FRC to start review of FRS 102
The FRC has relaxed its calendar for revising the standards that underpin UK GAAP, but it is pressing ahead with its next review just two years after changes from the last review came into effect, reports Steve Collings.
The Financial Reporting Council (FRC) confirmed recently that it is about to embark on the next periodic review of FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’.
The last triennial review completed in December 2017 made several changes to the accounting standards that embody UK GAAP, but most of those changes were editorial in nature or were merely clarifications of existing requirements.
Some of the tweaks that took effect from 1 January 2019 did change some recognition and measurement principles. For example, FRS 102 included new accounting policies such as enabling intra-group investment property to be measured under the cost model and permitting off-market rate loans from director-shareholders to small entities to be recognised at transaction price.
There have been a number of changes made to UK GAAP since the 2017 triennial review, including:
- amendments in respect of multi-employer defined benefit plans when information becomes available to enable defined benefit accounting to be applied
- phases 1 and 2 of the interest rate benchmark reform as IBOR is being phased out this year
- Covid-19-related rent concessions; and
- the UK’s exit from the EU.
The basis for conclusions paragraph (A.45) of FRS 102 confirms that the FRC will subject the standard to periodic reviews every four or five years. The FRC took this option rather committing to triennial reviews so it could build up experience with the most recent edition of the standard before commencing the next review.
This longer revision cycle is also consistent with one of the FRC’s overarching standard-setting objectives as explained in the basis for conclusions paragraph A.2(b) to:
…balance improvement, through reflecting up-to-date thinking and developments in the way businesses operate and the transactions they undertake, with stability.
While the focus of the FRC’s periodic review is on FRS 102, the other standards in the suite of UK GAAP (see below) will also be reviewed. The primary purpose of the exercise is to ensure that the standards remain up-to-date and continue to require high-quality and cost-effective financial reporting from entities within their scope.
FRS 101 ‘Reduced Disclosure Framework’ is reviewed by the FRC on an annual basis anyway. This is to ensure that developments in the world of IFRS are tracked to ensure disclosure exemptions remain up-to-date and to respond to stakeholder feedback about improvements.
The last amendments proposed to FRS 101 were in FRED 77 ‘Draft amendments to FRS 101 Reduced Disclosure Framework 2020/21 cycle’ which was issued in November 2020. Comments on FRED 77 closed at the end of February 2021. FRED 77 proposes narrow-scope amendments in respect of some disclosure exemptions relating to IAS 16 ‘Property, Plant and Equipment’ and removal of references to redundant paragraphs in IAS 1 ‘Presentation of Financial Statements’.
The periodic review will kick off by seeking views from stakeholders on areas that may be considered as part of this next review. To this end, the FRC wants to hear what preparers think could be improved, what could be changed and what appears to be working well in practice.
The FRC actively encourages preparers to send in constructive feedback which may influence the FRC’s review. If you feel that something within an accounting standard may benefit from improvement, or you have any suggestions for the FRC relating to the suite of UK GAAP, you are encouraged to send in your comments.
The comment period for this initial call for feedback is quite long and closes on 31 October 2021. Comments can be emailed to the FRC at [email protected]. All feedback received will be read by the FRC and feedback can be provided on any FRS in the suite of UK GAAP, which comprises:
- FRS 100 Application of Financial Reporting Requirements
- FRS 101 Reduced Disclosure Framework
- FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland
- FRS 103 Insurance Contracts
- FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime
(Note: FRS 104 Interim Financial Reporting is not an accounting standard and hence is not included in the above list).
The FRC also said that it expects to hold roundtable events for stakeholders to provide their views. This will, of course, depend on the current Covid-19 restrictions and it is expected the FRC will announce further details on this in due course.
The FRC confirmed that any changes to accounting standards which are proposed as a result of this forthcoming periodic review will be subject to public consultation at a future date (which was the case in the 2017 triennial review). This consultation is not expected to take place before 2022.
Any effective date for the amendments is currently expected to be 1 January 2024. This effective date is not set in stone at the current time and