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FRC approves new UK GAAP

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7th Mar 2013
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At its board meeting on 5 March 2013, the Financial Reporting Council (FRC) finally approved FRS 102 ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’.

From 1 January 2015, the new version will replace all existing financial FRSs, SSAPs and UITFs, bringing an end to several years of uncertainty about the direction of UK GAAP. The FRC is expected to issue the new standard in the next couple of weeks. 

The (now defunct) Accounting Standards Board (ASB) acknowledged some time ago that UK GAAP had become overly complex and voluminous. UK standard-setters had wanted the UK to adopt an international-based financial reporting framework to provide consistency in the way financial reporting works, within a high-quality and fit-for-purpose reporting framework.

In 2009, the ASB acknowledged that to essentially scrap all existing accounting standards and replace them would be a significant task, but viewed this project as an opportunity to simplify UK GAAP to produce more relevant, comparable and understandable information.   

The ASB initially based its exposure drafts (FREDs 43 to 45) on the International Accounting Standards Board’s ‘IFRS For SMEs’, which was planned to become (and was exposed as) the ‘Financial Reporting Standard for Mid-Sized Entities’ (FRSME) in the UK.

But FRSME aroused significant controversy – particularly around the concept of “public accountability”. Having listened to the feedback on FREDs 43-45, the ASB significantly changed its original proposals and exposed FREDs 46-48 for comment. These became FRSs 100, 101 and 102 respectively. These revised exposure drafts:

  • Eliminated the tier system for large, small-medium and micro companies
  • Introduced accounting treatments permitted under current UK GAAP
  • Incorporated guidance for public benefit entities into FRED 48

FRS 102 is part of a suite of three standards, with the two others being:

  • FRS 100 ‘Application of Financial Reporting Requirements’; and
  • FRS 101 ‘Reduced Disclosure Framework’.

FRS 100 and FRS 101 were both issued on 22 November 2012. FRS 102 was delayed due to the re-exposure of certain areas of the draft standard, notably in respect of defined benefit pension schemes and service concession arrangements. These issues were dealt with in a previous article.

FRS 100 outlines which entities will use which standard. Smaller companies will still continue to use the FRSSE, but this has been updated for the consequential effects of FRS 102 and therefore smaller companies will use FRSSE (effective January 2015).  It is also likely that the FRSSE will be further aligned to the new UK GAAP in the future. 

FRS 101 is basically IFRS, but with reduced disclosure requirements for qualifying entities. The standard outlines the reduced disclosure framework which is available for qualifying entities that report under EU-adopted IFRS. 

When they were issued in November, FRS 100 and FRS 101 were set to be effective for accounting periods commencing on or after 1 January 2015, with early-adoption permissible. So groups that are currently required to report under EU-adopted IFRS may want to consider adopting FRS 101 earlier as it can be adopted for year-ends ending on or after 1 October 2012 due to legislation being introduced that allows companies that are not required to apply IFRS by the ‘IAS Regulation’ more flexibility to change their accounting framework to FRS 101 or FRS 102. This may be advantageous for groups with a 31 December 2012 year-end to early-adopt given the disclosure requirements in EU-adopted IFRS are fairly vast.

FRS 102 will be applicable for accounting periods commencing on or after 1 January 2015, but entities that will fall under this standard’s scope will have to think about the impact of FRS 102 earlier as the first balance sheet to be prepared under the new financial reporting regime will be as at 1 January 2014 (which is not in the too distant future) and there are additional disclosure requirements in the year of transition to FRS 102.

Of course, additional costs will be incurred and this is another issue that practitioners will have to take into consideration but resources will be available on AccountingWEB.co.uk to help with the transition to the new standard. Indeed my next article will consider the changes that have been made to the FRSSE (effective 2008) to become FRSSE (effective January 2015).

There are some differences between the way UK GAAP currently works and the way that it will work from 1 January 2015 and these differences will also be summarised into articles and various worked examples to aid practitioners.

Steve Collings is the audit and technical partner at Leavitt Walmsley Associates and the author of ‘Interpretation and Application of International Standards on Auditing’. He is also the author of ‘The AccountingWEB Guide to IFRS’ and ‘IFRS For Dummies’ and was named Accounting Technician of the Year at the 2011 British Accountancy Awards.

Replies (19)

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By Nigel Hughes
07th Mar 2013 14:56

FRSSE 2015

Steve

I've been trying to search the fairly opaque FRC website for a draft of FRSSE 2015, to no avail. Does it exist yet?

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collings
By Steven Collings
07th Mar 2013 15:09

FRSSE

Hi Nigel

Yes, it is in FRS 100 on page 9 headed 'Consequential Amendments to the FRSSE'.

Happy reading!

All the best

Steve

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Replying to thestudyman:
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By Nigel Hughes
07th Mar 2013 15:42

Thanks Steve, I'm looking forward to it!

N

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
07th Mar 2013 15:17

Comment from Grant Thornton

Earlier today we received the following statement from Joyce Grant, technical partner at Grant Thornton UK:

"Whilst the hard work of the standard setters is all but over, the hard work for preparers is just beginning. Although the headline issues from two years ago have been resolved, such as revaluation of fixed assets, the majority of companies will still find that they need to make changes to their accounts. The difficulty is that these differences may not always be obvious but could have the potential to alter profits, which will in turn affect a myriad of different aspects of a business, for instance banking covenants, tax bills and profit-related bonuses.

"What people need to figure out is precisely how this standard will affect their business, and what they can do to minimise potential negative impacts; this takes planning. One of the most talked about changes is the introduction of more fair value accounting, in particular for instruments such as foreign exchange forward contracts and interest rate swaps.

"Whilst we welcome this change as introducing greater transparency in the accounting for such instruments, there are likely to be real costs associated with the need to prepare, and have audited, valuations for these instruments.

"Companies with December year ends will need to be prepared to re-state their December 2013 balance sheet under the new standard, so where there could be measurement problems these will need to be tackled before the end of this year."

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Replying to Julie Cameron:
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By Nigel Hughes
07th Mar 2013 15:53

Dog's Breakfast

I'm sure that Joyce is right in that there may be any number of unexpected and probably unintended consequences of this dog's breakfast. However, the fact remains that it is a shorter dog's breakfast than the one it replaces.

It would be so good if the thinking could be joined up so that the CA regulations could be changed as well, the language aligned, and the structure for Micros and small companies all set up and harmonised at the same time. World peace and an end to poverty would be pretty good too!

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Replying to Portia Nina Levin:
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By Nigel Hughes
08th Mar 2013 15:52

In yer dreams!

Come on George, of course it doesn't!

Why bother with the transit vans when a management charge will usually do the trick?

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By pembo
08th Mar 2013 11:39

don't be silly George

if any of these new standards addressed such matters it would create a real issue for the poor old auditors who will of course have advised them for £squillions with their consultancy hat on to buy those 100 transit vans at £150k a pop off that BVI subsidiary manned when hes not attending to the swimming pool by the guy who looks after the apartment block. Meanwhile the rest of us who live in the real world of transparent balance sheets thankfully will only have to deal with the revised FRSSE 2015 where of course such activity is condemned sine die under threat of an appearance at Moorgate Place.

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By arshadali
08th Mar 2013 11:55

more confusion

So now we have FRS 100, 101, 102 where we can use IFRS, FRSSE or full standards as before? Along with the new rules with EU groups where the parent resides in EU then the sub needs no audit as they will guarantee it etc etc, seems to me its getting more complex, lets just have an audit for everything and anything and get it over with.

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By liaqat38
08th Mar 2013 16:40

FRS 102

Is final version of FRS 102 avaiable to download?

Wahts the weblink?

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Replying to User deleted:
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By Nigel Hughes
08th Mar 2013 16:53

Not yet as far as I'm aware Liaqat

They say in a couple of weeks

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Replying to User deleted:
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By Nigel Hughes
14th Mar 2013 10:26
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Replying to Ruddles:
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By liaqat38
14th Mar 2013 11:17

FRS102

Lucky we

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Lamb
By Rehan1
09th Mar 2013 22:57

FRSSE 2008 & FRSSE 2012

I Can't wait to see where the differences lay between the two ?

Hopefully, we will get in 2 weeks.

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collings
By Steven Collings
10th Mar 2013 22:15

FRSSE

Not really a great deal to look forward to!

Textual amendments include removing reference to FRSs/SSAPs/UITFs and incorporating FRS 102 and of course changing FRSSE (effective April 2008) to FRSSE (effective January 2015).

Goodwill/intangibles amortised over a 5-year life (rather than 20 years) where the directors cannot assign a useful economic life to such assets.

Some related party issues have been redefined.

Citations of an example where a product has become obsolete or seen a fall in demand has been deleted in paragraph 6.45.

I'm expecting FRSSE to be further amended in the future to be aligned to FRS 102 but in a nutshell that's your lot.

Steve

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Replying to mbuffery:
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By Nigel Hughes
13th Mar 2013 11:54

FRSSE Amendments

Steve

I've become a FRSSE Geek!

Para 2.6 of the FRSSE and its footnote amended to change the wording on a small company's balance sheet, but they haven't changed para 2.30 which covers the same ground. Do they know it's never going to see the light of day?

Nigel

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By Nigel Hughes
11th Mar 2013 15:49

And it's likely to change anyway

The EU is currently reworking its company law directives, aims to combine the 2 existing directives into 1 and has said that it will make huge cuts in the disclosure requirements for small companies - i.e. those covered by the FRSSE.

It has said that disclosures should be restricted to about 10 things and that it will be illegal for individual member states to insist on greater disclosure. ICAEW has some pretty good FAQs about it.

This is supposed to happen in 2013, but as we know speedy change is not exactly the EU's strong suit.

We shall see.

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collings
By Steven Collings
13th Mar 2013 13:55

FRSSE Amendments (well spotted!!)

HI Nigel

I agree with you - definitely never going to see the light of day!

Possibly worth mentioning it to them, perhaps?  Though if they don't change it I don't see much consequence to preparers.  It may well be that during a file review, an eagle-eyed reviewer may spot the different wording (if software providers change both 2.6 and 2.30 to be consistent).  I know some reviewers do spot inconsistent wording for things like footnotes in the balance sheet but if I'm honest (our software company did this), I've just told the software company in the hope they do something about it and that's as far as I've gone.  Clients definitely couldn't care less!

An interesting couple of years ahead I reckon.......

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By Nigel Hughes
13th Mar 2013 15:07

Unfortunately......

Practitioners do notice and if it says one thing in one place in a standard and something else in another place, they're going to come to you or me for advice, and they tend not to believe us when we say "Er.........they got it wrong when they drafted the standard!"

ASB should have realised in 2008 that the small company regime does not represent "special provisions". Grrr.

I suppose if small company accounts are only going to be filed in abbreviated form, usually directly in iXBRL or via the COHo website, there aren't going to be many accounts rejected by CoHo.

However I still wonder about how it is that FRC can spell it out in such painstaking detail, whilst knowing it's likely to be superseded before it goes live, and then still make mistakes in the drafting. Ah well

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By holliemaree
16th Apr 2013 07:36

Clarification please!

Can someone please clarify: 

 

I am an Australian accounting student doing an assignment on the reporting systems in the UK. Now i believe listed companies are required to report based on IFRS as of 2005. Are the GAAP and the new standards relevant to listed companies or just small to medium?

 

 

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