UK Accounting Standards: What Every Business Needs to Know

Regulatory accounting is the set of principles based on which the accounting firms in the UK operate.

Every region has set its own accounting standards which are internationally acceptable and do not contradict International Accounting Standards. Organizational tasks, especially accounting, need uniformity and consistency. To acquire this, the organizations have set standards that need to be followed. These standards may differ a bit depending on the region.

Understanding these standards is crucial for any business. Regulatory Accounting standards are the foundation of financial reporting as they provide business with a consistent framework and ensure the credibility of financial statements.

In this blog, we’ll she’d light on the accounting standards used in the UK.

Understanding Regulatory Accounting Standards

Although you may have heard the word ‘accounting standards’ numerous times but let me define it precisely. Regulatory Accounting standards are the set of rules, measures and procedures that help in determining how businesses perform accounting. These are the standards that nearly every business follows internationally. This is to avoid confusion and chaos; therefore, certain rules are set that are widely agreed by the whole world. It helps generate uniformity in recording procedures, disclosures and other financial transactions.

Regulatory accounting standards are guiding principles that identify practices and policies of accounting and reporting. There are two widely acceptable regulatory accounting standards and used by accounting firms in the UK i.e. Generally Accepted Accounting Procedures (GAAP) and International Financial Reporting Standards (IFRS).

Importance of Regulatory Accounting Standards

The Regulatory Accounting Standards are crucial as;

• They ensure consistency in financial statements across the companies as stakeholders are able to overview financial statements more comprehensively.
• Similar accounting standards followed international open doors of career opportunities for individuals in accounting all across the world.
• Regulatory accounting standards provide companies with a guide to develop and maintain financial reports, establishing a common international accounting language internationally.
• It allows everyone to have a single framework for keeping track of all financial transactions.

Regulatory Accounting Standards in UK

There are two generally accepted standards in the UK.

• UK Generally Accepted Accounting Practice (UK GAAP)
• International Financial Reporting Standards

UK GAAP

UK GAAP (Generally Accepted Accounting Practice) is a framework of accounting standards set by the UK’s Financial Reporting Council (FRC). These standards offer guidance for a variety of business activities and are used for preparing financial statements. UK GAAP is especially relevant for companies operating in the UK, as it is tailored to meet the country’s specific financial reporting needs.

The seven primary standards within UK GAAP cover a broader aspect of financial reporting areas, including revenue recognition and the treatment of financial instruments. The aim of these standards is to ensure that financial information is presented clearly, consistently, and comparably, supporting informed decision-making by stakeholders.

Onwards 1st January 2015, the introduction of FRSs 100, 101, and 102 provided UK groups and entities with a range of new options, effectively replacing the old UK GAAP.

In addition to these three standards, two more standards were also introduced on 1st January 2015:

FRS 103: This standard outline specific accounting requirements for businesses with insurance contracts that are applying FRS 102.

FRS 104: This standard is used by entities applying FRS 102 when preparing interim financial reports.

FRS 105: This standard applies to businesses qualifying under the micro-entity’s regime, setting out the financial reporting requirements for these small businesses.

Furthermore, businesses operating in specialized sectors or industries must also comply with the relevant Statement of Recommended Practice (SORP) alongside the applicable Financial Reporting Standards. Many entities that issue SORPs have updated their SORPs in accordance with FRS 102.

IFRS

The International Financial Reporting Standards (IFRS) are a set of globally recognized guidelines for financial reporting. Adopted by the UK in 2005, IFRS replaced the older International Accounting Standards (IAS). The IFRS framework is extensive, consisting of 17 distinct sections that cover various aspects of financial reporting, including share-based payments, business combinations, and insurance contracts.

In the UK, IFRS is mandatory for listed companies, while other entities have the option to either adopt IFRS or continue using UK GAAP. The choice between UK GAAP and IFRS typically depends on a company’s international operations and the reporting requirements of its parent group, if applicable.

• IFRS 1: First-time Adoption of International Financial Reporting Standards
• IFRS 2: Share-based Payment
• IFRS 3: Business Combinations
• IFRS 4: Insurance Contracts
• IFRS 5: Non-current Assets Held for Sale and Discontinued Operations
• IFRS 6: Exploration for and Evaluation of Mineral Resources
• IFRS 7: Financial Instruments: Disclosures
• IFRS 8: Operating Segments
• IFRS 9: Financial Instruments
• IFRS 10: Consolidated Financial Statement
• IFRS 11: Joint Arrangements
• IFRS 12: Disclosure of Interests in Other Entities
• IFRS 13: Fair Value Measurement
• IFRS 14: Regulatory Deferral Accounts
• IFRS 15: Revenue from Contracts with Customers
• IFRS 16: Leases
• IFRS 17: Insurance Contracts

Choosing IFRS or GAAP

Choosing between UK GAAP and IFRS is a significant decision that depends on a range of factors. It’s not simply a matter of preference but a strategic choice that can have a major impact on a company’s financial reporting framework.

The decision to adopt either UK GAAP or IFRS often depends on the company’s unique situation. For example, if a company is part of a multinational group, it may be required to use IFRS. On the other hand, most UK companies have the flexibility to choose between IFRS and UK GAAP. It’s important to carefully evaluate the implications of each option and how well they align with the company’s financial goals and reporting needs.

Final Thoughts

The accounting firms in the UK ensure that your business stays compliant with these regulatory accounting standards. Whether it be UK GAAP or IFRS, these standards ensure the credibility of a business’s financial records and ease the audit procedures. There are various aspects that must be kept in mind while opting for regulatory accounting standards in the UK. The nature of the business, the regulatory needs, company size, transactional complexities, global reporting and tax effects are important aspects that must be kept in view while choosing the standards.

SS&Co. UK is one of the leading accounting firms in the UK that provide accounting and advisory services while ensuring that your business stay compliant to the regulatory accounting standards.