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We comment on FREDs 58 - 60

  • Deloitte comment letter on proposed revisions to the accounting standards for small and micro entities  Image

06 May 2015

We have published our comment letter on the Financial Reporting Council’s (FRC’s) Financial Reporting Exposure Drafts (FREDs) 58 ‘Draft FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime’, FRED 59 ‘Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland – Small entities and other minor amendments’ and FRED 60 ‘Draft amendments to FRS 100 Application of Financial Reporting Requirements and FRS 101 Reduced Disclosure Framework’.

The three FREDs propose changes to the existing UK financial reporting framework resulting from the UK implementation of the EU Accounting Directive.

Overall, we are supportive of the proposals and have the following key comments:

  • the section numbering should be kept consistent between FRS 102 and FRS 105 but FRS 105 should otherwise be drafted as a separate, standalone standard with paragraphs within sections numbered sequentially. We do not believe that the proposed approach is sufficiently clear for users to understand and follow;
  • the requirements of Sections 11 and 12 of draft FRS 105 should be combined into a single financial instruments section for ease of use. The drafting of these sections should be reconsidered bearing in mind that the unstated objective of the proposals is to permit micro-entities to continue to apply the historical cost accounting practices that they have previously adopted under the FRSSE. It is likely to be more successful using familiar language taken from the FRSSE or FRS 4 than artificially using FRS 102 terminology which is not appropriate to the circumstances or the audience.
  • we are pleased that in line with our previously expressed views, the FRC does not propose to address accounting for service charges by residents' management companies in the body of either FRS 102 or FRS 105. However, we are concerned about the statements made in the Accounting Council's Advice to the FRC which we believe misrepresent the legal advice obtained by the ICAEW and the FRC and incorrectly imply that the legal advice resolves the accounting issue which it does not; and
  • we do not agree with the proposed Section 1A of FRS 102. It is almost impossibly difficult to understand, particularly as the audience is small companies and their advisers. We believe that it should be completely restructured. 

Further expansion of these comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter.

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