Read the following article, then answer the question that follows: UK retreat on accountancy…

Read the following article, then answer the question that follows:

UK retreat on accountancy standards

By Simon Mundy

UK accountancy regulators have rowed back from a proposal to impose international disclosure standards on ‘publically accountable’ non-listed companies, after complaints that it would impose unnecessary costs on building societies and credit unions. Under the Accounting Standards Board’s original plans, published in October 2010, entities deemed ‘publicly accountable’ – usually taken to mean companies that lent money to individuals – would have had to use European International Financial Reporting Standards from 2013.

Auditors criticise the vague definition of public accountability and said that many companies would be forced to incur unacceptable costs by producing accounts with an unnecessary level of detail.

The ASB – part of the Financial Reporting Council – yesterday said that it had dropped the proposals after complaints that ‘the cost to certain entities could not be justified by the benefits’. The regulator will now move forward with reforms to the UK’s existing accounting standards, although there will be a further delay to their implementation. The details will be published in mid-2013, with the rules coming into effect in January 2015 – years after the ASB began consulting on the reforms.

The new standards, known as FRSME, are expected to be a fifth of the length of the existing rules – which run to 2,000 pages – and more in line with IFRS, the international standard. A person close to the ASB said that while there had been complaints about some details of the proposals, companies and auditors accepted the need to update current standards, which take insufficient account of innovations.

Auditors welcomed the change of heart. Ian Selfridge, a partner of PwC, said that the decision ‘will not impede the quality of financial reporting [but] will provide welcome relief for many companies in this economic climate, given the time and cost burden of producing accounts under full IFRS for the first time.’

Other changes also found a warm reception. The ASB said that subsidiaries of listed companies could use IFRS with reduced disclosure – a ‘real advantage [that] will enable more consistent reporting within many UK and global groups, whilst mitigating the volume of disclosures that would be mandated under EU-endorsed IRFS’, said Andrew Davies, leader of the financial accounting advisory team at Ernst & Young.

However, some industry figures were more cautious Nigel Sleight-Johnson, head of the financial reporting faculty at the Institute of Chartered Accountants in England and Wales, said that there was still ‘a lack of certainty over what will happen to the reporting requirements for small companies’, pointing to the European Commission’s planned simplified regime for smaller enterprises.

Consider the advantages and disadvantages to business of this so-called ‘retreat’ on accountancy standards.