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FRC issues updates to UK GAAP, including new standards for small and micro-entities

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16 Jul 2015

The UK Financial Reporting Council (FRC) has issued amended versions of FRS 100, FRS 101 and FRS 102, as well as a new accounting standard applicable to companies eligible to apply the Micro-entities Regime (FRS 105). The changes have largely been made response to the implementation of the new EU Accounting Directive but also incorporate other clarifications and simplifications.

The new EU Accounting Directive was transposed into UK Company law in April 2015.  Concurrent with the implementation process of the Directive, the FRC consulted on consequential changes to accounting standards (FREDs 59 and 60).  The outcome of this consultation process, as well as other recent FRC consultations (FREDs 50, 57, 58 and 61) have now been published. As a result of these changes, there are now six different financial reporting regimes available (subject to various criteria) to entities in the UK and Ireland.  These are:

The Financial Reporting Standard for Smaller Entities (FRSSE) is withdrawn from 1 January 2016 - entities currently applying the FRSSE will need to apply one of the regimes set out above.  Consequential amendments have also been made to FRS 100 Application of Financial Reporting Requirements

The main changes to the various regimes are set out below.

FRS 101 Reduced Disclosure Framework

The most significant changes to FRS 101 are:

  1. An exemption from the requirement of IFRS 1 to present an opening statement of financial position for qualifying entities adopting FRS 101 for the first time.
  2. An exemption from the requirement of IAS 24 to disclose amounts incurred by an entity for the provision of key management personnel services that are provided by a separate management entity.
  3. Removal of the requirement that changes in the estimated amount of contingent consideration in a business combination should be treated as an adjustment to the cost of the combination, rather than as gains or losses recognised in the profit and loss account. This requirement, a modification of the requirements of IFRS 3, was previously necessary due to a conflict with company law.
  4. An option for entities to use the income statement and statement of financial position formats specified by IAS 1, rather than the formats specified in the Accounting Regulations.

Items 1 and 2 are applicable for periods beginning on or after 1 January 2015, while items 3 and 4 are applicable for periods beginning on or after 1 January 2016, with early adoption required if and only if the entity is early adopting the new Accounting Regulations.

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland

The most significant changes to FRS 102 are:

  1. The addition of section 1A Small Entities, which sets out the presentation and disclosure requirements for a small entity that chooses to apply the small entities regime.  Such entities will still need to apply the recognition and measurement requirements set out in the existing sections of FRS 102. Appendices A to D to section 1A are also added and provide guidance on the application of section 1A.
  2. Minimum requirements are set out for entities wishing to take advantage of the flexibility to adapt statutory balance sheet and profit and loss formats set out in the new Accounting Regulations.
  3. The removal of some of the exemptions from disclosure requirements regarding financial instruments that were previously available for qualifying entities.
  4. An increase from five to ten years in the maximum useful life allowed for goodwill and intangible assets for which, in exceptional cases, a reliable estimate of the useful life cannot be made.
  5. Reversal of the default accounting treatment for share-based payments where the entity has the choice of settling in cash or shares.  Previously the default position for such arrangements was to treat them as cash settled, whereas now they will normally be accounted for as equity settled arrangements unless this is not reflective of the substance.
  6. Reversal of any impairment of goodwill is now prohibited (subject to expected further changes in company law).
All of the amendments are applicable for periods beginning on or after 1 January 2016, with early adoption required if and only if the entity is early adopting the new Accounting Regulations (or from 1 January 2015 if the entity is not subject to company law).

FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime

FRS 105, the new accounting standard for entities choosing to apply the Micro-entities regime, is based on FRS 102 but its accounting requirements are adapted to satisfy the legal requirements applicable to micro-entities and to reflect the simpler nature and smaller size of micro-entities.  In particular:

  • Micro-entities are only required to prepare a balance sheet and profit and loss account and not any of the other primary statements required for larger companies.
  • No assets can be measured at fair value or a revalued amount.
  • No deferred tax or equity-settled share-based payments are recognised
  • All of the accounting policy choices set out in FRS 102 are removed.
  • Micro-entities' accounts are only required to provide very limited disclosures and are presumed to give a true and fair view by doing so.

FRS 105 is effective for periods beginning on or after 1 January 2016, with early adoption permitted.

The following documents can be obtained from the FRC website:

Deloitte's Need to know publication can be found here.

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