CFM16012 - Accounting for financial instruments: IAS 32 and IAS 39: which accounting standard to use

IAS or UK GAAP?

The Department of Trade and Industry (DTI) has laid Regulations (SI 2004 No. 2947) amending the 1985 Companies Act to give almost all companies the choice of preparing their accounts either under IAS or under UK GAAP. (Charities are an exception – they are not permitted to use IAS). These regulations came into force on 12 November 2004.

Publicly traded companies

Publicly traded companies governed by the law of an EU member state must use IAS to prepare their consolidated accounts. But the parent company may use either IAS or UK GAAP in its individual company accounts, as may its subsidiaries. Listed entities using UK GAAP must apply FRS 26 (see CFM16010) from 1 January 2005.

Unlisted companies

Non publicly traded companies can choose between IAS and UK GAAP for their consolidated accounts, as well as at individual company level. Since unlisted companies are not obliged to adopt FRS 26 for accounting periods ending in 2005, you are likely to see such companies continuing to measure financial instruments in accordance with "old" GAAP.

Small companies

Small companies can continue to use the FRSSE (Financial Reporting Standard for Smaller Entities) if they wish to do so. The full versions of accounting standards, including FRS 25 and FRS 26, do not apply to companies using the FRSSE. There is nothing to stop small companies from opting to use IAS. If they do so, however, they must apply the standards – including IAS 32 and IAS 39 – in full. There is at present no IAS equivalent of the FRSSE. HMRC staff who deal mainly with the accounts of small- and medium-sized companies may see few changes in practice.

The DTI Regulations introduce provisions to ensure consistency of financial reporting framework within groups. These are covered at CFM16013.