The Financial Reporting Council (FRC) serves as a regulatory body overseeing financial reporting in the United Kingdom. As an accounting standards authority, it plays a crucial role in setting and maintaining standards for financial reporting practices. With its oversight of financial reporting, the FRC ensures that entities adhere to established accounting principles and regulatory requirements. Additionally, as a standard-setting organisation, the FRC is responsible for developing and updating accounting standards to reflect evolving business practices and regulatory landscapes.

UK GAAP (Generally Accepted Accounting Principles):

UK GAAP represents the generally accepted accounting principles followed in the United Kingdom. It encompasses accounting standards and serves as the financial reporting framework for entities operating in the UK. Comprising UK accounting rules, UK GAAP provides guidance on accounting treatments and disclosure requirements. Compliance with UK GAAP ensures consistency and transparency in financial reporting practices across different organisations.

Proposed Revisions:

The FRC periodically proposes revisions to UK GAAP to enhance its relevance and effectiveness in addressing emerging accounting issues and regulatory changes. These revision proposals entail changes to accounting standards, updates to financial reporting requirements, and amendments to UK GAAP to align with evolving business practices and regulatory expectations. The FRC’s aim with these proposed revisions is to ensure that UK GAAP remains robust and reflective of current accounting best practices.

• The Financial Reporting Council (FRC) is currently conducting a periodic review of UK GAAP, which is expected to be completed by the end of 2024. The FRC has issued a consultation paper on proposed amendments to FRS 100, 101, 102, 103, 104, and 105, which cover topics such as presentation and disclosure, leases, financial instruments, insurance contracts, interim reporting, and micro-entities. The FRC is seeking feedback from stakeholders by 30 April 2023.
• The FRC has also recently published a summary of changes for the reformatted UK GAAP Manual (2023), which provides guidance on the application of UK GAAP standards. The changes include technical updates, such as the impact of Brexit, the amendments to FRS 100, and the FRC’s thematic review on alternative performance measures.
• The FRC monitors the quality and compliance of financial reporting in the UK through its Corporate Reporting Review (CRR) function. In 2022, the CRR reviewed 216 sets of accounts and wrote to 96 companies to raise queries or request improvements. The most common areas of challenge were impairment of assets, revenue recognition, financial instruments, and leases.
• The FRC also publishes annual reports on the state of UK corporate governance and stewardship, which assess the performance of companies and investors against the UK Corporate Governance Code and the UK Stewardship Code. The latest reports, published in January 2023, highlighted the need for more diversity, sustainability, and stakeholder engagement in boardrooms and investment decisions.
• UK GAAP is widely used by unlisted companies in the UK, as well as some listed companies that are not required to apply IFRS. According to the latest statistics from the Office for National Statistics, there were 2.7 million active companies in the UK at the end of 2022, of which 2,200 were listed on the London Stock Exchange. The majority of UK companies are small or medium-sized enterprises (SMEs), which account for 99.9% of the business population and 52% of the turnover.

Accounting Standards Update:

To facilitate stakeholder engagement and gather feedback on proposed revisions to UK GAAP, the FRC issues consultation documents and exposure drafts outlining the proposed changes. These documents provide insights into the rationale behind the proposed revisions and their potential impact on financial reporting practices. Through the FRC feedback process, stakeholders, including industry professionals and organisations, have the opportunity to provide input and shape the final accounting standards update.

UK Financial Reporting Standards (FRS):

The UK Financial Reporting Standards (FRS) comprise a series of accounting standards that form part of UK GAAP. FRS 102, FRS 105, and FRS 101 are examples of standards within this framework. They provide guidance on various aspects of financial reporting, including recognition, measurement, and disclosure requirements. The UK accounting standards hierarchy outlines the application of these standards based on the sise and nature of reporting entities.

Impact Assessment:

When proposing revisions to UK GAAP, the FRC conducts impact assessments to evaluate the potential effect on financial statements, accounting policy changes, and implications for reporting entities. These assessments consider transition considerations, such as implementation timelines and the practical challenges associated with adopting the revised standards. By conducting thorough impact assessments, the FRC aims to ensure that the proposed revisions are feasible and beneficial for stakeholders.

Stakeholder Consultation:

Stakeholder consultation is a crucial aspect of the FRC’s standard-setting process. Through the FRC consultation process, industry stakeholders, including accounting professionals and organisations, are invited to provide feedback on exposure drafts and proposed revisions to UK GAAP. This consultation process allows for robust discussions and ensures that the perspectives of various stakeholders are considered before finalising accounting standards updates.

International Financial Reporting Standards (IFRS):

The relationship between IFRS and UK GAAP is an important consideration for the FRC and reporting entities. IFRS convergence involves aligning UK GAAP with international accounting standards to enhance comparability and consistency in financial reporting. The adoption of IFRS principles by the UK contributes to the harmonisation of global accounting standards, facilitating cross-border investment and financial analysis.

Implementation Timeline:

The effective date of revisions to UK GAAP, along with the transition period and compliance deadlines, is carefully planned by the FRC. A phased implementation approach may be adopted to allow reporting entities sufficient time to adapt to the changes and ensure compliance with the revised standards. Clear communication of the implementation timeline is essential to facilitate a smooth transition to the updated UK GAAP.

Disclosure Requirements:

Enhanced disclosures and additional reporting requirements are key components of the proposed revisions to UK GAAP. These requirements aim to enhance transparency in financial reporting by providing stakeholders with comprehensive information about the financial position and performance of reporting entities. A robust disclosure framework ensures that relevant information is effectively communicated to users of financial statements.

Small and Medium-sized Entities (SMEs):

The impact of proposed revisions to UK GAAP on small and medium-sised entities (SMEs) is a consideration for the FRC. FRS 105 for micro-entities provides simplified reporting requirements tailored to the needs of smaller entities. The FRC aims to strike a balance between ensuring that SMEs meet their reporting obligations while minimising the administrative burden associated with compliance.

Regulatory Framework:

The FRC operates within a regulatory framework that encompasses regulatory oversight, compliance monitoring, and enforcement mechanisms. Its role in the UK accounting regulatory environment involves overseeing financial reporting practices, ensuring compliance with accounting standards, and addressing instances of non-compliance through appropriate enforcement measures.

Comparative Financial Reporting:

Comparative financial reporting involves presenting financial information for multiple periods to enable users to assess an entity’s financial performance and position over time. Restatement requirements may apply when presenting prior period information in line with the revised UK GAAP. Comparative analysis of financial statements enhances transparency and facilitates informed decision-making by stakeholders.

Financial Statement Presentation:

The format of financial statements, including the presentation of the balance sheet, income statement, cash flow statement, and statement of changes in equity, is guided by UK GAAP. Reporting entities are required to follow specific presentation requirements outlined in the accounting standards to ensure consistency and comparability in financial statement presentation. Effective reporting of financial performance is essential for stakeholders to assess an entity’s financial health.

Industry-specific Considerations:

Industry-specific considerations play a significant role in the application of UK GAAP. Sector-specific accounting standards and disclosure requirements cater to the unique characteristics and reporting needs of different industries. The FRC provides guidance on industry-specific accounting practices to ensure that reporting entities accurately reflect the financial realities of their respective industries.

Materiality Assessment:

Materiality assessment involves determining the significance of financial information in influencing the decisions of users of financial statements. Materiality thresholds are set to identify material financial information that warrants disclosure in the financial statements. Materiality considerations guide reporting entities in determining the scope and content of their financial reporting, ensuring that relevant information is prioritised.

Accounting Policy Choices:

Reporting entities have the flexibility to make accounting policy choices under UK GAAP within the framework of the accounting standards. The FRC provides guidance on accounting policies to assist reporting entities in making informed choices that best reflect the economic substance of transactions and events. Effective application of accounting policies ensures consistency and comparability in financial reporting practices.

Auditor Considerations:

Auditors play a critical role in ensuring the reliability and integrity of financial statements prepared in accordance with UK GAAP. Audit implications of revisions to accounting standards, auditor reporting requirements, communication with stakeholders, and auditor independence requirements are key considerations for auditors. The FRC provides guidance and standards to guide auditors in fulfilling their responsibilities effectively.

Public Interest Entities (PIEs):

Public Interest Entities (PIEs), including listed companies and entities of significant public interest, are subject to additional reporting obligations under UK GAAP. Compliance requirements for PIEs encompass enhanced disclosure requirements and regulatory scrutiny to ensure transparency and accountability in financial reporting. The FRC monitors compliance with reporting obligations and enforces regulatory requirements for PIEs.

Financial Reporting Framework Evolution:

The evolution of UK GAAP reflects changes in accounting standards, regulatory requirements, and financial reporting practices over time. Harmonisation with international standards, such as IFRS convergence, contributes to the evolution of the financial reporting framework. The FRC’s role in shaping the financial reporting landscape involves anticipating future directions in financial reporting and ensuring that UK GAAP remains relevant and effective in meeting the needs of stakeholders.