Need to know — FRC proposes limited amendments to the FRS 102 fair value hierarchy disclosure

Published on: 10 Nov, 2015

The Financial Reporting Council (FRC) has published Financial Reporting Exposure Draft (FRED) 62 Draft amendments to FRS 102 – Fair value hierarchy disclosures. The FRC has received feedback that amending the fair value disclosure requirements applicable to financial institutions and retirement benefit plans will reduce the costs of complying with Financial Reporting Standard (FRS) 102 and allow these entities to provide information to users that is more consistent with EU-adopted IFRS. This should also make it easier for users to make comparisons between the financial statements of these entities and those applying EU-adopted IFRS.

FRED 62 proposes to amend paragraphs 34.22 and 34.42 of FRS 102 to require disclosure of financial instruments held at fair value on the basis of a fair value hierarchy consistent with EU-adopted IFRS as follows:

A fair value measurement is categorised in its entirety on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

Level 1:    The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2:    Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.

Level 3:    Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

When finalised, these amendments are proposed to apply for accounting periods beginning on or after 1 January 2017. Early application will be permitted, but only once the final amendments to the standard have been issued. This may not be until well into 2016. Until then, the existing FRS 102 requirements continue to apply.

Comments on FRED 62 are invited by 31 January 2016.

The press release and FRED 62 are available on the FRC website.

Note that no separate pdf download is available for this Need to Know.

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