What is Financial Reporting Exposure Draft (FRED)?
A Financial Reporting Exposure Draft (FRED) is a formal document issued by the Financial Reporting Council (FRC) to gather opinions and feedback from stakeholders on proposed changes to financial reporting standards. These drafts serve as preliminary versions of Financial Reporting Standards (FRS), which are authoritative instructions that organizations must follow in their financial reporting and accounting processes.
FREDs are vital as they allow the FRC to engage with the public, professionals, and industry experts to refine and improve proposals before they become mandatory standards. This collaborative approach ensures that the standards are both practical and effective.
Examples
- FRED 72 - Proposed amendments to Financial Reporting Standard 102, improving the cost-benefit consideration of certain financial instruments.
- FRED 50 - Proposals for simplified short-term employee benefits and book value improvements for smaller entities.
- FRED 58 - Suggested revisions to align UK standards with the changes in IFRS 16, leases.
FAQs about Financial Reporting Exposure Draft (FRED)
Q1: Who can provide feedback on a FRED?
A1: Anyone can provide feedback on a FRED, including accounting professionals, businesses, investors, and members of the public. The FRC encourages wide participation to ensure thorough examination and robust financial reporting standards.
Q2: How does the FRC use the feedback on a FRED?
A2: The FRC reviews all feedback to identify common concerns, valuable suggestions, and areas requiring further consideration. This feedback guides modifications to the proposed standards before finalizing them into Financial Reporting Standards (FRS).
Q3: How often are FREDs issued?
A3: FREDs are issued as needed, depending on the emergence of new accounting issues, changes in economic conditions, or introduction of international standards that necessitate adjustments in national standards.
Q4: Can the proposals in a FRED be rejected?
A4: Yes, based on stakeholder feedback, the FRC may withdraw or significantly revise the proposals in a FRED before proceeding to the final standard.
Q5: Where can one find current FREDs and submit feedback?
A5: Current FREDs can be found on the FRC’s official website (www.frc.org.uk). Feedback is typically submitted through specified forms or email addresses provided in the FRED documentation.
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Financial Reporting Standards (FRS): Authoritative guidelines published by the FRC, detailing the requirements for financial reporting and accounting practices.
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Financial Reporting Council (FRC): The UK’s independent regulator responsible for promoting transparency and integrity in business through high-quality corporate governance and reporting standards.
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International Financial Reporting Standards (IFRS): Set of accounting standards developed by the International Accounting Standards Board (IASB) that aim to bring global consistency to financial reporting.
Online References
Suggested Books for Further Studies
- Financial Reporting and Analysis by Charles H. Gibson
- Wiley Interpretation and Application of IFRS Standards by PKF International Ltd
- International Financial Statement Analysis by Thomas R. Robinson, Elaine Henry, Wendy L. Pirie, Michael A. Broihahn
Financial Reporting Exposure Draft (FRED) Fundamentals Quiz
### How does a Financial Reporting Exposure Draft (FRED) differ from a Financial Reporting Standard (FRS)?
- [ ] FRED is applicable immediately.
- [x] FRED is a proposal issued for discussion before finalizing into a FRS.
- [ ] FRS is released only after FRED is rejected.
- [ ] FRS acts as a draft to gauge initial reactions.
> **Explanation:** FREDs are preliminary documents issued to gather feedback and allow debate before finalizing into authoritative Financial Reporting Standards (FRS).
### Who issues Financial Reporting Exposure Drafts (FREDs)?
- [x] Financial Reporting Council (FRC)
- [ ] International Accounting Standards Board (IASB)
- [ ] Securities and Exchange Commission (SEC)
- [ ] Public Company Accounting Oversight Board (PCAOB)
> **Explanation:** FREDs are issued by the Financial Reporting Council (FRC) to propose changes and gather feedback before creating final standards.
### What is the purpose of issuing a FRED?
- [x] To invite discussion and feedback on proposed financial reporting changes.
- [ ] To implement new standards immediately.
- [ ] To replace old standards without public input.
- [ ] To increase immediate regulatory compliance.
> **Explanation:** The primary purpose of issuing a FRED is to gather input, discuss proposals, and refine ideas to ensure practical and effective financial reporting standards.
### Can feedback on a FRED influence the final FRS?
- [x] Yes, feedback can lead to modifications before finalization.
- [ ] No, feedback is typically ignored.
- [ ] Feedback is only considered if it’s from large firms.
- [ ] FRS is developed independently of FRED discussion.
> **Explanation:** Feedback on FREDs is crucial and often leads to necessary modifications before they become final Financial Reporting Standards (FRS).
### Where can one find current FREDs?
- [x] On the Financial Reporting Council's (FRC) official website.
- [ ] On any financial news website.
- [ ] Distributed to selective accounting firms.
- [ ] Available only in academic journals.
> **Explanation:** Current FREDs are posted on the FRC’s official website, inviting public and professional responses.
### Why might a FRED be revised or withdrawn?
- [x] Due to extensive stakeholder feedback identifying issues.
- [ ] Due to governmental regulatory decisions.
- [ ] Because it’s outdated.
- [ ] To avoid conflicts with existing proposals.
> **Explanation:** A FRED might be revised or withdrawn if stakeholder feedback highlights significant issues, necessitating reconsideration or alternative proposals.
### Who benefits from participating in the FRED feedback process?
- [ ] Only large corporations.
- [ ] Only accounting professionals.
- [x] Both professionals and general stakeholders.
- [ ] Only investors.
> **Explanation:** Both professionals and general stakeholders can benefit from providing feedback, which helps shape practical and comprehensive financial reporting standards.
### How often do FREDs get issued by the FRC?
- [ ] Quarterly.
- [ ] Biannually.
- [x] As needed.
- [ ] Annually.
> **Explanation:** FREDs are issued on an as-needed basis, depending on emerging accounting issues or revisions required in financial reporting standards.
### Are FREDs immediately enforceable upon release?
- [ ] Yes, they're binding immediately.
- [x] No, they are for discussion and revision before final standards.
- [ ] Only if endorsed by major firms.
- [ ] Only in specific regions temporarily.
> **Explanation:** FREDs serve as proposals for discussion and are not enforceable until finalized as Financial Reporting Standards (FRS).
### What happens after the feedback period of a FRED concludes?
- [ ] It becomes an immediate law.
- [ ] It is distributed to the public.
- [ ] It gets reissued without changes.
- [x] The FRC reviews feedback and refines the draft.
> **Explanation:** After the feedback period, the FRC reviews all responses, making revisions to create a well-informed Financial Reporting Standard (FRS).
Thank you for diving into the intricate world of Financial Reporting Exposure Drafts (FRED). Your engagement with these quizzes will bolster your understanding and application of financial reporting standards.
