IFRS VS. UKGAAP

Question 1

Difference in presentation of financial statements

Answer 1

IFRS
Components required:
- Statement of financial position
- Statement of profit or loss and other comprehensive income
- Statement of changes in equity
- Statement of cash flows

Material items of income and expense should be disclosed separately

UK GAAP
Presentation dealt with by Companies Act 2006 and FRS 102.
Requires balance sheet and profit and loss
FRS102 requires SPL on net asset basis
Can have single statement of income and retained earnings
Extraordinary items should be disclosed on the face of the profit and loss

Question 2

Concepts

Answer 2

IFRS
These are not identified as
separate qualitative characteristics
in the Conceptual Framework.

UK GAAP
FRS 102 identifies (among others) the qualitative
characteristics of materiality, substance over form
and prudence.

Question 3

Statement of cash flows

Answer 3

IFRS
IAS 7 applies to all entities.

UK GAAP
FRS 102 same as IAS 7
FRS 101 and exemptions under FRS 102 are not required to prepare a statement of cashflows

Question 4

Reporting performance

Answer 4

IFRS
IAS 8 - disclosure is required of any non application of a new standard that s issued but not yet received

UK GAAP
FRS 101 are exempt from this disclosure
FRS 102 states that a change to the cost model, when fair value can no longer be reliably estimated, is not a change in accounting policy (IAS 8 makes no statement).

Question 5

Continuing and discontinued operations

Answer 5

IFRS
IFRS 5 Non-current assets
held for sale and
discontinued operations

UK GAAP
FRS102 requires a separate column in the profit and loss account that discloses each income and expense line attributable to the discontinued operation.
FRS 102 does not recognise assets as “held for sale”, instead the assets would be depreciated up to the date of disposal.
Entities reporting under FRS101 are exempt from disclosing cash flows relating to discontinued operations.

Question 6

Foreign currency transactions

Answer 6

IFRS
IAS 21 states that the
cumulative exchange
differences to be presented
in other comprehensive
income should be shown as a
separate component of
equity.

UK GAAP
No exemptions under FRS 101.
No requirement to disclose these differences separately under FRS 102.

Question 7

Related party transactions

Answer 7

IFRS
IAS 24 Related party
disclosures

UK GAAP
FRS 101 grants entities exemptions from disclosing:
 Key management compensation*
 Transactions between members of a group provided that any subsidiary is wholly-owned.
*However these disclosures are still required under Companies Act 2006

Question 8

PPE

Answer 8

IFRS
IAS 16 - any proceeds from sale of PPE shown in P + L

UK GAAP
FRS 102 proceeds are deducted from the carrying amount of the item of PPE
FRS 101 entities do not have to present comparatives for the reconciliation of PPE at the beginning and end of the period

Question 9

Impairment

Answer 9

IFRS
IAS 36

UK GAAP
FRS 101 allows exemptions from disclosures regarding estimates used to measure recoverable amounts of certain groups of assets.

Question 10

Assets held for sale

Answer 10

IFRS
IFRS 5

UK GAAP
No equivalent concept in the UK. Assets are depreciated up to the point of disposal at which point the relevant gain or loss on disposal is recognised.

Question 11

Government grants

Answer 11

IFRS
IAS 20 recognises grants as either income or capital related and permits presentation on a net or gross basis.

UK GAAP
FRS 102 - performance model or accrual model
Performance model means recognise when performance-related conditions have been met
Accrual model means classified as either revenue or a grant recognised on a systematic basis
Not allowed to net off against carrying amount
No guidance on accounting for the repayment of grants

Question 12

Borrowing costs

Answer 12

IFRS
IAS 23: Capitalisation is required.
The capitalised amount is limited to the borrowing costs on the related funds less any investment income.

UK GAAP
FRS 101 grants no exemptions from IAS 23.
FRS102 allows entities the choice of whether to capitalise borrowing costs or to recognise them as an expense as incurred.
The amount capitalised is based on the average carrying amount of the expenditure.

Question 13

Intangible assets

Answer 13

IFRS
IAS 38
Capitalisation of development that meets the criteria is required.
Intangible assets can have an indefinite useful life.

UK GAAP
FRS 101 - exempt from reconciliations of carrying amounts, beginning or ends of the period when preparing comparative information

FRS 102 - choose whether to capitalise development costs
All intangibles have finite life that does not exceed 10 years

Question 14

Revenue recognition

Answer 14

IFRS
IFRS 15 recognises revenue on the basis of the transfer of control

UK GAAP
FRS 102 recognises revenue on the basis of the transfer or risks and rewards
FRS 102 relies on reliable measurement and the profitability of transfer of economic benefits, rather than the 5 step approach

Question 15

Inventories

Answer 15

IFRS
IAS 2 - no such requirement or guidance

UK GAAP
FRS 102 - requires inventories held for distribution at no or nominal consideration to be measured at adjusted cost
Impairment losses in inventory can be reversed if the circumstances leading to the original impairment no longer exist or if economic conditions change

Question 16

Leases

Answer 16

IFRS
IFRS 16 makes no distinction between accounting treatments of leases other than exemptions for short lease or low value assets

UK GAAP
FRS 102 distinguishes between finance leases or operating leases
Finance leases - those that transfer risks and rewards of ownership to the lessee and are treated largely in the same way as IFRS 16
Operating leases expenses on straight line basis over the lease term

Question 17

Financial instruments

Answer 17

IFRS
IFRS 7 – Disclosures
IFRS 9 – Recognition and measurement

UK GAAP
FRS 101 - Exempt
Required in group accounts
FRS 102 - Two sections
Basic financial instruments and other financial instruments

Question 18

Events after the reporting period

Answer 18

IFRS
IAS 10 - Dividends declared after the year end are treated as non-adjusting events and disclosed

UK GAAP
FRS 102 the dividend is still not treated as a liability but may be presented as a segregated component of retained earnings

Question 19

Earnings per share

Answer 19

IFRS
IAS 33

UK GAAP
FRS 101 contains no exemptions

Question 20

Non-controlling interest

Answer 20

IFRS
IFRS 3 allows a choice measurement at fair value or share of net assets

UK GAAP
Non-controlling interest is always valued at its share of net assets

Question 21

Acquisition related costs

Answer 21

IFRS
Must be expensed to the profit or loss as incurred

UK GAAP
Must be added to the cost of the investment and thus affect goodwill

Question 22

Contingent consideration

Answer 22

IFRS
Measured at fair value at acquisition with subsequent adjustments which relate to circumstances at the acquisition date
All others are recognised in P+L

UK GAAP
A reasonable estimate of the contingent consideration is included within goodwill calculation where probable that the amount will be paid and it can be measured reliably.
All subsequent adjustments are related back to the acquisition date, thus affecting goodwill.

Question 23

Goodwill

Answer 23

IFRS
IFRS 3 requires annual impairment reviews.
Negative goodwill in immediately recognised as a gain in the profit or loss.
Impairments to goodwill cannot be reversed

UK GAAP
Goodwill is amortisied over estimated useful life which usually does not exceed 10 years.
Negative goodwill is recognised as a seperate item within goodwill (a negative asset)
The reversal of impairment to goodwill is allowed.

Question 24

Exclusion from consolidation

Answer 24

IFRS
No specific exemptions exists

UK GAAP
A subsidiary should be excluded from consolidation if severe long term restrictions prevent the parent exercising control

Question 25

Goodwill in associates and joint ventures

Answer 25

IFRS
No implicit goodwill is recognised

UK GAAP
Goodwill is recognised on acquisition (as difference between consideration transferred and investors share of the fair value of net assets) then amortised

Question 26

Disclosures

Answer 26

IFRS
IFRS 12 requires specific disclosures regarding interests in associates and joint ventures

UK GAAP
FRS 102 does not require detailed information about the investee or risks associated with it.
FRS 101 does not grant any disclosure exemptions.