The new UK GAAP: October update

On 3 October 2012, the UK’s Financial Reporting Council (FRC) issued an Exposure Draft containing some limited amendments to the proposed draft FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland together with their anticipated timings for the implementation of the new standards.

Timing

In their Press Release, the FRC announced that they intend to finalise the draft FRS 102 in early 2013 and for it to become effective for accounting periods commencing on or after 1 January 2015.  Ideally the standard needs to be finalised as early as possible in January by the FRC as leaving it too late into 2013 will undoubtedly delay the implementation date as many firms across the country will need sufficient time to plan for the impending change and notify clients about the change in the financial reporting framework.

The FRC have confirmed that they intend to finalise FRS 100 Application of Financial Reporting Requirements and FRS 101 Reduced Disclosure Framework later this year and if this is finalised, subsidiaries and parent entities will be able to take advantage of the reduced disclosure framework for 31 December 2012 year-ends, should they wish to do so.

Amendments to draft FRS 102

The amendments to draft FRS 102 are not earth-shattering and will be unlikely to affect the vast majority of companies in the UK that will adopt the new FRS.  There are two proposed amendments which relate to:

• Accounting for multi-employer pensions; and
• Service concession arrangements.

In relation to the accounting for multi-employer pensions, the amendments relates to the situations where there is an agreement to fund a deficit in a multi-employer pension plan.  The FRC have issued this proposed amendment following them obtaining evidence of diversity in practice where FRS 17 Retirement Benefits is applied.

FRS 17 currently permits entities who are not able to identify their share of the underlying assets and liabilities of a multi-employer scheme on a ‘consistent and reasonable basis’ to account for such a scheme as if it were a defined contribution scheme and make additional disclosures within the financial statements.  Where the scheme is a defined contribution scheme, FRS 17 requires contributions to be recognised as an expense in the profit and loss account.  As a consequence, FRS 17 does not explicitly require entities that are involved in a multi-employer scheme which is accounted for as a defined contribution scheme, and who have entered into a funding agreement for future payments to recognise a liability on the balance sheet representing obligations to pay pension benefits in their financial statements.

Rather than amend FRS 17 to require entities which account for a multi-employer scheme as a defined contribution scheme to recognise a liability to pay pension benefits in their financial statements, the FRC have, instead, decided to amend draft FRS 102 in order to clarify that a liability should be recognised in such situations to represent a requirement to make payments to fund a deficit relating to past service where they have entered into an agreement to make those payments.

In addition, the FRC also acknowledge that paragraph 17.9(b)(v) will be applicable in the period prior to FRS 102 becoming effective.  This paragraph requires disclosure of any implications for an employer of a deficit in a multi-employer scheme.  The FRC have said that where a reporting entity has an agreed schedule for the funding of a deficit, they will need to give careful consideration to this requirement and that they consider that information about an agreement with the multi-employer scheme that determines how it will fund a deficit should be disclosed in accordance with this requirement and is likely to include:

• The existence of the agreement.
• The period over which the payments will be made.
• Any available information about the expected amount of the payments.

The FRC have clarified in the Exposure Draft that the above will not apply to individual employers that participate in a group scheme due to the fact that different accounting requirements apply to the recognition of a surplus or deficit in a group scheme.

The second amendment in relation to service concession arrangements relates to the accounting, by grantors, for service concession arrangements.  Draft FRS 102 currently only includes requirements for operators of service concessions and it was flagged that grantors may also be within the scope of FRS 102.  As a result, the proposed amendment will require grantors to recognise the infrastructure assets and liabilities for service concession arrangements, with the accounting requirements to be based on a finance lease liability model.

Invitation to comment

The FRC is requesting comments to be received by 3 December 2012.

Category: Accounting and standards