FRS 100/101 and 102
The new accounting
standards for the UK
1
FRS 102 New UK GAAP
What is ‘new UK
GAAP’
A complete replacement for all
existing UK GAAP except the FRSSE
The separate body of literature
currently referred to as UK GAAP will
cease to exist
Effective for accounting periods
starting on or after 1 January 2015,
early adoption permitted
2
FRS 102 New UK GAAP
What is ‘new UK
GAAP’
Continued
Transition date
Earliest opening balance sheet
Year-end 31
December
Opening restated balance sheet is 31
December 2013.
Run old GAAP/new GAAP in parallel
for 2014.
3
FRS 100 and FRS 101
What are FRS 100 FRS 100 introduces the new UK
and FRS 101
GAAP and sets out who can use FRS
101, FRS 102 and the FRSSE.
Also sets out when to use a SORP.
FRS 101 is a reduced disclosure
framework for UK subsidiaries of IFRS
user groups. Introduces
measurement complexity as
Companies Act formats to be used.
Generally, not many people will adopt
FRS 101.
4
FRS 102 New UK GAAP
Other matters
Adopt early?
Can adopt early and it may be
convenient to do so.
SORP
If using a SORP (Charity) use the new
SORP when finalised.
Update frequency Updated every three years (reference
to IFRS 9 financial instruments when
published).
Note:
Does not have references to the
Companies Act as does the FRSSE.
5
FRS 102 New UK GAAP
Other matters - continued
Simplified basic
rules
Contains simplified accounting and
measurement rules.
Complex
transactions
Where complexity exists refer directly
to IFRSs (EU) when directed.
Auditors
Refer to other GAAP (auditors now
likely to only accept policies set out in
IFRSs).
6
FRS 102 New UK GAAP
Options available for companies and groups
(small/medium/large)
IFRS
New
GAAP
FRSSE
Listed, AIM, other EU
market, quoted debt
instruments
Yes
No
No
Medium and large nonlisted entities
Yes
Yes
No
Small Companies and
micro-entities
Option to use ‘higher levels’
Yes
Yes
Yes
N/a
Yes
Yes
7
FRS 102 New UK GAAP
Companies Act format and IFRSs specific format
content
FRS102 use basic
Companies Act formats
Other aspects of companies Act 2006 continue to
apply.
8
FRS 102 New UK GAAP
A warning: SMALL GROUPS BECOMING MEDIUM/LARGE
Current UK GAAP
FRSSE to full UK GAAP.
Small group to large group.
Historic consolidation data
required (three years)
Under FRS 102
FRSSE to FRS 102.
Small group to large group.
Historic consolidation data
also required (three years)
Duplicated effort
Consider adopting FRS 102
early.
9
FRS 102 New UK GAAP
What about the Companies Act 2006?
Distributable profits
Calculated as determined
by Full EU adopted IFRS
or FRS 102. Use of FRS
101 reduced disclosures
will add complexity.
Specific guidance on
distributable profits, impact
of fair-value accounting
See ICAEW Tech 02/10
This is a complex area, be aware of the effect of fair-value
accounting and hedging arrangements if significant
10
FRS 102 New UK GAAP
What about the Companies Act 2006?
Disclosures applicable to
both FRS 102 and IFRS
Directors reports content
and layout
Business review
Requirement to prepare
financial statements
Audit requirements
Directors
emoluments/transactions
11
FRS 102
Contents of financial statements
Primary statements
Statement of financial position.
Statement of comprehensive income
Statement of changes in equity
Statement of cash flows
Notes (and some….)
12
FRS 102 Main changes to look out for
Degree of change
Can be very little/can be
extensive.
Effects on:
• Distributable reserves
• bank and other debt
covenants
• bonus schemes/share
schemes/profit share
arrangements (look out for
impact on LLP profitsharing arrangements)
13
FRS 102 Main changes to look out for:
Financial instruments
What are they?
Interest rate
swaps/caps/collars.
Exchange forwards/options
Complex combinations of
these/sometimes embedded
in other contracts
Most will be fair-valued to
profit and loss
14
FRS 102 Main changes to look out for:
Financial instruments continued
Basic financial
instruments (choice 1)
Amortised cost (This is the
NPV of the receivable or
payable).
Such as:
• Trade and other debtors
• trade and other creditors
• simple bank loans
Other financial
instruments (choice 2)
Measure at Fair-value to
profit and loss
15
FRS 102 Main changes to look out for:
Financial instruments continued
Price contract at forward
contracted rate?
No longer available.
Hedging:
Available subject to certain
conditions i.e.
documentation/policy/
accuracy of forecast
transactions.
Accounting treatment of
hedged items until
maturity
Asset/liability accounting and
fair-value reserve through
Other Comprehensive
Income.
16
FRS 102 Main changes to look out for:
Defined benefit pension schemes
Income statement
Charge will be calculated on
the net liability and not
investments/liabilities
separately
Balance sheet
Old UK GAAP option for a
Group to show on
consolidation only - No.
Net asset/liability must
appear either in the
sponsoring entity or allocated
to the subsidiaries.
17
FRS 102 Main changes to look out for:
Employee benefits continued
Calculated on an
accrual/prepayment basis
for all entitlements
Look out for holiday pay/sick
pay/bonus schemes
Some additional accruals
Collect the necessary
information from 1 January
2014!
18
FRS 102 Main changes to look out for:
Investment properties
Held at fair-value
Changes in value to profit
and loss WHENEVER fairvalue can be determined
reliably.
Cannot determine fairvalue
Account for as Property,
plant & equipment.
‘Split accounting’ for mixed
use properties
Not ‘own use’ or ‘trading’
19
FRS 102 Main changes to look out for:
Intangible assets – EXTERNALLY ACQUIRED
More recognition of these
for an acquisition
Brand names
Distribution contracts
Licence agreements etc.
Basic life unless
demonstrated otherwise
Default 5 years (no longer 20
years)
Reverse impairment
Yes
Negative goodwill
On balance sheet/release to
profit over the periods
expected to benefit.
20
FRS 102 Main changes to look out for:
Intangible assets continued – INTERNALLY GENERATED
Research phase and
development phase.
All research costs written off.
Development costs
Specific project/commercial
viability (flow of economic
benefits)
Forbidden - internally
generated:
Brands/ Publishing titles
Distribution contracts
Goodwill
Start-up costs
Advertising
Training……
21
FRS 102 Main changes to look out for:
Deferred tax
Timing differences ‘plus’
Basically timing differences
similar to current UK GAAP
What is the plus?
All ‘Fair-value adjustments’
require deferred tax effects
to be recognised.
Examples:
• Acquisition fair-values
• Revalued fixed assets fixed assets/intangible
assets)
• Investment properties.
22
FRS 102 Main changes to look out for:
Merger accounting/business combinations
Permitted only for:
Internal group
reconstruction.
Some public benefit entity
combinations
Business combination
An acquirer must be
identified/use the purchase
method.
Acquisition costs added to
cost of investment
23
FRS 102 Main changes to look out for:
Business combinations - continued
Goodwill default
amortisation period
5 years (was 20)
Minority interests renamed Non-controlling interests
Contingent consideration
Continue to adjust the
goodwill (no change)
Accounting estimates
Adjust up to 12 months
(shorter than the old ‘to the
next balance sheet)
24
FRS 102 Main changes to look out for:
Group Investments and loans
Investment in subsidiaries
Cost less impairment unless
quoted/listed in which case
fair-value through profit and
loss.
Intra-group loans
If due on demand hold at
cost less impairment (as
current UK GAAP)
Internal interest charge/tax If not due on demand hold at
implications
amortised cost less
impairment
25
FRS 102 Main changes to look out for:
Leases
Rent free periods/other
incentives
Release over the expected
period of the lease (not just
to the first optional break
period).
Lease commitments
Disclose amount of expected
annual payments year-byyear
26
FRS 102 Main changes to look out for:
Associates – PARENT COMPANY
Consolidated financial
statements
Must use equity accounting.
UNLESS investments held as
part of an investment portfolio.
Investment portfolio
Fair-value through profit and
loss
Proportional consolidation NOT
available.
27
FRS 102 Main changes to look out for:
Associates - NOT A PARENT
Choice of:
• Equity accounting (‘gross
equity method’ removed)
• Cost less impairment
(subsidiary only not parent)
• Fair value accounting
(through Other
Comprehensive Income)
• Fair value accounting
through profit and loss.
28
FRS 102 Main changes to look out for:
Joint ventures
Joint venture
Contractual basis
Three types recognised
• Jointly controlled operation
• Jointly controlled asset
• Jointly controlled entity
(Including LLP)
Joint control
Only exists where unanimous
agreement required for
strategic decisions
29
FRS 102 Main changes to look out for:
Other accounting issues:
Borrowing costs
Option to capitalise interest
into asset under construction
retained.
Restatement of errors
Use of ‘material’ rather than
‘fundamental’ will result in
more restatements of
opening balance sheets
30
FRS 102 Main changes to look out for:
Other accounting issues:
Government grants
An accounting choice for
income recognition:
Performance model –
recognise income when all
conditions met
Accruals model – match to
related expenditure
Deduct from cost of asset? No!
31
FRS 102 Main changes to look out for:
Other accounting issues:
Exchange movements
Select functional and
presentation currencies
(new)
Exchange differences arising
from consolidation NOT recycled to income statement
(maintains current position)
32
FRS 102 Main changes to look out for:
Other accounting issues:
Discontinued operations
Columnar presentation in
income statement preserved
Must have been disposed of
by the year-end).
Old GAAP – disposal within
3 months of year-end
Net profit or loss to be
disclosed.
33
FRS 102 Main changes to look out for:
Other accounting issues:
Also consider:
Fair value accounting
Emphasis is more on fairvalues.
Change of basis on which
the business is reported on –
need to be continuously
aware of this.
Related parties
Concept of ‘key
management personnel’ and
wider disclosures.
34
FRS 102 Main changes to look out for:
Other accounting issues:
Also consider tax issues:
Fair value accounting –
particularly financial
instruments
Amortisation of intangibles
Alternative accounting
treatments permitted
35
FRS 102 Main changes to look out for:
Other accounting issues:
SORPs
These are to be
progressively rewritten to
comply with FRS 102.
Charity SORP draft already
issued.
Companies Act 2006 is still Capital maintenance/use of
there!
reserves/share premium etc.
36
FRS 102 Main changes to look out for:
Other things to think about:
Describe the basis of
preparation: two types of
accounting policy:
Accounting policies to be
rewritten.
Significant accounting
policies
Critical accounting estimates
and judgments
Statement of compliance
Specifically required.
37
FRS 102 Main changes to look out for:
Other things to think about
Some practical issues:
Accounting systems – need
to change?
Compilation and sources of
fair-value data.
Corporation tax and deferred
tax/’iXBRL’ tagging
methodology
Stakeholder
education/owners/key
employees/banks
38
FRS 102 Main changes to look out for:
Other things to think about
Questions
39
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FRS 102 New UK GAAP What is