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In March 2013, the Financial Reporting Council (FRC) issued FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

The new UK GAAP regime.

In March 2013, the Financial Reporting Council (FRC) issued FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. This is the main part of the new UK GAAP regime and follows the issue in November 2012 of FRS 100, which explains the framework, and FRS 101, which allows the individual accounts of qualifying parent and subsidiary entities (as defined) to be prepared under IFRS recognition and measurement but with reduced disclosures from the full IFRS standards. A specialist standard for insurers has now been issued:

FRS 100

FRS 100 sets out which framework an entity must or may apply. It does not impose IFRSs beyond existing requirements. In a related change to the UK Companies Act, for financial years ending on or after 1 October 2012, some companies that previously applied IFRSs in their individual accounts may be able to change framework (to FRS 101, for example, or to existing UK GAAP). See the October 2012 Financial Reporting Update for more details of this change to the UK Companies Act.    

FRS 101 

Sets out a reduced disclosure framework that may be applied in the individual financial statements of qualifying group entities that otherwise apply the requirements of IFRS.   

FRS 101 cannot be applied in any group accounts or in the individual accounts of a charity.   

Some of the disclosure exemptions under FRS 101 are contingent on the parent's consolidated accounts giving equivalent disclosures. The meaning of "equivalent" is considered in the application guidance to FRS 100. Fewer disclosure exemptions are available to qualifying entities that are financial institutions (as defined). The exemptions of FRS 101 include certain disclosures for:

  • share-based payment arrangements 
  • business combinations 
  • cash flow statements 
  • related parties

FRS 102

FRS 102 is a single standard providing concise financial reporting requirements. It replaces the previous body of UK GAAP accounting standards and is based on the IFRS for SMEs, with amendments for application in the UK. It incorporates some significant differences from IFRS, including: requiring the Companies Act formats to be applied by all UK entities, including non-companies;

  • requiring the amortisation of goodwill; 
  • permitting the expensing of borrowing and development costs; 
  • a “timing difference plus” approach to deferred tax; 
  • and a different approach to financial instrument accounting.  

The differences from current UK GAAP include:

  • movements in investment property measured at fair value and recognised in profit and loss instead of through reserves; 
  • a different approach to financial instrument accounting, including the recognition of derivatives at fair value; 
  • recognition of deferred tax on revaluations, rolled over gains and fair value adjustments in a business combination; 
  • the recognition of more intangible assets in a business combination; and 
  • no multi-employer exemption in relation to group pension schemes: any liability (or asset) is recognised on at least one entity’s individual balance sheet.

Like FRS 101, FRS 102 includes a reduced disclosure regime which will allow the individual accounts of qualifying parent and subsidiary entities to omit certain disclosures.  Unlike under FRS 101, charities may be qualifying entities under FRS 102.  The disclosure exemptions include cash flow statements, certain group share-based payment disclosures and (unless the qualifying entity is a financial institution) information about financial instruments. Under FRS 102, all financial institutions must make additional disclosures about financial instruments. 

FRS 103

This is the Insurance contract standard which supplements FRS 102.  It is based on IFRS 4 and parts of FRS 27, with elements of the ABI SORP included as guidance.  FRS 103 applies to insurance contracts, not just insurance companies – this represents a key change and will cover more transactions than current standards.

The definition of an insurance contract is codified in FRS 102 but remains consistent with FRS 26.  This is a big change for life companies that are not currently applying FRS 26.

Some of the key changes include:

  • Life insurance companies - new requirement to assess contracts for significant insurance risk 
  • Capital disclosure requirements for general insurance companies 
  • Relaxation of specific FRS 27 capital disclosure rules 
  • Requirement to disclose claims development tables for general insurance companies

FRS 103 is a standard that consolidates existing rules and guidance, and imposes very few new requirements; the FRC are cognisant of the fact that wider changes are in the pipeline for the insurance industry, and do not wish to add further complicate the financial reporting landscape at this time. FRS 103 therefore aligns itself with IFRS 4, but does not mandate changes in the key aspects of recognition and measurement. 

Effective date

FRSs 100-103 are applicable for accounting periods commencing on or after 1 January 2015.  This will require (for 31 December year ends) a transition balance sheet to be prepared as at 1 January 2014.  FRSs 100 and 101 can be adopted early with immediate effect, regardless of the accounting period (although see the earlier comment on switching back from IFRS to UK GAAP).  Early adoption of FRS 103 is permitted for periods ending on or after 31 December 2012.

“And it’s not just about the accounting.  We work closely with our colleagues in tax and advisory to ensure you get a complete solution to your accounting and business needs” - Simon Nicholas, Director.  


Your Issues

What are the differences between IFRS and FRS 102 - should you adopt a higher tier than you are required to?

  • Your company is converting to IFRS - what are the key accounting differences? Are there choices that may mitigate volatility of reported earnings?   
  • What is the likely impact on distributable reserves and can you take any action now to mitigate the risk of dividend blocks?   
  • What impact will the changes have on reported taxable profits and existing tax planning?   
  • What about the wider business consequences? How will conversion impact performance-related remuneration, loan agreements and other contractual relationships, internal management information and external communication?   
  • Conversion may be a time intensive project – how will your finance team cope with this along with their usual finance roles? 

Examples of how we can help

Our team can:

  • perform an initial impact assessment, highlighting the differences between IFRS, FRS 102 and current UK GAAP; 
  • identify the key accounting differences and their likely impact on profit or loss; 
  • provide advice on how to mitigate the impacts of conversion (e.g. regarding potential ‘dividend blocks’ and minimising profit or loss volatility); 
  • work with our tax colleagues to assess the impact of conversion on cash tax and to assist with tax planning; 
  • recalculate internal management information, KPIs and forecasts; 
  • perform a performance related pay review and bank covenant review;  
  • provide resources and send people on secondments to assist with the conversion project.  

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