What are accounting standards in the UK?

Here is a comprehensive overview of accounting standards in the UK, based solely on HMRC guidance and legislation.

What the Law Says

For the purposes of UK tax legislation, "acceptable accounting standards" are defined as:

• UK GAAP (generally accepted accounting practice in relation to accounts of UK companies intended to give a true and fair view);
• Acceptable overseas GAAP (the generally accepted accounting practice of specified countries including Australia, Canada, EEA states, the USA, and others); or
• International Financial Reporting Standards (IFRS).

HMRC Guidance / Practice

The Two Acceptable Frameworks

There are two acceptable accounting frameworks in the UK for tax purposes: UK GAAP and International Financial Reporting Standards (IFRS). Together, these form what is referred to as "generally accepted accounting practice" (GAAP) for tax purposes.

What Are Accounting Standards?

Accounting standards are "authoritative statements of how particular types of transaction and other events should be reflected in financial statements", and compliance with them will normally be necessary for financial statements to give a true and fair view. A departure is only justified in exceptional circumstances, and the reasons and financial effect must be disclosed.

UK GAAP

UK GAAP is the body of accounting standards and other guidance published by the UK's Financial Reporting Council (FRC).

The current framework ("New UK GAAP") became effective from 1 January 2015 and consists of the following standards:

This framework replaced all previously issued Financial Reporting Standards (FRSs), Statements of Standard Accounting Practice (SSAPs), and Abstracts issued by the Accounting Standards Board's Urgent Issues Task Force (UITFs).

FRS 102 is the single main New UK GAAP standard (excluding micro-entities using FRS 105). It is based on IFRS for SMEs and is similar to IFRS in many areas, but has been amended to comply with company law and to retain some accounting policies available under Old UK GAAP.

FRS 101 effectively imports the recognition and measurement requirements of IFRS into UK GAAP, subject to some adjustments for alignment with the UK Companies Act and reduced disclosure requirements. Accounts prepared under FRS 101 are still classified as UK GAAP accounts.

"Old UK GAAP"

Old UK GAAP refers collectively to the range of standards which applied to accounting periods beginning prior to 1 January 2015, including FRSs, the Financial Reporting Standard for Smaller Entities (FRSSE), SSAPs, Financial Reporting Exposure Drafts (FREDs), and Reporting Statements. These have now been withdrawn and replaced by FRS 100–105.

Application to Overseas Companies

Accounting standards do not automatically apply to overseas incorporated companies, even if they are subsidiaries of a UK parent, or to their UK branches. Such companies prepare accounts in accordance with the accounting standards prescribed by local regulation. Where financial statements prepared under foreign accounting standards run contrary to UK tax principles, appropriate adjustments must be made for tax purposes.