FRS 102: SETTING THE NEW STANDARD

Friday, March 11, 2016

In 2013 the Financial Reporting Council (FRC) gave the green light to FRS 102, a new financial reporting standard for the UK and Ireland. It swung into action from January 2015, replacing all existing UK GAAP, Financial Reporting Standards and UITFs as the mandatory new standard.

In 2013 the Financial Reporting Council (FRC) gave the green light to FRS 102, a new financial reporting standard for the UK and Ireland. It swung into action from January 2015, replacing all existing UK GAAP, Financial Reporting Standards and UITFs as the mandatory new standard.

 

FRS 102 bears more than a passing resemblance to the International Financial Reporting Standard for SMEs, as issued by the International Accounting Standards Board in 2009, although it has been amended to be more compliant with the Companies Act and EU directives, and incorporate some old UK GAAP options.

 

The new standard impacts a huge swathe of businesses, as it applies to the vast majority of large and medium-sized UK businesses and organisations, including charities, retirement benefit plans and financial institutions. Effective of January this year, ‘small entities’ was broadened to encompass small companies and LLPs not excluded from the small companies / LLPs regime. In addition, FRS 102 applies to all entities that are neither required nor elect to apply EU-adopted IFRSs.

 

As regulatory changes go, this has been a big one, hence early adoption was encouraged. Bigger still is the official documentation that practitioners have had to acquaint themselves with, at around 350 pages – but on the plus side, it is only a tenth the length of the old GAAP documentation!

 

Yet for all this talk of change, thankfully FRS 102 is less onerous than what has come before. It has more proportionate reporting requirements, more flexibility and a lighter reporting burden. It also adopts a simpler, more contemporary way of working, with more up-to-date accounting requirements than its predecessor.

 

Under this new regime, financial statements look and feel a little different, both in format and the disclosures required. The criteria also differ for recognising some assets and liabilities, how some items are measured, and the treatment of some losses and gains. Financial instruments, investment properties, business combinations, deferred tax and defined benefit pension schemes are just some of the areas where changes have been made.

 

A very brief summary of the key differences in FRS 102 are as follows:

 

  • New terminology for financial statements and new categories for cashflow statements
  • Financial instruments divided into ‘basic’ - measured on an amortised cost basis - and ‘other’ – measured at fair value
  • More intangible assets recognised on the balance sheet separately from goodwill
  • Useful life of goodwill and intangible assets shall not exceed five years when no estimate can be made
  • Deferred tax to be recognised on property, plant and equipment and investment properties
  • New requirements for defined benefit pension plans, including bringing group plan surplus/deficits onto the balance sheet of at least one individual entity
  • The costs of holiday pay accruals must be recognised
  • Requiring investment properties to be carried at fair value with annual revaluation
  • Lease incentives are now spread over the entire lease term
  • Interest rate swaps and other similar instruments, such as forward contracts, are measured at fair value and reassessed annually
  • Investment in shares measured at fair value for listed investments
  • Permitting merger accounting only for group reconstructions and certain business combinations involving public benefit entities.

 

The CPAA has published a second article looking at the differences in more detail, but these are purely an overview and no substitute for the official FRC documentation, which you can find here:  https://frc.org.uk/Our-Work/Publications/Accounting-and-Reporting-Policy/FRS-102-The-Financial-Reporting-Standard-applicab.pdf 

 

Please also be aware that since the FRS 102 regulations were issued, there have been further amendments, so keep checking for updates. First time adopters should only refer to the latest version of FRS 102. The FRC plans to carry out regular reviews of FRS 102, with the review set for 2016/17 with a view to the revised FRS 102 being effective in 2018.