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FRC proposes FRS 101 amendments

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18th Jul 2016
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Steve Collings outlines the current requirements for FRS 101 and looks at potential amendments to the reduced disclosure framework.

FRS 101 Reduced Disclosure Framework enables a qualifying entity to take advantage of reduced disclosures in its own individual financial statements. The term ‘qualifying entity’ is defined in the glossary to FRS 101 as:

‘A member of a group where the parent of that group prepares publicly available consolidated financial statements which are intended to give a true and fair view (of the assets, liabilities financial position and profit or loss) and that member is included in the consolidation.

A charity may not be a qualifying entity.’

FRS 101 applies specifically for qualifying entities that are preparing their financial statements under EU-adopted IFRS; although there is a reduced disclosure framework embedded within FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland for those qualifying entities that report under FRS 102.

Current requirements of FRS 101

If an entity meets the criteria for a qualifying entity, paragraph 5 allows that qualifying entity to take advantage of the disclosure exemptions contained in paragraph 7A to 9 of FRS 101, provided that:

  1. Its shareholders have been notified in writing about, and do not object to, the use of the disclosure exemptions. Shareholders may object to the disclosure exemptions being applied and where shareholders do object, they must do so in a reasonable timescale and in an acceptable format. A shareholder objecting to the disclosure exemptions must be a shareholder that is the immediate parent of the entity, or a shareholder(s) holding in aggregate 5% or more of the total allotted shares in the entity, or more than half of the allotted shares in the entity which are not held by the immediate parent.
  2. The entity applies the recognition, measurement and disclosure requirements of EU-adopted IFRS, but makes amendments to EU-adopted IFRS requirements where necessary in order to comply with company law.
  3. It discloses in the notes to the financial statements a brief summary of the disclosure exemptions adopted and the name of the parent of the group in whose consolidated financial statements the qualifying entity’s financial statements have been consolidated together with details of where those consolidated financial statements can be obtained.

Proposals for change

The Corporate Reporting Council of the Financial Reporting Council (FRC) is proposing to delete paragraph 5(a) from FRS 101 which requires shareholder notification about the proposed use of the disclosure exemptions. This change will apply for accounting periods starting on or after 1 January 2016.

The Corporate Reporting Council has also said that the similar requirement in FRS 102 should also be removed. The basis for the Corporate Reporting Council’s proposals are as follows:

  • The overall level of disclosures which FRS 101 requires is no less than that required under outgoing UK GAAP. In addition, the overall level of disclosure may be greater than that required by FRS 102, which will also be an option available to qualifying entities that apply FRS 101.
  • The shareholders in an ultimate parent company will receive the consolidated accounts of the group as well as the individual accounts of the parent entity. The consolidated financial statements received by the shareholders will include full disclosures under EU-adopted IFRS.
  • There may be significant costs incurred by groups in notifying all shareholders of proposed disclosure exemptions.
  • A shareholder which controls a qualifying entity can exercise that control in relation to the financial reporting of its subsidiary without the need for an additional opportunity to object to the planned disclosure exemptions.
  • The qualifying entity is required to disclose a summary of the disclosure exemptions it has applied. Some qualifying entities may adopt FRS 101 at a later date than others, although the majority will have already adopted FRS 101 and hence any prospective shareholders will be aware of the use of the reduced disclosure framework from the prior period financial statements.

The Corporate Reporting Council are of the opinion that the costs of complying with the requirement to notify all shareholders is not cost-effective in practice and hence is the main reason why they are proposing changes in this area.

Conclusion

The comment period on FRED 65 Draft amendments to FRS 101 Reduced Disclosure Framework Notification of shareholders is open for comment until 14 October 2016. The FRC prefer comments to be sent by e-mail to [email protected] and all comments are published on the FRC’s website, unless the respondent explicitly requests otherwise.

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By User deleted
18th Jul 2016 18:20

More FRC tinkering.

The sooner this body of ivory tower academics is disbanded the better for everyone. Or at least reduce their days to 2 a year so they won't have any time for endless tinkering and messing about.

How much did FRSSE 2015 cost to write and put in place for example? A complete waste of probably millions of pounds of man hours across the profession.

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By Scriptic
19th Jul 2016 14:09

This appears to be a classic case of an organisation making itself busy whatever the cost in order to justify its existence.

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