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Financial reporting - Detailed examination of how FRED 21 has updated and changed the requirements of SSAP 2.

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Introduction

FINANCIAL REPORTING IN COURSE ASSIGNMENT (a) Detailed examination of how FRED 21 has updated and changed the requirements of SSAP 2. In December 1999, the ASB published FRED 21 "Accounting Policies", which set out proposals on the selection, application and disclosure of accounting policies. In March 1999, the Accounting Standards Board added a supplement to the FRED, proposing disclosures relating to compliance with the statements of recommended practice. Most respondents were broadly supportive of the proposals set out in the two documents, but a number of issues of detail were raised. The Accounting Standards Board has been considering how best to address these in a standard based on the FRED, and expects to issue an FRS before the end of the year. The issue of ASB's Statement of Principles for Financial Reporting represents the most significant step to date in the process of developing a coherent framework for the preparation and presentation of financial statements. ASB also proposes that the guidance on accounting policies contained in SSAP 2 Disclosure of accounting policies should now be updated, to be consistent with the Statement of Principles and other recent pronouncements, including FRS 12 (provisions) and FRS 5 (substance of transactions). FRED 21 Accounting Policies has been issued for this purpose. The ASB regards SSAP 2 as broadly satisfactory in other respects, and proposes retaining that standard's disclosure requirements in respect of accounting policies. However, the opportunity has been taken to clarify some of the other aspects of SSAP 2 and, as a result, the ...read more.

Middle

Until now it seems that the quest for this accounting problem is no longer - even if it ever was - about setting out basic principles from which the work of the accounting standard setter can proceed. Instead it is more to do with the politicking of the international accounting standard-setting process. The UK belongs to a premier league club of international standard setters called G4+1(there are actually five members of G4, plus the International Accounting Standards Committee), and all the other countries have conceptual frameworks. In other words if the ASB is to stay in the premier league - which it desperately wants to do as internationalisation becomes more important - it needs to be able to point to the existence of its own SOP framework. Academics suggest that having the SOP in place will give the ASB and the standard-setting process greater authority and legitimacy. This line of thinking links in with the way that the ASB's sister body, the Financial Reporting Review Panel (FRRP) behaved in the years while it was establishing itself. But while that tactic may have been necessary early on for the FRRP, it is hard to see how the SOP will make the ASB stronger in the eyes of its domestic audience. Over the years it has assiduously and skilfully fought and won battles on various issues - off-balance-sheet financing, goodwill, big bath provisions, the difference between debt and equity, etc - and, in doing so, has already established its reputation and authority. ...read more.

Conclusion

prior records where practicable (the benchmark treatment), or * Separately disclosed in the current period income statement as part of net profit or loss. Comparative figures are not restated. Pro Forma comparative information should be also presented, giving retroactive effect to the change (the allowed alternative treatment). The effects of changes in accounting estimates should be included in net profit or loss in the period of change if the change affects the period only, or in the period of change and future periods if the change affects both. Where the change relates to an item previously treated as extraordinary, the change itself should be reported as extraordinary. FRED 21, on the other hand defines estimation techniques and distinguishes them from accounting policies. It requires an entity to adopt, for all material items, accounting policies that are, in the opinion of its directors, most appropriate to its particular circumstances, subject to any restrictions imposed by other accounting standards and companies legislation. IAS 8 defines accounting policies as the specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements. The definition in FRED 21 also refers to principles, bases, conventions, rules and practices, but is more specific about the role that accounting policies play in the preparation and presentation of financial statements. Specifically, accounting policies are applied by an entity in order to reflect the effects of transactions and other events through recognising, selecting measurement bases for, and presenting assets, liabilities, gains, losses and changes to shareholders' funds. ...read more.

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