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UK's Department Of Trade And Industry And Her Majesty's Treasury: Consultation Document On International Accounting Standards

Date 26/03/2004

The Department of Trade and Industry and Her Majesty's Treasury today published a consultation paper on proposals to allow companies and building societies to use international accounting standards (IAS). The consultation also sets out the Government's proposed approach to implementation of an EU directive that modernises the existing accounting directives.

Under the EU's IAS Regulation, companies and building societies with securities traded on an EU regulated market will be required to use IAS in their consolidated accounts for financial years commencing on or after 1 January 2005.

Last year the DTI announced that it intended to allow such publicly traded companies to choose to use IAS in their individual accounts, and all other companies to choose to use IAS in either their individual or consolidated accounts, or both. HM Treasury intends to extend this optional approach to building societies. This consultation sets out detailed proposals for the operation of this choice and for the incorporation of IAS into company and building society legislation.

In particular, the Government is proposing that an election to use IAS should be irreversible in most circumstances, and that all companies within a group should make a consistent choice unless there are good reasons against this. It is also proposed that charity companies are required to continue to prepare their accounts in accordance with UK generally accepted accounting practice.

The Government is also required to implement the provisions of the Modernisation Directive by 1 January 2005. This is designed to bring EU accounting requirements into line with modern accounting practices by eliminating conflicts with IAS.

The consultation document is available electronically on the DTI website at www.dti.gov.uk/consultations/#current. Hard copies will be available on request shortly.

Background

  1. Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 requires companies (which for this purpose includes building societies) with securities admitted to trading on an EU regulated market to use IAS in their consolidated accounts for financial years commencing on or after 1 January 2005.
  2. IAS for this purpose represents international accounting standards, international financial reporting standards and related interpretations as adopted for use in the EU in accordance with the Regulation.
  3. Under Article 5 of the Regulation, Member States may permit or require other companies to use adopted IAS, and may permit or require publicly traded companies to use IAS in their individual accounts. Following an earlier consultation in 2002, the Government announced on 17 July 2003 that such GB companies will be permitted to choose whether to switch to IAS or to continue to prepare their accounts in accordance with UK legislation and generally accepted accounting practice. The introduction of this option requires amendments to companies and building societies legislation to establish the circumstances in which the choice can be made. It is also necessary to amend the legislation to clarify the interaction of IAS with other legislative requirements.
  4. This consultation also addresses implementation of most aspects of Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003 amending Council Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and 91/674/EEC on the annual and consolidated accounts of certain types of companies, banks and other financial institutions and insurance undertakings (the "Modernisation Directive"). This Directive requires Member States to make certain changes to national law concerning the form and content of accounts and contents of directors' and auditors' report.
  5. Directives are not directly applicable in Member States and must be implemented through national law. The Modernisation Directive must be implemented by 1 January 2005.
  6. The use by companies and building societies of IAS is expected to improve the transparency, comparability and quality of financial reporting across the EU and so lead to a strengthening and deepening of the EU's capital markets. It is expected that by 2005 over 90 countries will be using IAS as part of their financial reporting framework.