The introduction of FRS 102 sees the most significant change to UK financial reporting in recent years.
What is FRS 102?
- FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) is the new accounting standard that replaces existing FRSs, SSAPs and UITFs. Together with FRS 100 Application of financial reporting requirements and FRS 101 Reduced disclosure framework, it sets out the future shape of UK financial reporting. The requirements apply not just to companies, but to other entities preparing financial statements that show a true and fair view, for example LLPs.
Can I continue to apply current UK or Irish GAAP?
- No, unless you are an eligible entity applying the FRSSE. For other entities, FRS 102 replaces all existing FRSs, SSAPs and UITFs for accounting periods beginning on or after 1 January 2015. Most SORPs are being updated although some are being withdrawn.
Can I adopt early?
- Yes, FRS 102 can be adopted for accounting periods ended on or after 31 December 2012.
- There may be advantages to adopting early for example if you are setting up a new company and do not want to change frameworks in a short timeframe or you are part of a group that could adopt the reduced disclosure framework.
Can I switch from using EU-adopted IFRS to using FRS 102?
- Yes, as long as you voluntarily apply EU-adopted IFRS. If you are part of a group, certain consistency criteria must also be met.
- If you are a listed company you will still be required to apply EU-adopted IFRS in your consolidated financial statements.
Do I need to restate comparatives?
- Yes, the first financial statements drawn up using the new standards will require a comparative balance sheet and income statement and a transition balance sheet. If your year end is 31 December and you are not adopting early, you will need a comparative balance sheet as at 31 December 2014, a comparative income statement for the year ended 31 December 2014 and a transitional balance sheet as at 31 December 2013.
- There are, however, a number of specific transitional options and exemptions available on first time adoption of FRS 102. These allow entities to not restate certain transactions that have already been reflected under existing UK and Irish GAAP.
Are disclosure exemptions available?
- Yes, FRS 102 includes disclosure exemptions under certain circumstances. They include exemption from disclosure of a cash flow statement and some financial instruments, related party and share-based payments disclosures.
- The exemptions will only be available in single entity financial statements (including intermediate and ultimate parents). To qualify for the exemptions, the financial statements of the parent or subsidiary must be included in publicly available consolidated financial statements that give a true a fair view.
- There are some administrative requirements (such as notifying and not receiving objections from shareholders) and the financial statements must disclose details of the exemptions taken.
What are the key accounting differences?
- There is more use of fair value accounting (with movements generally recognised in profit or loss) and more choices of accounting policies under FRS 102 than current UK and Irish GAAP.
- Specific areas where there are changes include accounting for derivatives, lease incentives, long term intercompany balances, goodwill, multi-employer group defined benefit pension schemes, investment properties and deferred tax. If you have any of these items, you should consider the potential impact on your accounts as soon as possible.
What is the tax impact?
- Depending on the items in your financial statements, your accounting profit and therefore potentially your taxable profits may be different under the new regime.
- There may be tax credits or charges arising on transition.
- Tax elections may need to be made in advance and existing arrangements reconsidered.
What should I do now?
- You need to understand how the changes and different options may affect your tax position, distributable reserves and any financial covenants.
- Review your internal systems and training requirements.
- Start planning for transition – even if you are not adopting early, you need a transitional balance sheet, which for entities with a 31 December year-end will be as at 31 December 2013.
- Contact us to discuss how we can help you achieve a smooth transition to the new standards.
How can we help?
- We have developed a modular approach that gives you the right kind of support, dependant on your individual requirements and budget, from assessing the options, designing the solution, implementing the changes and assuring the outcomes. We are very happy to start by just having an informal chat so that we provide suggestions on how we can best provide support for your particular circumstances.
- We have been helping organisations manage changes to their financial statements for many years. This experience means we understand what is required to get the job done, with minimal disruption to your finance team.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
