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31 July 2017

Financial Reporting Council announce proposed changes to FRS 102

By Tina Whitington
In recent months both the Financial Reporting Council (FRC) and the International Accounting Standards Board (IASB) have announced several changes which may impact your financial disclosures. At Ideagen, we recognise that along with the normal daily accounting demands it can often be difficult to keep track of future changes and more importantly when they come into effect. We have therefore consolidated the proposed changes and standards that will come into effect within the next 12 months into a useful one page reference guide, providing you with visibility of your potential future financial disclosures. We have also created 2 complementary blogs which provide additional details on the proposed changes, the first of which looks at the changes proposed by the FRC.

The FRC have issued FRED 67 which details changes proposed to FRS 102. The proposed changes are a result of a number of factors, however, they have been driven mainly by stakeholder feedback and changes to IFRS (incl SME's). 

The FRC plan to issue the amendments in December 2017 with the proposed amendments to be effective for accounting periods beginning on or after 1st January 2019. The key changes have been highlighted below - 

Small entity Director’s loans

For small entities, there is no longer the requirement to measure loans from Directors’, where the Director is a shareholder, using a market rate of interest.  In other words, this creates an exception to the ‘financing transaction’ requirements. This is because these loans are, in essence, equity, which is why this exemption has been extended to include inter-company loans. The concern around this amendment is that it cannot be early adopted for periods beginning on or after 1st January 2016 which for small entities, is the first year that FRS 102 is required to be adopted.

Removal of undue cost or effort

The exemption based on undue cost or effort only exists in a small number of areas of FRS 102. Most notably, it appears, in relation to investment property whereby an entity currently must measure investment property rented to another group entity at a fair value unless the determination of that fair value would require undue cost or effort. The proposals amend this so that an entity with an investment property of this type can choose to measure this as fair value or at cost less depreciation and impairment.

Classification of financial instruments

The FRC are proposing a principle-based description e.g a reasonable compensation for basic lending risks, to be added to Section 11. This will be relevant for those instruments which do not fall to be classified as basic based on the detailed conditions. The aim is to allow additional financial instruments to be classified as basic.

Intangible assets acquired in a business combination

The proposed amendment will require intangible assets to be recognised separately from goodwill when the intangible asset arises from contractual or legal rights and is separable. This is similar to the old UK GAAP requirements and will result in less intangible assets being separately recognised. However, there will be the option to separate more but this must be consistently applied to the class of intangibles.

Definition of a financial institution

This proposal impacts disclosure only. Previously there was a ‘catch all’ requirement in the definition of a financial institution which referred to ‘any other entity whose principal activity is to generate wealth or manage risk through financial instruments’. The definition will be amended to remove retirement benefit plans and amend the ‘catch all’ paragraph so it refers only to entities whose principal activity is similar to the detailed list.

Other changes

  • Requirement to disclose an analysis of changes in net debt
  • The removal of the requirement to measure equity at fair value where there is a debt for equity swap
  • Disclosure for unconsolidated special purpose entities
  • The removal of the requirement to disclose the amount of inventories recognised as an expense during the period and the inclusion of the requirement to measure the carrying amount of impairment losses on inventory at the beginning and end of the period
  • An exemption from disclosing key management personnel compensation if the key management personnel and directors are the same and there is a legal requirement to disclose directors’ remuneration

Download your complimentary reference guide to the proposed changes today.


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