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
Year-end 31
December
Earliest opening balance sheet
Opening restated balance sheet is 31
December 2013.
Run old GAAP/new GAAP in parallel for 2014.
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FRS 100 and FRS 101
What are FRS 100 and FRS 101
FRS 100 introduces the new UK
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?
SORP
Can adopt early and it may be convenient to do so.
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).
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FRS 102 New UK GAAP
Options available for companies and groups
(small/medium/large)
IFRS
Yes Listed, AIM, other EU market, quoted debt instruments
Medium and large nonlisted entities
Yes
New
GAAP
No
FRSSE
No
Yes No
Small Companies and micro-entities
Yes
Option to use ‘higher levels’ N/a
Yes
Yes
Yes
Yes
7

FRS 102 New UK GAAP
Companies Act format and content
IFRSs specific format
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
Under FRS 102
Duplicated effort
FRSSE to full UK GAAP.
Small group to large group.
Historic consolidation data required (three years)
FRSSE to FRS 102.
Small group to large group.
Historic consolidation data also required (three years)
Consider adopting FRS 102 early.
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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
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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….)
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FRS 102 Main changes to look out for
Degree of change
Effects on:
Can be very little/can be extensive.
• Distributable reserves
• bank and other debt covenants
• bonus schemes/share schemes/profit share arrangements (look out for impact on LLP profitsharing arrangements)
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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
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FRS 102 Main changes to look out for:
Financial instruments continued
Basic financial instruments (choice 1)
Such as:
Other financial instruments (choice 2)
Amortised cost (This is the
NPV of the receivable or payable).
• Trade and other debtors
• trade and other creditors
• simple bank loans
Measure at Fair-value to profit and loss
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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.
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FRS 102 Main changes to look out for:
Defined benefit pension schemes
Income statement
Balance sheet
Charge will be calculated on the net liability and not investments/liabilities separately
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!
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FRS 102 Main changes to look out for:
Investment properties
Held at fair-value
Cannot determine fairvalue
Changes in value to profit and loss WHENEVER fairvalue can be determined reliably.
Account for as Property, plant & equipment.
‘Split accounting’ for mixed use properties
Not ‘own use’ or ‘trading’
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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
Reverse impairment
Default 5 years (no longer 20 years)
Yes
Negative goodwill On balance sheet/release to profit over the periods expected to benefit.
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FRS 102 Main changes to look out for:
Intangible assets continued – INTERNALLY GENERATED
All research costs written off.
Research phase and development phase.
Development costs
Forbidden - internally generated:
Specific project/commercial viability (flow of economic benefits)
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:
Business combination
Internal group reconstruction.
Some public benefit entity combinations
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 implications
If not due on demand hold at amortised cost less impairment
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FRS 102 Main changes to look out for:
Leases
Rent free periods/other incentives
Lease commitments
Release over the expected period of the lease (not just to the first optional break period).
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
Restatement of errors
Option to capitalise interest into asset under construction retained.
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
Related parties
Emphasis is more on fairvalues.
Change of basis on which the business is reported on – need to be continuously aware of this.
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 there!
Capital maintenance/use of 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
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