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FRC publishes amendments to FRS 102

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15 Dec 2017

The Financial Reporting Council (FRC) has published incremental improvements and clarifications to (FRS) 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. The FRC indicates that “as a result of these amendments, FRS 102 will be clearer and easier to use, some accounting policies will be simplified and additional choices and exemptions will be introduced”.

The amendments, which were consulted on within Financial Reporting Exposure Draft (FRED) 67 and FRED 68, have arisen as a result of the first triennial review of FRS 102 and after taking into account stakeholder feedback on the implementation of FRS 102 and recent developments in financial reporting.

The majority of the amendments are editorial in nature. Other significant amendments that have an impact on the financial statements include:

  • introducing a description of a basic financial instrument to support the detailed conditions for classification as basic. As a result additional financial instruments will be considered ‘basic’ (and thereby measured on a cost rather than fair value basis) beyond those meeting the prescriptive conditions, if they are consistent this new principle-based description.
  • confirming the simplification of the measurement of directors’ loans to small entities, following the interim relief granted earlier this year. As a result small entities will no longer need to estimate a market rate of interest when measuring loans from a director who is also a shareholder;
  • requiring fewer intangible assets to be separated from goodwill in a business combination. Entities may choose to separately recognise additional intangible assets acquired in a business combination if this provides useful information to the entity and the users of the financial statements;
  • permitting investment property rented to another group entity to be measured by reference to cost (less depreciation and impairment), rather than fair value as an accounting policy choice; and
  • simplifying the definition of a financial institution to remove references to ‘generate wealth’ and ‘manage risk’. As a result, fewer entities should meet the definition of a financial institutions. Stockbrokers have also been removed from the definition of a financial institution.

Amendments are also made to: 

The effective date for most of the amendments to FRS 102 is for accounting periods beginning on or after 1 January 2019, with early application permitted provided all amendments are applied at the same time. The only exceptions to this are the amendments relating to directors’ loans and the tax effects of gift aid payments, for which early application is permitted separately. Limited transitional provisions are also available. The amendments to disclosure requirements under Section 1A for small entities in the Republic of Ireland are effective for accounting periods beginning on or after 1 January 2017.  However, early application is permitted for companies in the Republic of Ireland that apply the Companies (Accounting) Act 2017 is applied from the same date.

Consequential amendments have also been made to the other UK and Ireland accounting standards, such as FRS 100 Application of financial reporting requirements and FRS 101 Reduced disclosure framework.

The changes to disclosure requirements in FRS 105 for micro entities in the UK are applicable for accounting periods beginning on or after 1 January 2017; all other amendments to FRS 105 as a result of the triennial review are applicable for accounting periods beginning on or after 1 January 2019. Early application for UK micro-companies is permitted provided that all the amendments to FRS 105 are applied at the same time. 

With respect to the Republic of Ireland, the changes to incorporate FRS 105 are applicable to accounting periods beginning on or after 1 January 2017.  Earlier application is permitted for companies in the Republic of Ireland that apply the Companies (Accounting) Act 2017 is applied from the same date.  All other amendments to FRS 105 as a result of the triennial review are applicable for accounting periods beginning on or after 1 January 2019. Early application of the other amendments is permitted provided that all of these other amendments are applied at the same time.

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