The UK Financial Reporting Council (FRC) has issued two standards as the first part of the accounting framework replacing the current UK GAAP.

FRS 100 Application of Financial Reporting Requirements, will not require smaller entities to apply international accounting standards if they are not already required to do so, the FRC explained.

As for FRS 101 Reduced Disclosure Framework, it will allow subsidiaries to apply the reporting principles as the listed group accounts they belong to but with fewer disclosures reducing reporting burdens on these groups, the FRC said.

FRC hopes the standards will simplify accounting and reporting for unlisted entities, improve reporting of financial instruments and provide cost savings for subsidiaries of listed groups.

However, by using an international-based framework, the FRC remarked that all companies will be using the same accounting language regardless of size removing reporting burdens.

The standards are applicable to all companies and entities in the UK and Republic of Ireland. The standards will come into force 1 January 2015 but FRC said they may be adopted ahead of this date.

PwC UK partner Iain Selfridge warned that while "there may be cost savings for companies that choose to adopt IFRS or new UK GAAP and there may be advantages for those electing to adopt the reduced disclosure framework. The early adoption provisions give a great deal of flexibility in the timing of moving into the new regime by January 2015" businesses need to "look before they leap".

"Companies will have to assess their group structure and consider the appropriate reporting options for each subsidiary, balancing the needs of financial statements users against the potential cost savings from preparing reduced disclosures," Selfridge explained.

"There are a myriad of factors to consider for companies that move to full IFRS or adopt FRS 101 early. Cash tax position, distributable reserves and XBRL (online accounts) tagging requirements may all be affected. Companies that fail to adequately prepare could find moving to a new accounting framework is more costly and time- consuming than they anticipated. The effort involved shouldn’t be underestimated."

He added that FRS 101 introduces a reduced disclosure framework for subsidiaries using or contemplating it will be particularly attractive to subsidiaries that are members of a group reporting under IFRS.

"They may already be preparing IFRS statutory accounts for the separate subsidiary accounts, so the option to reduce disclosures will be a welcome relief. The reduced disclosure framework will also allow UK subsidiaries to ‘trade up’ to IFRS accounting, but still take advantage of the disclosure exemptions of FRS 101."

The FRC also said its plans to issue FRS 102 in early 2013.

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Financial Reporting Council