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United Kingdom

Financial reporting framework in the United Kingdom


Adoption of IFRSs in Europe effective in 2005

In June 2002, the European Union adopted an IAS Regulation requiring European companies listed in an EU securities market, including banks and insurance companies, to prepare their consolidated financial statements in accordance with IFRSs starting with financial statements for financial year 2005 onwards. EU countries have the option to:

  • Require or permit IFRSs for unlisted companies.
  • Require or permit IFRSs in parent company (unconsolidated) financial statements.
  • Permit companies whose only listed securities are debt securities to delay IFRS adoption until 2007.
  • Permit companies that are listed on exchanges outside of the EU and that currently prepare their primary financial statements using a non-EU GAAP (in most cases this would be US GAAP) to delay IFRS adoption until 2007.

The European IAS regulation applies not only to the 28 EU Member States but also to the three members of the European Economic Area (EEA) - Iceland, Liechtenstein, and Norway.

The United Kingdom is an EU Member State. Consequently, UK companies listed in an EU/EEA securities market follow IFRSs since 2005. The European Commission (EC) periodically issues a document which summarises the use of options of the IAS Regulation by European Union Member States. For information on each country's plans, click to access:

The European Commission has adopted the following wording for use in the notes to the accounts and in the audit reports of companies subject to EU Regulation 1606/2002/EC (the 'IAS regulation'):

  • "in accordance with International Financial Reporting Standards as adopted by the EU" or
  • "in accordance with IFRSs as adopted by the EU".

The UK Auditing Practices Board also requires companies subject to the IAS regulation to state, in a footnote, compliance with IFRSs as adopted by the IASB, if that is the case.

Companies Not Subject to the EU IAS Regulation

Companies with securities admitted to trading on the Alternative Investment Market (AIM) of the London stock exchange are not subject to the EU IAS Regulation. AIM rules require an AIM company incorporated in an EEA country to prepare its consolidated financial statements in accordance with IFRSs.

All other UK companies, for their consolidated financial statements, are permitted to use IFRSs or to follow the accounting principles established by the FRC.

Small companies may elect to report under the Financial Reporting Standard for Smaller Entities (FRSSE), which gives exemptions from applying all other accounting standards.

Sources of accounting requirements

There are both mandatory and advisory sources of generally accepted accounting principles (GAAP) in the United Kingdom:

  • The Companies Act 2006
  • Financial Reporting Standards (FRS) issued by the FRC
  • Listing Rules of the London Stock Exchange and AIM rules
  • Statements of Recommended Practice (SORP)
  • Financial Reporting Standard for Smaller Entities (FRSSE)
Companies Act

The directors of all companies registered under the Companies Acts are required to produce financial statements that comply with the requirements of the Act. Among the requirements of the Companies Act are the following:

  • Financial statements are required to give a true and fair view of the profit or loss for the financial year and the state of affairs at the end of it.
  • Duty to keep accounting records
  • Duty to prepare individual company accounts
  • Duty to prepare group accounts
  • Disclosure of related undertakings
  • Disclosure of emoluments and other benefits to directors and others
  • Duty to prepare directors' report
  • Auditors' report

The Companies Act requires disclosure of whether applicable accounting standards have been followed. However it does not make them part of the law.

The Companies Act is administered by the Department for Business, Innovation and Skills (BIS). BIS is responsible for the development and administration of Company Law (apart from subjects which are the responsibility of Companies House). It keeps under review legislation on companies and partnerships and considers proposals for reform.

New UK GAAP

In March 2013, the UK’s Financial Reporting Council (FRC) has published FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. FRS 102 is derived from the IASB’s IFRS for SMEs, reflecting a simplified version of full IFRSs, but incorporates changes made by the FRC, one of which widens the scope of the standard significantly compared to the IFRS for SMEs. This has the effect that any entity not required to apply full IFRSs can apply FRS 102. New UK GAAP replaces 'old' UK GAAP with effect for periods beginning on or after 1 January 2015.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.