
- An exemption from the
preparation of a statement of cash flows is available for a member of a group where the
parent entity prepares publicly available consolidated financial
statements and that member is included in the consolidation.

Question 18

GROUPS

Answer 18

IFRS
- NCI measured at either fair value or proportionate
method.
- Acquisition costs are
expensed.
- At the acquisition date the fair value of contingent consideration (taking account of both discounting and the amount likely to be paid) is recognised as part of the consideration transferred.
- If subsequent adjustments to this fair value occur within the
measurement period and
are as a result of additional information about facts or circumstances at the
acquisition date, those
adjustments are related back to the acquisition date, increasing or decreasing goodwill.
- However, if subsequent
adjustments to this occur and do not meet above criteria, they are recognised as an expense in profit or loss and do
not increase or decrease
goodwill.
- Goodwill is not amortised but is tested annually for
Impairment.
- Negative goodwill is credited to P&L as a gain on bargain purchase.
- No such exemption.
- No implicit goodwill is recognised or amortised.
- Specific disclosures required about associate & JV.

UK GAAP
- NCI always measured at
proportionate method.
- Acquisition costs are added to cost of investment.
- A reasonable estimate of the fair value of the amounts payable as contingent consideration (discounted where appropriate) is added to
the cost of the investment at the acquisition date, where it is probable that it will be paid and can be measured reliably.
- All subsequent adjustments to the amount of contingent
consideration are related back to the acquisition date, increasing or decreasing goodwill.