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FRS102 is unique and needs attention now

Bill TelfordI met up with Bill Telford recently following the Financial Reporting Council's approval of FRS102 - Bill is a foremost expert in financial reporting standards. We have been hearing for some time now that UK GAAP is under threat because of IFRS for SMEs and all of the consultations that have taken place since it was published. If you are familiar with IFRS for SMEs and expect that FRS102 is very similar be careful, Bill explained that this is certainly not the case.

He said that FRS102 is unique and went on to explain that, combined with FRS100 and FRS101, these standards will change the accounting requirements for almost all UK companies – asserting that the only ones which will not be affected are the group accounts of listed companies.

Bill very kindly provided me with the following overview.

FRS 100 sets the scene and outlines the basic requirements which are:

  • If an entity is required to follow IFRS it must do so;
  • If an entity is eligible to follow FRSSE it may do so, otherwise the entity has the option to use IFRS or FRS 102;
  • If an entity is a parent or subsidiary of a parent, where the group accounts are being prepared under IFRS – whether required by law or on a voluntary basis – it can use FRS 101 in its individual accounts – but not the group accounts.

FRS 101 is a hybrid standard - it uses the recognition and measurement criteria of IFRS, the presentation requirements of Companies Act 2006 and its own disclosure requirements. This is a very attractive option for subsidiaries of listed companies, even those who have previously adopted IFRS. Such companies are likely to be the earliest adopters of the new standard.

It is also attractive to those subsidiaries of listed groups that did not adopt. If they adopt FRS 102 they will still have to convert to IFRS for group accounts whereas if they adopt FRS 101 it will facilitate the preparation of group accounts. These companies are also likely to be early adopters of the new standards.

FRS 102 is the new standard for all accounts designed or required to give a true and fair view. It therefore applies to charities and pension schemes as well as LLPs and other incorporated bodies under the Companies Act 2006.

This is a unique standard. Although based on IFRS for SMEs, FRS 102 retains some elements from UK GAAP which were not in IFRS for SMEs, and in some respects it is closer to full IFRS.

FRSSE is still under review regarding its future. There are some changes afoot in Europe which may mean the end of FRSSE is in sight. The probability is that by the time FRS 102 becomes mandatory there will be a variant of the standard for smaller entities. Some amendments have already been made by FRS 100, to bring FRSSE in line with FRS 102.

When will this all happen and when do you need to act?

The three standards are mandatory for periods commencing on or after 1st January 2015, but may be adopted earlier, for periods ending since 31st December 2012.

What is essential to realise is that the accounts to 31st December 2015 must include a comparative profit and loss account for the year ended 31st December 2014, prepared under the new standards. This requires the preparation, but not publication, of a balance sheet at the “date of transition”. This will be the beginning of the earliest period for which comparative figures are required being 1st January 2014, which is less than 8 months away. In other words the balance sheet prepared under UK GAAP at the end of this year will need to be restated under the new standards.

Do not assume you know it already.

It is essential that finance directors and their auditors or advisers get to grips with the things that will change – and those that will stay the same – and plan how and when to get the comparative information. Some will most easily be obtained at the year-end. It may even be that changes to management information systems and year-end processes will be required as a result of these changes.

It will be tempting for some people to wait until early 2016 to start worrying about the impact but the transitional and other issues should not be underestimated. You need to start thinking about it now, get the training in place and start discussing it with your auditors during this financial year.

I have invited Bill to help you prepare for the implementation of the new standards and on the morning of 18th July he will be presenting a brand new seminar for UK Training.  For details please visit this page.

Stephen Smith
Managing Director
UK Training (Worldwide) Limited