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UK replaces local GAAP with new standard based on IFRS for SMEs

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14 Mar 2013

The UK’s Financial Reporting Council (FRC) has published FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', which will replace current UK GAAP with effect for periods beginning on or after 1 January 2015.

FRS 102 is derived from the IASB’s IFRS for SMEs, reflecting a simplified version of full IFRSs, but incorporates changes made by the FRC, one of which widens the scope of the standard significantly compared to the IFRS for SMEs. This has the effect that any entity not required to apply full IFRSs will be able to apply FRS 102.

Following on from FRS 100 Application of Financial Reporting Requirements and FRS 101 Reduced Disclosure Framework, which were published in November 2012, FRS 102 completes the main package to replace UK GAAP as it currently exists. In due course a separate standard will follow for insurers and amendments to the financial instruments section are also expected.

Although all UK reporters could elect to follow full IFRSs when current UK GAAP disappears, the relative brevity of FRS 102, at less than 250 pages in length, will appeal to many. Regardless of their choice, the introduction of more detailed requirements around accounting for financial instruments may pose challenges for some reporters.

Key changes that FRS 102 will introduce to UK accounting include the following:

  • derivatives can no longer be held off balance sheet and will be measured at fair value through profit or loss. Those reporters who have adopted FRS 26 will already be familiar with such requirements;
  • goodwill and intangibles can no longer have indefinite lives and must be amortised. In the absence of a reliable estimate the life is presumed to be a maximum of five years – a significantly shorter period than the existing presumption of 20 years or less; and
  • the multi-employer exemption permitting defined benefit plans to be accounted for as defined contribution plans will no longer be available to entities under common control.

The mandatory effective date of FRS 102 is for accounting periods beginning on or after 1 January 2015, although early adoption is permitted for periods ending on or after 31 December 2012.

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