Appendix I – Comparison of International and UK Standards for F&PR Syllabus
Note that this comparison is not exhaustive – it excludes international standards that were not covered in the FR syllabus, and it only highlights those differences that are relevant to your F&PR studies. International Standard IAS 1 Presentation of Financial Statements UK Standard Differences of relevance to the F&PR syllabus
Financial Reporting Standard (“FRS”) 3 Reporting Financial Performance
IAS 1 specifies minimum information to be included in statements which may result in formats differing from those required under the UK Companies Act and FRS 3 Reporting Financial Performance. However, the differences in the appearance of financial statements are not of importance to F&PR students, as public sector organisations have to follow their own sector-specific guidance outlining how the statements should be presented, which is based on organisations‟ legal and financing structure as much as current UK accounting standards. F&PR students should note that there are many terminology differences, although this isn‟t particularly important in an F&PR context as public sector organisations use their own distinct terminology anyway (e.g. retained earnings will usually be called retained surplus or general fund). Relevant terminology differences include:
IAS 1 Non-current assets Property, plant and equipment Inventories Trade receivables Current liabilities Trade payables Non-current liabilities Equity Retained earnings Companies Act / FRS 3 Fixed assets Tangible assets Stocks Debtors Creditors: amounts falling due within one year Trade creditors Creditors: amounts falling due after more than one year Capital and reserves Profit and loss account
IAS 1 (Revised)
Note: The revised version of IAS 1 issued by the IASB effective for accounting periods from 1st Jan 2009 will be implemented in a new syllabus issued by CIPFA for FA and FR modules by 1st Jan 2009 and first examinable for June 2009, and for F&PR module by 1st Jan 2010 first examinable for June 2010. F&PR students will not therefore be examined on this revised version until June 2010. The revised IAS 1 removes the traditional term „balance sheet‟ and although the format is unchanged is to be called „a statement of financial position‟. The traditional income statement is to be replaced by the ‟statement of comprehensive income‟.
IAS 2 Inventories
Statement of Standard Accounting Practice (“SSAP”) 9 Stocks and Long Term Contracts
The requirements of the two standards are very similar. One minor difference is that IAS 2 expressly forbids the use of last in, first out (LIFO) as a method of valuing inventory whereas SSAP 9 only discourages rather than prohibits it. This difference isn‟t of importance to F&PR students, because whilst public sector organisations may hold inventory (e.g. an NHS Trust will have drugs), the detailed calculations of inventory values do not form part of the F&PR syllabus and hence you would not need to worry about LIFO in your F&PR studies.
IAS 7 Cash Flow Statements
FRS 1 Cash Flow Statements
IAS 7 contains a format for the cash flow statement that is quite different to that required by FRS 1, but the underlying calculations that students need to do to calculate figures such as non-current asset purchases will be the same under both standards. The differences in presentation of cash flow statements between the International and UK standards are not of concern to F&PR students, as public sector organisations have their own specific methods of presenting cash flow statements and hence public sector cash flow statements look very different to either an IAS 7 or FRS 1 format. This is because public sector organisations have very different types of cash flows to private sector organisations – for example, unlike companies, a central government department will not pay dividends to shareholders or corporation tax and will not therefore show these headings on the face of its cash flow statement.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events After the Balance Sheet Date IAS 11 Construction Contracts IAS 12 Income Taxes
FRS 18 Accounting Policies
FRS 21 Events After the Balance Sheet Date SSAP 9 Stocks and Long Term Contracts FRS 19 Deferred Tax FRS 16 Current Tax
Whilst there are some differences between IAS 12 and FRS 19 Deferred Tax with regards to the calculation of deferred tax, they are not of interest to F&PR students as few public sector organisations pay tax and hence are unlikely to account for deferred tax. As such, neither FRS 16 nor FRS 19 are examinable for F&PR.
IAS 14 Segment Reporting
SSAP 25 Segmental Reporting
The requirements of IAS 14 are far more extensive and detailed than those required by SSAP 25. It is thus examinable at level „C‟ (a basic knowledge and understanding). F&PR students do not need to know the differences because public sector organisations follow their own sector specific guidance regarding what needs to be reported for different segments, rather than following SSAP 25. For example, a local authority has to disclose the costs and incomes for each of its service lines, but this requirement stems from legislation rather than SSAP 25.
IAS 16 Property, Plant and Equipment
FRS 15 Tangible Fixed Assets
There are no differences between IAS 16 and FRS 15. As accounting for property, plant and equipment is a fundamental part of the F&PR syllabus, this is good news for students as all of their previous studies on IAS 16 will be directly relevant when they study how public sector organisations apply FRS 15. The only difference to be aware of relates to terminology (FRS 15 refers to tangible fixed assets rather than tangible non-current assets).
IAS 17 Leases
SSAP 21 Accounting for Leases and Hire Purchase Contracts
IAS 17 takes a broadly similar approach to SSAP 21, with the differences relating to complications that are outside the F&PR syllabus. You may be asked to perform finance lease calculations in the F&PR exam, and the method that you use will be identical to that which you learned under IAS 17. There is no equivalent UK standard relating to revenue recognition, although FRS 5 does deal with revenue recognition and is consistent with the requirements of IAS 18.
IAS 18 Revenue
FRS 5 Reporting the Substance of Transactions
IAS 19 Employee Benefits
FRS 17 Retirement Benefits
Whilst there are differences between IAS 19 and FRS 17 Retirement Benefits, only a broad understanding of pensions is required for both FR and F&PR and therefore the differences between the two standards are outside the scope of both syllabi. None.
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 23 Borrowing Costs IAS 24 Related Party Disclosures
SSAP 4 Accounting for Government Grants.
FRS 15 Tangible Fixed Assets FRS 8 Related Party Disclosures
IAS 23 requirements relating to capitalising borrowing costs as part of the cost of fixed assets are consistent with the requirements of FRS 15 Tangible Fixed Assets. Despite some differences between IAS 24 and FRS 8, F&PR students don‟t need to worry about the requirements of FRS 8 since organisations in the public sector have their own rules relating to disclosing related parties, which are separate to FRS 8‟s requirements.
IAS 27 Consolidated and Separate Financial Statements IAS 32 Financial Instruments: Presentation IAS 33 Earnings per Share IAS 36 Impairment of Assets
FRS 2 Accounting for subsidiary undertakings
Only the basic rules regarding consolidation of subsidiaries are within the scope of the FR and FP&R syllabuses, and these are the same under both standards.
FRS 25 Financial Instruments: Presentation FRS 22 Earnings per Share FRS 11 Impairment of Fixed Assets and Goodwill
None. FRS 22 is not applied by public sector organisations and as such is outside the scope of your F&PR syllabus. The basic rules relating to how much impairment must be recognised on the balance sheet are the same under both standards, but there are some minor differences relating to whether the impairment loss is recognised in the income statement or the revaluation reserve. F&PR students don‟t need to worry about these differences because during their F&PR studies, they will learn that public sector organisations have their own specific rules and regulations relating to where impairment losses are accounted for, which are in addition to the FRS 11 rules.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
FRS 12 Provisions, Contingent Liabilities and Contingent Assets
IAS 38 Intangible Assets
FRS 10 Goodwill and Intangible Assets
The only significant difference relates to capitalising development costs, where capitalisation is compulsory under IAS 38 if certain criteria are met but is optional under FRS 10. If a public sector organisation has development costs (e.g. a university‟s IT department has developed a marketable piece of software), it can therefore choose whether to capitalise these under FRS 10.
IAS 39 Financial Instruments: Recognition and Measurement IAS 40 Investment Property
FRS 26 Financial Instruments: Recognition and Measurement SSAP 19 Investment Properties
IAS 40 gives companies a choice of holding investment properties at fair value or at cost less depreciation. SSAP 19 gives companies no choice, requiring them to hold them at market value with no depreciation charged. Therefore, the public sector organisations that you study during your F&PR studies will account for their investment properties at market value, with increases in value being reflected in the revaluation reserve. There is no equivalent UK standard as this standard relates solely to the arrangements for applying international standards for the first time. It is therefore of no relevance to the current F&PR syllabus.
International Financial Reporting Standard (“IFRS”) 1 First Time Adoption of IFRSs
IFRS 3 Business Combinations
FRS 10 Goodwill and Intangible Assets
Most of IFRS 3 was outside the scope of your FR syllabus apart from the requirements in relation to goodwill. The rules for calculating goodwill arising on a business combination are the same under both standards, but the accounting treatment of goodwill differs. IFRS 3 requires that any goodwill arising be reviewed for impairment every year, whereas FRS 10 requires instead that it be amortised over its estimated useful economic life. It is not common for public sector entities to have goodwill in their balance sheets, but if you were to encounter goodwill in your F&PR studies (e.g. a University acquires a private company engaged in research activities), you would need to amortise the goodwill over its estimated life by reducing the value in the balance sheet each year (Credit) and posting an equivalent entry to operating expenses (Debit). Accounting treatment for negative goodwill differs between the two standards (IFRS 3 requires immediate recognition in the income statement whilst IAS 10 requires capitalisation as a negative asset in the balance sheet), but you are unlikely to encounter negative goodwill during your F&PR studies.
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
FRS 11 Impairment of Fixed Assets and Goodwill FRS 3 Reporting Financial Performance
IFRS 5 introduces the asset classification „held for sale‟ for non-current assets that a company has committed to sell. Such assets have to be valued at fair value, separately disclosed on the balance sheet and are not depreciated. Whilst there is no equivalent UK standard for assets held for sale, public sector organisations would follow the requirements of FRS 11 whenever they have an asset that they are committed to sell by checking if it is impaired and writing it down to its recoverable amount. IFRS 5 also requires disclosure of the effect of discontinued operations in the income statement. Whilst the requirements do differ to those of FRS 3, F&PR students should not worry about the differences because public sector organisations rarely apply the FRS 3 requirements, and as such you would not be required to do an FRS 3 analysis for the F&PR exam.
IFRS 7 Financial Instruments: Disclosure Framework for the Preparation and Presentation of Financial Statements
FRS 29 Financial Instruments: Disclosure Statement of Principles for Financial Reporting