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FRC consults on improvements to FRS 102

FRC consults on improvements to FRS 102

FRED 67, the FRC’s consultation on changes to FRS 102 as part of its triennial review, has now been issued proposing a small number of changes intended to ease the burden on preparers without reducing the quality of financial statements.

Jon Milton

Accounting Advisory Senior Manager

KPMG in the UK


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FRS 102

On 23 March 2017 the FRC published Financial Reporting Exposure Draft (FRED) 67, its proposed amendments to FRS 102 as part of its triennial review process.  Coming only 2 years after entities were required to start applying FRS 102 and coinciding with IFRS 9, 15 and 16 implementation timetables, entities may be forgiven for looking at the 136 page exposure draft and groaning at the prospect of yet more changes to the accounting requirements. 

However, despite the FRC reaching out widely to identify issues with the existing standard, there are relatively few significant changes proposed - with most of the changes tidying up drafting or known inconsistencies in the wording. Even more positive, whilst the headline might be the removal of exemptions based on undue cost and effort, the FRC has endeavoured to replace those exemptions with more usable policy choices. The result is something that is intended to ease the burden on preparers without significantly reducing the quality of information provided. 

What are the main changes proposed by the exposure draft?

  1. The FRED proposes to introduce a policy choice allowing a lessor to measure property that is leased from one group company to another at depreciated cost rather than being required to treat it as investment property measured at fair value. This helpful choice should reduce the burden on group’s that hold their properties within separate entities in their group structure.
  2. The FRED proposes to introduce a new principle to determine whether financial instruments may be classified as basic. The intention is to allow some limited relief for a small number of instruments that do not quite meet the current strict requirements.
  3. FRS 102 has been interpreted as requiring the recognition of more intangible assets in a business combination than was previously the case under old UK GAAP. The FRED proposes amendments that are intended to require entities to recognise fewer intangibles with the option of recognising the additional assets that would be required to be recorded under IFRS on a case by case basis.
  4. The FRED will relax slightly the definition of a financial institution which should mean that some entities that currently fall within the definition will no longer qualify. Whilst the change will be welcomed by such entities, its benefit may be offset by the introduction of additional disclosure about financial instruments for all entities (including those that are not financial institutions). 
  5. For owner-managed businesses, the FRED proposes relief from recording certain director’s loans at fair value on initial recognition.

The FRC has also amended FRS 102 with immediate effect to permit small companies to record loans received from directors who are also shareholders at transaction price rather than fair value. The amendment is intended as an interim step and will be replaced with final requirements when the triennial review is complete.

How should you respond? 

If you are affected by the above, it would be worth reading the proposed changes to make sure that they address your concerns. If you believe that there are other changes that the FRC should make, you could consider commenting to that effect. If you don’t think that you are affected by the above, it may be worth flicking through the proposed amendments anyway to make sure that there is nothing in the detail of the drafting that might affect your business. Details of how to comment are set out on the FRC’s website.


Jon Milton

Senior Manager, Accounting Advisory Services, KPMG

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