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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. In February 2012, the European Commission published the results of an updated survey of the (then) 27 EU member states and the 3 EEA member states regarding the four options above. 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. The AIM has adopted a rule that will require AIM companies to submit IFRS financial statements starting in 2007.

All other UK companies, for their consolidated financial statements, are permitted to use IFRSs or to follow the accounting principles established by the United Kingdom Accounting Standards Board, as follows:

Companies other than small companies

Unlisted companies other than small companies must follow:

  • Financial Reporting Standards (FRS) issued by the UK Accounting Standards Board (ASB)
  • Statements of Standard Accounting Practice (SSAPs) adopted by the UK Accounting Standards Board
  • UITF Abstracts issued by the Urgent Issues Task Force (UITF) of the UK Accounting Standards Board

Small Unlisted Entities

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

Background: Financial reporting in the United Kingdom

Sources of accounting requirements

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

Mandatory sources of GAAP in the United Kingdom are the following:

  • The Companies Act 2006
  • Financial Reporting Standards (FRS) issued by the UK Accounting Standards Board (ASB)
  • Statements of Standard Accounting Practice (SSAPs) adopted by the UK Accounting Standards Board
  • UITF Abstracts issued by the Urgent Issues Task Force (UITF) of the UK Accounting Standards Board
  • Listed companies must also comply with the reporting requirements set out in the Listing Rules of the London Stock Exchange, and AIM companies must comply with the AIM rules.

As in other member States of the European Union, UK companies listed on a stock exchange in the United Kingdom will be required to follow International Financial Reporting Standards in their consolidated financial statements starting in 2005. Click for More Information.

FRSs and SSAPs together with the UITF Abstracts are applicable to all financial statements that are intended to give a true and fair view of an undertaking's financial performance during an accounting period and of its financial position at the end of the period.

Advisory sources of GAAP in the United Kingdom include the following:

  • Statements of Recommended Practice (SORP) issued by industry committees. In some cases, the UK Accounting Standards Board reviews and approves these SORPs, in which case they become mandatory.
  • Financial Reporting Exposure Drafts (FREDs)
  • Other statements issued by the ASB
  • Technical Releases
  • Cadbury Committee Report
  • Greenbury Committee Report
  • Hampel Committee Report
  • The Combined Code
  • Pronouncements of international committees and professional bodies in other countries.

Small or nonlisted enterprises

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

UK Accounting Standards Board Inside Track Newsletters

UK ASB Inside Track Newsletters (link to ASB website).

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. Contact details:

Department for Business, Innovation and Skills
1 Victoria Street
London SW1H 0ET
United Kingdom
Website: www.bis.gov.uk
Phone: +44 20 7215 5000

Financial Services Authority (FSA)

The primary regulatory body for the securities and futures markets is the Financial Service Authority. The FSA does not have the power to establish accounting standards. The Companies Act vests that power in the Accounting Standards Board.

The Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
United Kingdom
website: www.fsa.gov.uk
Phone: +44 20 7676 1000

Stock exchange requirements

The London Stock Exchange requires that financial statements of listed ocmpanies must comply fully with UK GAAP and must disclose the extent of compliance with the Combined Code (corporate governance) and reasons for non-compliance.

London Stock Exchange
10 Paternoster Square
London EC4M 7LZ
United Kingdom
website: www.londonstockexchange.com
Phone: +44 20 7797 1000

Banks and insurance companies

On 1 December 2001 the Financial Services Authority (FSA) assumed its full powers and responsibilities under the Financial Services and Markets Act 2000. FSA is the single statutory regulator responsible for regulating deposit-taking, insurance, and investment business. FSA contact details:

The Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
United Kingdom
Website: www.fsa.gov.uk
Phone: +44 20 7676 1000

Banks' financial statements should comply with the Statements of Recommended Accounting Practice issued by the British Bankers Association (BBA) in addition to the mandatory sources of GAAP noted above. BBA contact details:

British Bankers Association
Pinners Hall
105-108 Old Broad Street
London EC2N 1EX
United Kingdom
Phone: +44 20-7216 8800
Fax: +44 20-7216 8888
website: www.bba.org.uk/public/

The Association of British Insurers (ABI) has issued a Statement of Recommended Practice (SORP) on accounting by insurance undertakings (companies). It states:

Financial Reporting Standards (FRSs) issued by, and Statements of Standard Accounting Practice (SSAPs) adopted by, the Accounting Standards Board (ASB) together with Abstracts of the Urgent Issues Task Force of the ASB (UITF) are applicable to all financial statements which are intended to give a true and fair view of an undertaking's financial performance during an accounting period and of its financial position at the end of the period. Accordingly, all insurance undertakings to which this Statement applies are expected to follow these unless in special circumstances the requirement to give a true and fair view requires a departure from accounting standards. In such circumstances, the requirements of the accounting standard should be departed from only to the extent necessary to give a true and fair view and explanatory disclosures given in accordance with UITF Abstract 7.

ABI contact details:

Association of British Insurers
51 Gresham Street
London, EC2V 7HQ
United Kingdom
Phone: + 44 20 7600 3333
Fax: +44 20 7696 8999
Email: info @ abi.org.uk
website: www.abi.org.uk

Measurement of taxable income

Although laws and regulations for measuring taxable income are separate from laws and regulations for measuring income in general purpose financial statements, increasingly the tax authorities are requiring accounting methodology to be used in measuring taxable income.

United Kingdom Accounting Standards Board Structure

The Accounting Standards Board (ASB), the Financial Reporting Review Panel (FRRP), and the Financial Reporting Council (FRC) together make up an independent private-sector organisation whose purpose is to promote good financial reporting. The ASB and the FRRP are operational bodies. The ASB makes, amends, and withdraws accounting standards. The FRRP examines apparent departures from the accounting requirements of the Companies Act 2006, including applicable accounting standards, and if necessary seeks an order from the court to remedy them. Both bodies are subsidiaries of the parent company, the FRC, but each is independent in exercising its functions.

The FRC provides support and broad policy guidance to the FRRP and the ASB. The whole organisation is supported and funded jointly by the Government, the accountancy profession (through the Consultative Committee of Accountancy Bodies) and the City (the London Stock Exchange together with the banking and investment community).

The UK Accounting Standards Board has the authority to establish accounting standards for the United Kingdom and is recognised for that purpose under the Companies Act 2006. It took over the task of setting accounting standards from the Accounting Standards Committee (ASC) in 1990.

The ASB has up to ten Board members, of whom two (the Chairman and the Technical Director) are full-time, and the remainder, who represent a variety of interests, are part-time. ASB meetings are also attended by three observers. Under the ASB's constitution, votes of seven Board members (six when there are fewer than ten members) are required for any decision to adopt, revise, or withdraw an accounting standard. Board members are appointed by an Appointments Committee comprising the chairman and deputy chairmen of the Financial Reporting Council (FRC) together with three members of the Council.

ASB pronouncements and other publications are as follows:

  • Financial Reporting Standards (FRSs) - Mandatory
  • Statements of Standards Accounting Practice (SSAPs) - Mandatory
  • Amendments to Accounting Standards - Mandatory
  • Financial Reporting Exposure Drafts (FREDs) - Advisory
  • ASB Discussion Papers - Advisory
  • ASB Discussion Draft - Advisory
  • ASB Working Papers - Advisory
  • ASB Progress Paper - Advisory
  • ASB Occasional Papers - Advisory
  • ASB Newsletter - Advisory
  • UITF Abstract - Mandatory
  • UITF Information Sheets - Advisory
  • ASB Press Notices - Advisory

ASB publications are in English and are available for purchase in printed form or electronically.

Contact details:

Accounting Standards Board
5th Floor Aldwych House
71-91 Aldwych
London WC2B 4HN
United Kingdom
Telephone: +44 20 7492 2300
Fax: +44 20 7492 2301
ASB website: www.frc.org.uk/asb
FRRP website: www.frc.org.uk/frrp
FRC website: www.frc.org.uk/

Urgent Issues Task Force (UITF)

The Urgent Issues Task Force is a task force of the Accounting Standards Board. The UITF's main role is to assist the ASB with important or significant accounting issues where there exists an accounting standard or a provision of companies legislation (including the requirement to give a true and fair view) and where unsatisfactory or conflicting interpretations have developed or seem likely to develop. In such circumstances it operates by seeking a consensus as to the accounting treatment that should be adopted. Such a consensus is reached against the background of the ASB's declared aim of relying on principles rather than detailed prescription.

The UITF forms its view as to the appropriate accounting treatment for any particular issue within the framework of the law and the principles established in the accounting standards and other statements issued or adopted by the ASB. It also has due regard to international developments.

Given the standing of the UITF's membership, the ASB normally expects to accept the UITF's consensus, subject only to the ASB's overriding duty to ensure that nothing is done that conflicts with the law, accounting standards, or the ASB's present or future policy or plans. The rules of procedure have been designed accordingly.

UITF issues:

  • UITF Information Sheets
  • UITF Abstracts

Information Sheets precede Abstracts and comments are invited. Once an abstract is in issue its recommendations are mandatory.

UITF contact details:

Urgent Issues Task Force of the Accounting Standards Board
5th Floor Aldwych House
71-91 Aldwych House
London WC2B 4HN
United Kingdom
Telephone: +44 20 7492 2300
Fax: +44 20 7492 2301
website: www.frc.org.uk/asb/uitf/

Correction list for hyphenation

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