Need to know — FRC proposes amendments to classification of financial instruments under FRS 102

Published on: 13 Feb, 2014

This publication from Deloitte discusses the amendments to FRS 102 proposed by the Financial Reporting Council (FRC) with the issuance of FRED 54 ‘Draft Amendments to FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of Ireland – Basic Financial Instruments’ ("the Exposure Draft").  The proposed amendments are 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.  The Exposure Draft proposes to amend the criteria that determines whether a debt instrument is ‘basic’ and is intended to reduce the need for entities to measure debt instruments at fair value.

Following the publication of FRS 102 in March 2013, concerns were expressed about the restrictive nature of the criteria for classifying financial instruments as ‘basic’. The amendments proposed in FRED 54 are intended to reduce the cost of compliance with FRS 102 by allowing amortised cost measurement where it adequately captures the risks associated with those financial instruments. 

The proposed amendments to FRS 102:

  • make amortised cost measurement available for a broader range of debt instruments;
  • amend and clarify the rules on ‘basic’ or ‘non-basic’ classification; and
  • include examples illustrating the application of the revised requirements.


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