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FRS 102 The Financial Reporting Standard

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland replaces all the UK Financial Reporting Standards and UITF Abstracts in issue prior to the new UK financial reporting regime.

Published: March 2013.
Revised: September 2015.
Effective for accounting periods beginning on or after 1 January 2015.

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Contents

Synopsis

FRS 102 is a single reporting standard of 350 pages, which replaces all extant FRSs, SSAPs and UITF Abstracts. It is based on the IFRS for SMEs, however the text of the IASB’s standard has been amended in some significant respects in order to:
  • Comply with the Companies Act
  • Allow additional accounting policy choices such that where a policy choice exists in current UK GAAP and this is aligned with IFRS the choice also exists in FRS 102, and
  • Reflect feedback during the consultation process.
As the new standard is based on IFRS, there are a number of key differences between existing UK GAAP and FRS 102. Topics where the accounting treatment under FRS 102 is substantially different from existing UK GAAP include financial instruments, investment properties, business combinations, deferred tax and defined benefit pension schemes.

In some circumstances, entities applying FRS 102 will need to refer to other accounting standards:

FRS 102 (September 2015)

The standard was revised in 2015, and a new Section 1A was introduced for entities classified as small. This will replace the FRSSE with effect from 1 January 2016. Section 1A sets out the presentation and disclosure requirements for small entities based on the new small companies regime within company law. The recognition and measurement requirements of FRS 102 continue to apply to companies applying Section 1A.

Disclosure exemptions

FRS 102 includes some disclosure exemptions for subsidiary and parent companies meeting certain conditions in their individual accounts. The main exemptions are from:

  • Preparation of a cash flow statement;
  • Disclosure of related party transactions with and between wholly-owned subsidiaries;
  • Disclosures relating to financial instruments.

Who should apply the standard?

FRS 102 will be applied by all entities which are neither required nor elect to apply:

  • EU-adopted IFRS
  • FRS 101 Reduced Disclosure Framework or
  • The FRSSE (for periods beginning before 1 January 2016)
  • FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime

Until 1 January 2016, it will therefore be applied by the majority of large and medium-sized UK entities, including public benefit entities, retirement benefit plans and financial institutions.

With effect from 1 January 2016 (or earlier, if adopted), Section 1A Small Entities may be applied by:

  • (a) A company meeting the definition of a small company that is not excluded from the small companies regime
  • (b) An LLP meeting the definition of small that is not excluded from the small LLPs regime*
  • (c) Any other entity that would have met the definition of a small company if it were an incorporated company*.

*To the extent that the requirements of Section 1A do not conflict with any statutory framework under which such entities report, for example, from a SORP making body. 

Which version of the standard?

Annual period starts on or after 1 January 2017

Annual period starts on or after 1 January 2016

Annual period starts 1 January 2015 – 31 December 2015

Notes

  1. Early adoption of FRS 102 (August 2014) is permitted for accounting periods ending on or after 31 December 2012 provided that this does not conflict with the requirements of a current SORP or legal requirements for the preparation of financial statements.
  2. FRS 102 (September 2015) may be adopted from 1 January 2015 but must be adopted at the same time as The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (SI 2015/980)
  3. FRS 102 The Financial Reporting Standard (August 2014) includes amendment 1.
  4. Amendments to FRS 102 Pension Obligations includes amendment 2.
  5. The July 2015 Amendments to FRS 102 include amendment 3.
  6. FRS 102 The Financial Reporting Standard (September 2015) includes amendments 1-3.
  7. Amendments to FRS 102 - Fair value hierarchy disclosures includes amendment 4.
  8. Amendments to FRS 101 and FRS 102 – Notification of shareholders includes amendment 5.

Recent amendments

1. Amendments to FRS 102 – Basic Financial Instruments and Hedge Accounting

The amendment is effective from the effective date of FRS 102 - 1 January 2015. 

The amendment permits the amortised cost measurement for a wider range of debt instruments. FRS 102 requires that in general ‘basic’ debt instruments are measured at amortised cost and ‘non-basic’ debt instruments at FVTPL unless this would not be permitted by law. The FRS 102 rules to determine whether a debt instrument is ‘basic or ‘non-basic’ were, prior to the amendment considered to be overly restrictive and in some cases resulted in measurement of an instrument at FVTPL that would be measured at amortised cost under IAS 39/IFRS 9. The amendments therefore refine the rules such that more debt instruments are classified as ‘basic’.

The amendment also removes restrictions on hedge accounting and broadens the eligibility criteria such that more risk management hedges qualify for hedge accounting. The ‘highly effective’ criterion for hedge accounting has also been removed and instead an ‘economic relationship’ is the only requirement between hedged item and hedging instrument.

The version of FRS 102 published in August 2014 has been updated for these amendments.

2. Pension obligations

The amendment is effective from the effective date of FRS 102 - 1 January 2015.

The amendments enable sponsoring employers reporting under UK GAAP to continue with current practice in accounting for defined benefit pension schemes.

Specifically:

  • No additional liability need be recognised for a ‘schedule of contributions’ that has been agreed in order to address a plan deficit when the deficit itself has already been recognised; and
  • The effect of not recognising an irrecoverable surplus in a defined benefit plan is shown in other comprehensive income, rather than profit or loss.
3. July 2015 Amendments to FRS 102 (Small entities and other minor amendments)

Amendments to section 26 Share-based payment are effective for accounting periods beginning on or after 1 January 2015, with early adoption permitted. Other amendments including the small entities amendments are effective for accounting periods beginning on or after 1 January 2016. Early application is permitted but a company must apply the amendments together with The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (SI 2015/980).

The amendments to section 26 Share-based payment reverse the previous default accounting treatment where an entity has a choice of settling in cash or shares. Such transactions are no longer to be treated as cash settled; instead they are treated as equity settled unless this does not reflect the substance of the transaction.

The small entities amendments introduce a new section 1A, which details presentation and disclosure requirements applicable to small entities that choose to apply the small entities regime. These entities must apply the recognition and measurement requirements of FRS 102. Other amendments include:

  • The removal of certain disclosure exemptions available to qualifying entities in respect of financial instruments
  • The prohibition of the reversal of impairment of goodwill
  • An increase in the maximum useful life of goodwill and intangible assets for which a reliable estimate of useful life cannot be made
  • The setting out of minimum requirements for entities adopting financial statement formats set out in the new Accounting Regulations.
4. Amendments to FRS 102 - Fair value hierarchy disclosures

These amendments are effective for accounting periods beginning on or after 1 January 2017. Early application is permitted.

The amendments made to paragraphs 34.22 and 34.42 revise the disclosure requirements for financial institutions and retirement benefit plans. They relate to the disclosure of financial instruments in an analysis based on the fair value hierarchy.

5. Amendments to FRS 101 and FRS 102 – Notification of shareholders

Effective for accounting periods beginning on or after 1 January 2016.

The amendment removes the requirement for a qualifying entity to notify its shareholders about the proposed use of disclosure exemptions.

Other resources

More information on the new financial reporting regime, including the full range of resources, is available on the new UK GAAP section of our website icaew.com/newukgaap

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FRC Staff Education Notes

The FRC has issued a series of Staff Education Notes (SENs) for users of FRS 102. These illustrate some of the requirements of the standard but are not definitive statements on the application of the standard, nor are they a substitute for reading the requirements of FRS 102. The topics covered are:

Entities that use Section 1A Small Entities of FRS 102 may still find the SENs useful because the recognition and measurement requirements of FRS 102 also apply to these entities. Where the SENs provide guidance relating to the presentation and disclosure requirements of FRS 102, small entities should refer to the applicable requirements of Section 1A, since some of the FRS 102 requirements may not apply to them. The FRC has published a table summarising to what extent the SENs may be useful for entities applying Section 1A of FRS 102.

This page was last updated on 13 January 2017