Implementing FRS 102 amendments
Nigel Sleigh-Johnson outlines recent amendments to FRS 102 and the options available for early adoption.
The Triennial review amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland were issued in December 2017. Many of the amendments are simply editorial or aim to clarify accounting treatments. However, there are some more significant changes in certain areas, as outlined briefly below. The changes do not have to be applied until 2019 but early adoption is permitted and this will require careful consideration.
Summary of key changes
Directors’ loans: For small entities, loans from a director or from a director’s group of close family members may be measured at transaction price, provided that group contains at least one shareholder in the entity. This simplification is wider than the interim relief issued in May 2017 after representations from ICAEW. This only permitted the simpler treatment if the director was a shareholder.
Investment properties: The ‘undue cost or effort’ exemption has been removed, meaning investment properties must now be measured at fair value. However, for investment properties rented to other group entities, an accounting policy choice is introduced between measurement at cost or fair value.
Intangible assets acquired in business combinations: New criteria have been introduced for recognising intangible assets separately to goodwill. This means fewer intangibles are required to be recognised separately. However, recognition is permitted if it is felt to be providing useful information and provided it is done consistently for that class of intangible and for all business combinations.
Basic financial instruments: A principles-based description of a basic financial instrument has been introduced to support the detailed conditions currently specified. This will allow a small number of financial instruments to be considered as basic even though they may breach the detailed criteria, allowing them to be measured at amortised cost.
Additionally, the Financial Reporting Council took the opportunity to incorporate amendments from its separate consultation on the treatment of gift aid payments by subsidiaries to their charitable parents. This allows the tax effects of gift aid payments to be recognised at the reporting date when it is probable the gift aid payment will be made in the following nine months.
Application of the amendments is mandatory for accounting periods beginning on or after 1 January 2019. However, early adoption is permitted and likely to be a popular option. Generally, early adoption is only permitted provided that all amendments are applied at the same time. However, the amendments in respect of directors’ loans and gift aid payments may each be applied on a standalone basis.
There is no restriction on early application, meaning that it can applied to the next set of accounts being prepared.
The Financial Reporting Faculty will be producing a variety of resources over the coming months to assist businesses make a smooth transition to the revised regime, including blogs and webinars and further Practicewire articles.
Nigel Sleigh-Johnson, Head of the Financial Reporting Faculty
Practicewire, February 2018