Tag Archives: FRC

FRS 102

FRS 102: Change in accounting standards

UK GAAP to FRSSE 15, early adoption of FRS 102 Section 1A or FRS 102

The Financial Reporting Council (FRC) has replaced UK GAAP (United Kingdom Generally Accepted Accounting Practice) with effect from periods beginning on or after 1 January 2015.

Now we are into 2016 we have been working hard to complete the first sets of accounts where a mandatory change is required, however, there are a number of options to consider when applying the new accounting standards for the first time;

  • Apply FRSSE 15 (Financial reporting standard for smaller entities), which replaces FRSSE 2008. This is only available for “small” companies for one year, being periods commencing 1 January 2015 to 31 December 2015, after which a change to FRS 102 or FRS 102 Section 1A (as discussed below) is required.
  • Apply FRS 102 (Financial reporting standard 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland).
  • Early adopt FRS 102 Section 1A. This is only available for “small” companies.

There are a number of issues to consider when choosing the correct standard to adopt and we have found in the majority of cases, particularly for our owner managed businesses, that it is more beneficial to early adopt FRS102 Section 1A or FRS 102 (if applicable) now rather than take a staggered approach, this being due to discrepancies in the treatment of certain items under FRSSE 15 compared to FRS 102 especially concerning Goodwill.

Where did all the abbreviated accounts go?

There is no option to file abbreviated accounts under FRS102 this has been replaced with “abridged accounts”. When filing abridged accounts there is the option to remove the profit and loss account, however, the full notes to the accounts are now required to be submitted, which means there will be an increase in the level of information available about the business, which is in the public domain.

Key changes arising from FRS 102

We previously noted the key changes arising from FRS102, you can look back on this article and details of these changes in the post Financial Reporting Standar -FRS102

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

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