Background

Financial Reporting Exposure Draft (FRED) 54 ‘Draft amendments to FRS 102 – Basic financial instruments was published by the Financial Reporting Council (FRC) in February 2014.  FRED 54 contained proposed amendments to FRS 102 in respect of the classification of financial instruments as ‘basic’.

Under FRS 102, a debt instrument must be regarded as ‘basic’ in order for it to be measured at amortised cost.  Following the publication of FRS 102 in March 2013, concerns were expressed about the restrictive nature of the criteria for classifying debt instruments as ‘basic’.  Where a debt instrument is not classified as 'basic', it will need to be measured at fair value through profit and loss. 

Project milestones

FRED 54 was published by the FRC in February 2014 with a comment period which closed on 30 April 2014.

In July 2014, the FRC issued Amendments to FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland': Basic financial instruments and Hedge accounting.  The amendments revise the criteria that determine whether a debt instrument is ‘basic’ and is intended to reduce the need for entities to measure debt instruments at fair value. 

The amendments permit amortised cost measurement for a broader range of debt instruments where it adequately captures the risk associated with those financial instruments. 

Examples illustrating the application of the revised requirements are included within the amendments.  In particular, under the revised FRS 102 some inflation-linked debt instruments, which would not have met previously the definition of basic financial instruments under FRS 102, would now be classified as basic.  

Current status of the project

Amendments to FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland': Basic financial instruments and Hedge accounting was issued by the FRC in July 2014.  The amendments are applicable for accounting periods beginning on or after 1 January 2015.