The new UK GAAP – December update
The new UK GAAP project has been ongoing for quite a while and the good news is that we are finally nearly there with the whole project.
In November 2012, the Financial Reporting Council’s Accounting Council (formerly known as the Accounting Standards Board) finally issued FRS 100 Application of Financial Reporting Requirements and FRS 101 Reduced Disclosure Framework. So what are these new standards all about?
FRS 100 outlines which entity uses which standard. For the smaller companies in the UK, the good news is that the Financial Reporting Standard for Smaller Entities (FRSSE) will still be operational with no change in those sorts of companies that can use FRSSE: only those companies that meet the definition of ‘small’ under the Companies Act 2006 are eligible to report under the FRSSE. Because of the number of amendments that the issuance of FRS 100 has generated, this has created a FRSSE 2015.
FRS 101 (the reduced disclosure framework) is essentially IFRS but with reduced disclosure requirements. This FRS outlines the reduced disclosure framework which is available for qualifying entities that report under EU-adopted IFRS.
In the previous draft, FRS 101 required an entity to disclose the relevant standard and paragraph number in respect of the exemptions taken which would have proved to be fairly arduous for companies. However, this has now been replaced by a requirement for a brief narrative summary of the disclosure exemptions that a reporting entity has adopted, which, in all honesty, is a much more sensible approach.
However, there is a slight bone of contention! Disclosure exemptions can only be taken advantage of in a reporting entity’s individual financial statements provided that the equivalent disclosures are made in the consolidated financial statements. See the following illustration:
Example
Company A PLC is a member of the XYZ Group of Companies, reports under EU-adopted IFRS and is reporting under FRS 101. It has taken advantage of certain disclosure exemptions in its individual financial statements. However, the disclosures that have not been provided in Company A’s financial statements are not material to the group and have therefore not been provided in the consolidated financial statements. The disclosures are, however, considered to be material to Company A PLC.
Where disclosures are considered to be immaterial to the group, hence not reported in the consolidated financial statements, but are considered to be material to the entity reporting under FRS 101, the disclosures must be made in the individual entity’s financial statements. Therefore, Company A PLC would not be able to take advantage of the disclosure exemptions that it has taken.
Groups that are currently required to report under EU-adopted IFRS may want to consider taking advantage of FRS 101 early as it can be adopted for year-ends ending on or after 1 October 2012 – particularly as the disclosure requirements in IFRS are on the increase with the introduction of new IFRSs and ongoing amendments to them as well.
FRSs 100 and 101 form two out of three standards that the Accounting Council have been working on. FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland is expected to be issued in February 2013. The original plan was to issue FRS 102 towards the end of 2012, however the Accounting Council recently re-exposed certain areas of the draft FRS 102 – notably defined benefit pension schemes and service concession arrangements – for further comment.
Despite re-exposing certain areas of draft FRS 102, the Accounting Council has not indicated a change to the ‘effective from’ date, which is still scheduled to be for accounting periods commencing on or after 1 January 2015. This will mean that for those companies who are not adopting early, they will be required to prepare their first balance sheet under the new financial reporting framework on 1 January 2014, which is not too far away!
Category: Accounting and standards
