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FRC proposes amendments to FRS 102, FRS 104 and FRS 105

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24 Jul 2020

The Financial Reporting Council (FRC) has issued Financial Reporting Exposure Draft (FRED) 75 ‘Draft amendments to FRS 104 Interim Financial Reporting - Going concern' and FRED 76 'Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime - COVID-19-related rent concessions'.

FRED 75 proposes to amend FRS 104 to clarify the requirement to assess the going concern basis of accounting and require the disclosure of any related material uncertainties when preparing interim financial statements in accordance with FRS 104. These amendments address an unintentional difference between FRS 104 and related IFRS requirements. IFRS Standards require management to assess an entity’s ability to continue as a going concern and disclose any related material uncertainties when preparing interim financial statements.  Although these requirements are not contained within IAS 34 Interim Financial Reporting they apply to condensed interim financial statements prepared in accordance with IAS 34.  FRS 104, which is based on the requirements of IAS 34, does not include any explicit requirements covering the assessment and reporting on the going concern basis of accounting.  However FRS 104 currently requires an entity to include a statement that the same accounting policies are applied in the interim financial statements as compared with the most recent annual financial statements, which would include a statement about the going concern basis of accounting.  The amendments therefore propose amendments to FRS 104 to introduce requirements covering going concern in a similar way to EU-adopted IFRS Standards.  They are are intended to ensure consistency in this regard going forward.

FRED 76 proposes to introduce explicit requirements for accounting for temporary rent concessions for operating leases occurring as a direct consequence of the COVID-19 pandemic.  The FRED proposes amendments to Section 20 Leases of FRS 102 to require entities to recognise changes in operating lease payments that arise from COVID-19-related rent concessions over the periods that the change in lease payments is intended to compensate.  The FRC considers that this would best reflect the economic substance of the benefit of these concessions and their temporary nature and improve the consistency of reporting for users of financial statements. The proposed amendments are restricted to temporary rent concessions occurring as a direct consequence of the COVID-19 pandemic, when any reduction in lease payments affects only payments originally due on or before 30 June 2021.  These changes would apply both to FRS 102 and FRS 105 reporters. 

The comment deadline for both FREDs is 1 September 2020.  The proposals in FRED 75 are expected to apply to interim periods beginning on or after 1 January 2021, and the proposals in FRED 76 are expected to apply to accounting periods beginning on or after 1 January 2020.  In both cases early application will be available.

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