FRS 101 was originally published in November 2012 as part of the FRC's project to replace current UK GAAP with a new suite of standards, which also includes FRS 100 Application of Financial Reporting Requirements, FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 103 Insurance Contracts.

FRS 101 was published in recognition of the fact that many UK groups prepare their consolidated financial statements in accordance with IFRSs rather than UK GAAP. For subsidiary entities, application of IFRSs is attractive because it would produce numbers consistent with those used to prepare the group accounts. However, many companies are put off using IFRSs for their subsidiaries by the extensive disclosure requirements.  In recognition of this, the FRC identified a number of disclosures that were, in their view, of limited usefulness in a set of subsidiary accounts. FRS 101 allows entities, in their entity only accounts, to apply the recognition and measurement requirements of IFRSs but take advantage of exemptions from these disclosures.

When FRS 101 was originally published, the FRC committed to review the standard on an annual basis and update it to ensure that it maintains consistency with IFRS and remains cost-effective for groups. The amendments published today represent the first of these annual updates.

The amendments to FRS 101 and its appendices, which follow consultation on the Exposure Draft FRED 53:

• simplify the new disclosure requirements of IAS 36 Impairment of Assets in relation to fair value measurements used in impairment reviews; and
• clarify how entities applying FRS 101 can adopt the new international accounting practice for investment entities (set out in IFRS 10 Investment Entities and its consequential amendments to IAS 27 Separate Financial Statements), whilst still complying with legal requirements.

A number of editorial amendments have also been made to clarify the legal requirements applicable to companies applying FRS 101 that hold financial instruments at fair value subject to paragraph 36(4) of Schedule 1 to the Regulations.

The amendments would have the same effective date as the existing standard i.e. periods commencing on or after 1 January 2015.

Alongside the amendments the FRC has also issued an Impact Assessment and Feedback Statement that summarises the feedback received in relation to FRED 53.

Click for:

• Press release (link to FRC website).
• Amendments to FRS 101 Reduced Disclosure Framework (2013/14 cycle) (link to FRC website).
• Impact Assessment and Feedback Statement: Amendments to FRS 101 Reduced Disclosure Framework (2013/14 cycle) (link to FRC website).
• UK Accounting Plus news item on the Exposure Draft of amendments to FRS 101 – FRED 53.
• UK Accounting Plus project page on FRED 53.

The amendments to IAS 16 and IAS 41, issued by the International Accounting Standards Board (IASB) on 30 June 2014 bring bearer plants, which no longer undergo significant biological transformation, into the scope of IAS 16 so that they are accounted for in the same way as property, plant and equipment.  The amendments also clarify that produce growing on bearer plants continues to be accounted for under IAS 41 and that government grants related to bearer plants no longer fall into the scope of IAS 41 but need to be accounted for under IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.  The amendments are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.

EFRAG supports the adoption of the amendments to IAS 16 and IAS 41 and recommends their endorsement.  EFRAG’s initial assessment is that the amendments to IAS 16 and IAS 41 meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.     

EFRAG’s conclusion is supported by an Effects Study Report which considers the costs and benefits of implementing the amendments to IAS 16 and IAS 41. EFRAG’s assessment is that the benefits for preparers and users in implementing the amendments to IAS 16 and IAS 41 outweigh the costs.

Comments are requested by 5 September 2014. 

Click for (all links to EFRAG website):

• Press release
• Draft endorsement advice and effects study report

Topics discussed included:

• Governance and procedural matters. A report was received in relation to the IFRS Foundation Monitoring Board meeting held on 13 June 2014, and the Trustees approved an updated Charter and Memorandum of Understanding (MoU) with the Foundation. It also approved the text of a Statement of Protocols with the European Securities and Markets Authority (ESMA), considered preliminary themes for the next review of the structure and effectiveness of the IFRS Foundation to be conducted over the course of 2015, started the process of a self-evaluation exercise of the Trustees, and approved a change in the terms of reference of the IFRS Advisory Council moving its secondary focus from promotion and adoption of IFRS to encouraging broad participation in the development of IFRS. Other topics discussed included Trustee appointments and reports from a number of committees
• International IFRS developments. Discussion included a number of significant events in Europe (including the European Commission's review of the IAS Regulation and the restructuring of the European Financial Reporting Advisory Group), a current assessment of the United States environment and the Foundation's approach, the importance of Mexico and improving relationships with the Group of Latin-American Standard-Setters (GLASS), engagement challenges in the Asia-Oceania region, and the particular challenges of stakeholder engagement in Africa and the Middle East
• IASB Chairman report. Hans Hoogervorst provided an update on the IASB's activities, noting adoption updates in Singapore, India and Japan, initiatives to improve the consistent application, and technical updates focusing on the conceptual framework project, insurance contracts and leases.
• Due Process Oversight Committee (DPOC) Chairman report. Scott Evans provided a report on the July 2014 meeting of the DPOC, focusing on the IASB's technical activities, Effects Analysis Consultative Group, IFRS taxonomy, the annual review of consultative groups, and general due process matters. More information on this meeting is available here
• Other matters. The Trustees received a presentations from the Chairman of the UK Financial Reporting Council (FRC) on the FRC's perspective of financial reporting issues, from Kumar Dasgupta (Technical Director) on the revised IFRS 9 Financial Instruments, and held the first Tommaso Padoa-Schioppa Memorial Lecture.

The full report from the meeting available on the IASB website.

The report noted discussion on the following topics:

• Major IASB projects. The DPOC discussed the finalised version of IFRS 9 Financial Instruments (incorporating requirements for impairment and modifications to classification and measurement), macro hedge accounting, insurance contracts, leases, revenue recognition, conceptual framework and the disclosure initiative. The DPOC raised questions on possible diverse views of constituents in the insurance project, and the impact of the divergent views of the IASB and FASB in the leases project.
• Implementation and maintenance projects. The DPOC received an update on a number of projects, including bearer plants, equity accounting and the post-implementation review of IFRS 3 Business Combinations
• Effects Analysis Consultative Group (EACG). The DPOC considered a near final draft of the EACG report advising the IASB on developing an agreed methodology for field testing and effects analysis, including a revised section on financial stability responding to the IASB's obligations from being a member of the Financial Stability Board (FSB). The finalised report will be submitted to the IFRS Foundation Trustees and may result in some amendments to the Due Process Handbook
• IFRS taxonomy (XBRL). The DPOC received a progress report on the IASB's proposals to revise the due process for updating the IFRS taxonomy, noting concerns raised by some IASB board members and disappointment at the delay in the publication of an Invitation to Comment on the proposed new due process, which was originally intended to be considered at this meeting. However, the DPOC accepted proposals for trial runs of the new process for both a new Standard and an update
• Review of consultative groups and DPOC engagement. The DPOC considered an annual review of consultative groups, considering standing advisory groups (Accounting Standards Advisory Forum, Capital Markets Advisory Committee and Global Preparers Forum, Emerging Economies Group, SME Implementation Group, Education and Advisory Group, Advisory Group on Sharia-compliant instruments and transactions) and those groups recommended for disbandment, or already disbanded (XBRL Advisory Council, XBRL Quality Review Team, Effects Analysis Consultative Group, Financial Instruments Working Group and the Expert Advisory Panel on Impairment. No changes were proposed to the Insurance Working Group and Leases Working Group, Rate-Regulated Activities Consultative Group and Valuation Expert Group, and the DPOC also noted the new IFRS Taxonomy Consultative Group and Joint Transition Resource Group for Revenue Recognition
• Due process reports. The DPOC considered a report dealing with the availability of comment letters and meeting papers and interactions with securities and prudential regulators and noted consistent adherence to the due process requirements.

The full report is available on the IASB website.

The IASB is expected to issue a finalised version of IFRS 9 in the near future, which will incorporate new requirements for financial instrument impairment, and make amendments to classification and measurement arising from the IASB's limited reconsideration of IFRS 9. The new standard is also expected to have an effective date of 1 January 2018.

Two presentations, including question and answer sessions, will be held to cater for different time zones. Details and registration links to the IASB's webcast provider are outlined below:

• Session 1 - 29 July 2014 10:00am-10:40am (British Summer Time) - registration link
• Session 2 - 29 July 2014 2:00pm-2:40pm (British Summer Time) - registration link

The webcasts will be recorded and made available after the completion of the sessions.

The purpose of the TRG is not to issue guidance but instead to seek feedback on potential issues related to implementing ASC 606 and IFRS 15. By analyzing and discussing potential implementation issues, the TRG will help the boards determine whether they need to take additional action, such as providing clarification or issuing other guidance. The TRG comprises financial statement preparers, auditors, and users from “a wide spectrum of industries, geographical locations, and public and private organizations.”

Topics discussed at the meeting included:

• Determining whether an entity offering internet-related intangible goods and service arrangements is a principal or an agent.
• Determining whether certain amounts billed to customers should be presented as revenue or a reduction of costs.
• Sales-based and usage-based royalties in contracts with licenses and goods or services other than licenses.
• Inclusion of renewal periods for impairment testing of capitalized contract costs.

The ED sets out proposals for accounting and reporting by pension schemes in the context of the new accounting framework introduced by Financial Reporting Standard (FRS) 102 applicable in the UK and Republic of Ireland for financial years beginning on or after 1 January 2015.  The ED also updates the 2007 SORP to include the requirements of new regulations and changes in the pension industry since the 2007 SORP. 

The ICAEW have raised concern over the level of investment risk disclosures for pooled investment vehicles set out in section 3.16 of the ED.  The ICAEW comments that they have “concerns that the depth of detail proposed for investment risk disclosures for pooled investment vehicles set out in section 3.16 of the draft SORP could be expensive to provide with little or no increase in usefulness for the members of many schemes”.  Concerns are also expressed over the “cost of obtaining and making” these disclosures with the ICAEW indicating that “it is important that the SORP does not gold plate the requirements of FRS 102 itself”.  Another major point identified by the ICAEW is that they do not agree with the approach in the ED to be used to assess the risks attached to a pooled investment vehicle.  The ED states that this should depend on the trustees’ intentions in holding the investment; however the ICAEW comments that “we do not agree that the purpose of an investment affects the actual risks that the investor is exposed to simply by holding that investment”. 

Other significant comments of the ICAEW are made in response to particular issues raised in the invitation to comment and include:

• Concerns over paragraph 3.12.22 of the ED.  This states that, if an annuity value determined in accordance with FRS 102 is considered insignificant in relation to the Statement of Net Assets of the scheme and the costs of obtaining it outweigh the benefits of including the value, the annuity is not valued in the Statement, and a note to this effect is included in the financial statements.  The ICAEW comments that “we are not convinced that it is appropriate for the SORP to use cost/benefit considerations as a basis for non-disclosure of ‘insignificant’ amounts”.  The ICAEW highlights that “this statement is meaningless and should be omitted” unless further guidance to allow trustees to assess what the ‘benefits’ are is provided in the SORP.
• Commenting that the SORP should not prescribe how to calculate the fair value of annuities which is the present value of the related obligation.  The ICAEW indicates that the SORP should “allow trustees to exercise their judgement as to the most suitable basis”.
• A recommendation for additional illustrative examples in the SORP “to avoid inappropriate boilerplate presentations or the assumption that other formats are not allowed”.

The ACCA “mainly concurs with the content in the proposed SORP” and are of the view that the proposed SORP, “on the whole”, “meets PRAG’s objectives of not extending reporting and disclosure requirements beyond those required by FRS 102 and best practice”.  The ACCA also comments that although the SORP reproduces parts of FRS 102, “this may be welcomed by preparers and users who find some disadvantages in the brevity of content in FRS 102”.  ACCA would like greater clarity in the proposed SORP by highlighting its recommended accounting practice and encourages PRAG “to finalise the revised SORP as soon as is practicable”. 

Other significant comments of the ACCA, some of which are similar to those raised by the ICAEW, are made in response to particular issues raised in the invitation to comment including:

• Concerns over paragraph 3.12.22.  The ACCA indicates that “we have doubts that para 3.12.22 of the proposed SORP contains guidance sufficient to achieve consistency between reporting schemes”.  
• That the level of disclosure required by paragraphs 3.16 “will consequently require additional information to be obtained, resulting in extra time and costs”.
• That, in respect of the illustrative financial statements in Appendix 1, it would be helpful “to indicate the level of materiality applied in the illustrative financial statements and how it is applied”.

Click for:

• ICAEW full comment letter (link to ICAEW website).
• ACCA press release (link to ACCA website).
• ACCA full comment letter (link to ACCA website).
• UK Accounting Plus news item on the new draft SORP for pension schemes.
• UK Accounting Plus ‘SORPS and New UK GAAP’ project page.

The amendments result from the IASB’s ‘Disclosure Initiative’ project which comprises several smaller projects to improve presentation and disclosure requirements in existing standards.  The amendments aim at clarifying IAS 1 'Presentation of financial statements' to address perceived impediments to preparers exercising their judgment in presenting their financial reports.  The ED proposes amendments to the following areas of IAS 1:

• Materiality and aggregation;
• Presentation in the statement of financial position and statement of profit or loss and other comprehensive income;
• Notes structure; and
• Disclosure of accounting policies.

The amendments also include proposals relating to the presentation of items of Other Comprehensive Income (OCI) arising from equity-accounted investments.

EFRAG supports the changes to clarify the existing guidance in IAS 1 “that was perceived to be overly prescriptive if read and applied too literally”.  EFRAG believes that the changes ”should enable entities to exercise more judgement in presenting and disclosing information” and will lead to an improvement in the quality and relevance of information in the notes. 

However, EFRAG proposes a number of improvements to the drafting of the proposed changes and recommends consistent use of defined terms relative to the current IASB standards to avoid any future amendments.

Click for:

• Press release (link to EFRAG website).
• EFRAG final comment letter (link to EFRAG website).
• Our 25 March 2014 story on ED/2014/01.
• Our disclosure initiative project page.

Highlights included the issuance of two draft comment letters related to (1) IASB’s discussion paper on macro hedging and (2) IASB’s exposure draft on investment entities and approved a final comment letter on the IASB’s proposed amendments to IAS 1. In addition, the EFRAG TEG approved:

• An invitation to comment relating to the endorsement for use in the European Union and European Economic Area of IASB publication on bearer plants.
• An EFRAG/ICAC/OIC/RJ discussion paper on separate financial statements.
• Two short discussion series papers on the presentation of the reversal of acquisition ‘step-ups’ and the question of whether IFRIC 21 unveiled issues in IAS 37.

Additional topics discussed in the newsletter are:

• IFRS 15
• IASB’s annual improvements to IFRS (2012-2014 cycle)
• EFRAG/ANC/FRC research paper The Role of the Business Model in Financial Statements
• EFRAG Short Discussion Series paper on equity method
• Conceptual framework
• Insurance contracts
• Rate-regulated activities

Please click for the new issue of the EFRAG Update (link to EFRAG website).

The Discussion Paper is intended to contribute to the global discussion on how goodwill should be accounted for and disclosed. Under IFRS, goodwill arising from a business combination is not amortised but subject to an annual impairment test. In connection with the post-implementation review of IFRS 3 Business Combinations, the debate on the strengths and weaknesses of an impairment-only model gained renewed momentum.

In the Discussion Paper, the Research Group explores possible approaches to remedy the shortcomings that constituents identified:

• limited usefulness of the information resulting from the impairment-only approach,
• cost and subjectivity of the impairment testing in accordance with IAS 36, and
• lack of timeliness in the recognition of impairment losses.

In its paper, the Research Group considers one or a combination of the following: (a) changing the accounting requirements for goodwill, (b) improving the requirements for impairment testing and (c) improving the disclosure requirements in IAS 36 Impairment of Assets. As a result of its analysis, the Research Group concluded that reintroduction of amortisation of goodwill would be appropriate because it reasonably reflects the consumption of the economic resource acquired in the business combination over time, and can be applied in a way that achieves an adequate level of verifiability and reliability. In addition, the Research Group concluded that further improvement should also be considered in the area of disclosure requirements.

The Discussion Paper also includes a chapter providing the Research Group's observations if the IASB decides to reintroduce the amortisation and impairment approach.

The ASBJ, EFRAG and OIC invite comments on the Discussion Paper by 20 September 2014.

Press releases offering access to the Discussion Paper are available on the ASBJ and EFRAG websites.

Update 3 October 2014: The deadline for commenting on the paper has been extended to 30 November 2014. Please see the press release on the OIC website.