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FRS 102

Financial Reporting Standard – FRS 102

UK GAAP to FRS 102 – Key Points

The Financial Reporting Council has replaced our well known UK GAAP (United Kingdom Generally Accepted Accounting Practice) with FRS 102 (Financial Reporting Standard 102) with effect from periods beginning on or after 1 January 2015, with early adoption permitted.

As most of our small and medium sized entity clients have their financial statements prepared under UK GAAP, the introduction of this new Standard may have a major impact on the reporting.


Overview of changes

The adoption of FRS 102 will cause changes to the look and layout and disclosures of the financial statements but more importantly will affect the numbers as well.  The starting point for the transition will be to restate the opening balance sheet. So whereas it may seem that the switch will not affect us all until 2016 when we come to prepare 31 December 2015 accounts, if a company prepares its financial statements to 31 December 2015, its date of transition (i.e. opening balance sheet position) will be 1 January 2014 – so in the past.


A few of the key areas affected


Investment Property

Currently, UK GAAP requires that investment properties are revalued each year to their open market value with revaluation gains or losses taken to the revaluation reserve and the statement of total recognised gains and losses (STRGL) with no effect on deferred tax. FRS 102 requires revaluation each year to fair value with value changes taken to the profit and loss account and any increase in the property valuation to be matched with the appropriate deferred tax position.

Intangible Assets and Goodwill

Current UK GAAP presumes a maximum useful life of 20 years but this presumption can be rebutted with proper justification.  Under FRS 102, the view is that intangible assets and goodwill always have a finite life AND if no reliable estimate can be made, the useful life will be limited to a maximum of five years.

Holiday Pay Accruals

Under UK GAAP, there is no explicit requirement to provide an accrual for holiday pay entitlement at your year end.  With the implementation of FRS 102, an accrual is required so if the holiday year and accounting year are in line, there should be no significant impact. However if they do not align, unused holiday entitlements at the financial year end will need to be compiled to enable the accrual to be accounted for.

Interest Free Loans, eg Director’s Loan Accounts

Under the current regime, the loan could be carried on the balance sheet at the loan capital amount and, if interest was applied, this would be charged through the profit and loss account.  The major change under FRS 102 is that EVEN an interest free loan will need to be recognised at its present value having discounted using a market rate of interest.  E.g. if a director has introduced £100,000 interest free for say 10 years, this will then need to be recognised as a liability in the company at say £61,391 at a 5% market interest with an immediate credit to the profit and loss account of £38,609 fully taxable in year one.  Over the remaining years, the company will then have an annual tax deductible interest debit to recognise the company’s interest-free arrangement. These are a few of the key headline areas and many accounting lecturers have expressed this is the biggest change in accounting for decades.

If you have any queries or concerns, please do not hesitate to contact us on 01872 271655