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UK Department for Business confirms that accounts prepared under IFRS and UK GAAP are compliant with UK and EU law

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03 Oct 2013

The United Kingdom Department for Business Innovation and Skills (BIS) has today confirmed that all accounts prepared in accordance with UK or International Financial Reporting Standards (IFRSs) are compliant with UK and EU law. The UK Financial Reporting Council (FRC) confirms the findings.

When UK entities prepare accounts, there is a legal requirement under the Companies Act (derived from EU accounting directives) that they show a true and fair view.  Observers had expressed the view that the use of IFRS will not enable this legal requirement to be achieved. 

Having sought independent legal opinion, the BIS has confirmed that “compliance with accounting standards will result in a true and fair view”.  Where this is not the case, IAS 1 Presentation of Financial Statements paragraph 19 and FRS 102 paragraph 3.4 allows that where compliance with an accounting standard may not achieve that objective, the standard may be overridden. The FRC has taken its own independent legal advice and has confirmed these findings.

The BIS and FRC believe that further improvements can be made to IFRSs and the Conceptual Framework for financial reporting, although these changes are not required to enable existing accounting standards to comply with UK company law.

In this connection, the FRC has also stated that it will continue to work towards the improvements of accounting standards and will be contributing to the comprehensive conceptual framework project of the IASB. 

Both, the FRC and the BIS believe that stewardship reporting should be included as a "primary objective of financial reporting" in the Conceptual Framework and prudence should be explicitly mentioned.  Both also believe that "clear principles are needed to describe when specific approaches to measurement, such as fair value, should be used". 

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