CFM20020 - Accounting for corporate finance: when to use International Accounting Standards (IAS)

Mandatory use of IAS

Publicly traded companies governed by the law of an EU member state must use IAS to prepare their consolidated accounts with effect from accounting periods beginning on or after 1 January 2005. See CFM20040 for treatment of the parent company’s own accounts and that of its subsidiaries.

Voluntary use of IAS

The former Department of Trade and Industry (DTI) laid regulations (SI2004/2947) amending the 1985 Companies Act to give almost all companies the choice of preparing their accounts, and any consolidated accounts in the case of unlisted companies, either under IAS or under UK GAAP. (Companies that are charities are an exception - they are not permitted to use IAS). These regulations came into force on 12 November 2004. They also introduced provisions to ensure consistency of financial reporting framework within groups (see CFM20040). These regulations are now incorporated into the Companies Act 2006 Part 15 Chapter 4.

Small companies have a choice between adopting IAS, full UK GAAP or continuing to use FRSSE (Financial Reporting Standard for Smaller Entities). In July 2009, the IASB published IFRS for Small and Medium sized entities, increasing this choice further for small companies.

Switching between IAS and UK GAAP

A company which has prepared its accounts using IAS for a financial year cannot switch back to UK GAAP in subsequent years unless:

• The company becomes a subsidiary of an undertaking that does not prepare IAS individual accounts. This is intended to apply to the sale of a company out of a group using IAS and into one using UK GAAP. It is not intended to apply to internal group reorganisations.
• The company ceases to be publicly traded on a regulated market in an EEA state.
• Any parent undertaking of the company ceases to be publicly traded on a regulated market in an EEA state.