Presentation is loading. Please wait.

Presentation is loading. Please wait.

FRS 100/101 and 102 The new accounting standards for the UK 1.

Similar presentations


Presentation on theme: "FRS 100/101 and 102 The new accounting standards for the UK 1."— Presentation transcript:

1 FRS 100/101 and 102 The new accounting standards for the UK 1

2 FRS 102 New UK GAAP What is ‘new UK GAAP’ A complete replacement for all existing UK GAAP except the FRSSE The separate body of literature currently referred to as UK GAAP will cease to exist Effective for accounting periods starting on or after 1 January 2015, early adoption permitted 2

3 FRS 102 New UK GAAP What is ‘new UK GAAP’ Continued Transition dateEarliest opening balance sheet Year-end 31 December Opening restated balance sheet is 31 December Run old GAAP/new GAAP in parallel for

4 FRS 100 and FRS 101 What are FRS 100 and FRS 101 FRS 100 introduces the new UK GAAP and sets out who can use FRS 101, FRS 102 and the FRSSE. Also sets out when to use a SORP. FRS 101 is a reduced disclosure framework for UK subsidiaries of IFRS user groups. Introduces measurement complexity as Companies Act formats to be used. Generally, not many people will adopt FRS

5 FRS 102 New UK GAAP Other matters Adopt early?Can adopt early and it may be convenient to do so. SORPIf using a SORP (Charity) use the new SORP when finalised. Update frequencyUpdated every three years (reference to IFRS 9 financial instruments when published). Note:Does not have references to the Companies Act as does the FRSSE. 5

6 FRS 102 New UK GAAP Other matters - continued Simplified basic rules Contains simplified accounting and measurement rules. Complex transactions Where complexity exists refer directly to IFRSs (EU) when directed. AuditorsRefer to other GAAP (auditors now likely to only accept policies set out in IFRSs). 6

7 FRS 102 New UK GAAP Options available for companies and groups (small/medium/large) IFRSNew GAAP FRSSE Listed, AIM, other EU market, quoted debt instruments YesNo Medium and large non- listed entities Yes No Small Companies and micro-entities Yes Option to use ‘higher levels’N/aYes 7

8 FRS 102 New UK GAAP Companies Act format and content IFRSs specific format FRS102 use basic Companies Act formats Other aspects of companies Act 2006 continue to apply. 8

9 FRS 102 New UK GAAP A warning: SMALL GROUPS BECOMING MEDIUM/LARGE Current UK GAAPFRSSE to full UK GAAP. Small group to large group. Historic consolidation data required (three years) Under FRS 102FRSSE to FRS 102. Small group to large group. Historic consolidation data also required (three years) Duplicated effortConsider adopting FRS 102 early. 9

10 FRS 102 New UK GAAP What about the Companies Act 2006? Distributable profitsCalculated as determined by Full EU adopted IFRS or FRS 102. Use of FRS 101 reduced disclosures will add complexity. Specific guidance on distributable profits, impact of fair-value accounting See ICAEW Tech 02/10 This is a complex area, be aware of the effect of fair-value accounting and hedging arrangements if significant 10

11 FRS 102 New UK GAAP What about the Companies Act 2006? Disclosures applicable to both FRS 102 and IFRS Directors reports content and layout Business review Requirement to prepare financial statements Audit requirements Directors emoluments/transactions 11

12 FRS 102 Contents of financial statements Primary statements Statement of financial position. Statement of comprehensive income Statement of changes in equity Statement of cash flows Notes (and some….) 12

13 FRS 102 Main changes to look out for Degree of changeCan be very little/can be extensive. Effects on:Distributable reserves bank and other debt covenants bonus schemes/share schemes/profit share arrangements (look out for impact on LLP profit- sharing arrangements) 13

14 FRS 102 Main changes to look out for: Financial instruments What are they?Interest rate swaps/caps/collars. Exchange forwards/options Complex combinations of these/sometimes embedded in other contracts Most will be fair-valued to profit and loss 14

15 FRS 102 Main changes to look out for: Financial instruments continued Basic financial instruments (choice 1) Amortised cost (This is the NPV of the receivable or payable). Such as:Trade and other debtors trade and other creditors simple bank loans Other financial instruments (choice 2) Measure at Fair-value to profit and loss 15

16 FRS 102 Main changes to look out for: Financial instruments continued Price contract at forward contracted rate? No longer available. Hedging:Available subject to certain conditions i.e. documentation/policy/ accuracy of forecast transactions. Accounting treatment of hedged items until maturity Asset/liability accounting and fair-value reserve through Other Comprehensive Income. 16

17 FRS 102 Main changes to look out for: Defined benefit pension schemes Income statementCharge will be calculated on the net liability and not investments/liabilities separately Balance sheetOld UK GAAP option for a Group to show on consolidation only - No. Net asset/liability must appear either in the sponsoring entity or allocated to the subsidiaries. 17

18 FRS 102 Main changes to look out for: Employee benefits continued Calculated on an accrual/prepayment basis for all entitlements Look out for holiday pay/sick pay/bonus schemes Some additional accrualsCollect the necessary information from 1 January 2014! 18

19 FRS 102 Main changes to look out for: Investment properties Held at fair-valueChanges in value to profit and loss WHENEVER fair- value can be determined reliably. Cannot determine fair- value Account for as Property, plant & equipment. ‘Split accounting’ for mixed use properties Not ‘own use’ or ‘trading’ 19

20 FRS 102 Main changes to look out for: Intangible assets – EXTERNALLY ACQUIRED More recognition of these for an acquisition Brand names Distribution contracts Licence agreements etc. Basic life unless demonstrated otherwise Default 5 years (no longer 20 years) Reverse impairmentYes Negative goodwillOn balance sheet/release to profit over the periods expected to benefit. 20

21 FRS 102 Main changes to look out for: Intangible assets continued – INTERNALLY GENERATED Research phase and development phase. All research costs written off. Development costsSpecific project/commercial viability (flow of economic benefits) Forbidden - internally generated: Brands/ Publishing titles Distribution contracts Goodwill Start-up costs Advertising Training…… 21

22 FRS 102 Main changes to look out for: Deferred tax Timing differences ‘plus’Basically timing differences similar to current UK GAAP What is the plus?All ‘Fair-value adjustments’ require deferred tax effects to be recognised. Examples:Acquisition fair-values Revalued fixed assets - fixed assets/intangible assets) Investment properties. 22

23 FRS 102 Main changes to look out for: Merger accounting/business combinations Permitted only for:Internal group reconstruction. Some public benefit entity combinations Business combinationAn acquirer must be identified/use the purchase method. Acquisition costs added to cost of investment 23

24 FRS 102 Main changes to look out for: Business combinations - continued Goodwill default amortisation period 5 years (was 20) Minority interests renamedNon-controlling interests Contingent considerationContinue to adjust the goodwill (no change) Accounting estimatesAdjust up to 12 months (shorter than the old ‘to the next balance sheet) 24

25 FRS 102 Main changes to look out for: Group Investments and loans Investment in subsidiariesCost less impairment unless quoted/listed in which case fair-value through profit and loss. Intra-group loansIf due on demand hold at cost less impairment (as current UK GAAP) Internal interest charge/tax implications If not due on demand hold at amortised cost less impairment 25

26 FRS 102 Main changes to look out for: Leases Rent free periods/other incentives Release over the expected period of the lease (not just to the first optional break period). Lease commitmentsDisclose amount of expected annual payments year-by- year 26

27 FRS 102 Main changes to look out for: Associates – PARENT COMPANY Consolidated financial statements Must use equity accounting. UNLESS investments held as part of an investment portfolio. Investment portfolioFair-value through profit and loss Proportional consolidation NOT available. 27

28 FRS 102 Main changes to look out for: Associates - NOT A PARENT Choice of:Equity accounting (‘gross equity method’ removed) Cost less impairment (subsidiary only not parent) Fair value accounting (through Other Comprehensive Income) Fair value accounting through profit and loss. 28

29 FRS 102 Main changes to look out for: Joint ventures Joint ventureContractual basis Three types recognisedJointly controlled operation Jointly controlled asset Jointly controlled entity (Including LLP) Joint controlOnly exists where unanimous agreement required for strategic decisions 29

30 FRS 102 Main changes to look out for: Other accounting issues: Borrowing costsOption to capitalise interest into asset under construction retained. Restatement of errorsUse of ‘material’ rather than ‘fundamental’ will result in more restatements of opening balance sheets 30

31 FRS 102 Main changes to look out for: Other accounting issues: Government grantsAn accounting choice for income recognition: Performance model – recognise income when all conditions met Accruals model – match to related expenditure Deduct from cost of asset?No! 31

32 FRS 102 Main changes to look out for: Other accounting issues: Exchange movementsSelect functional and presentation currencies (new) Exchange differences arising from consolidation NOT re- cycled to income statement (maintains current position) 32

33 FRS 102 Main changes to look out for: Other accounting issues: Discontinued operationsColumnar presentation in income statement preserved Must have been disposed of by the year-end). Old GAAP – disposal within 3 months of year-end Net profit or loss to be disclosed. 33

34 FRS 102 Main changes to look out for: Other accounting issues: Also consider: Fair value accountingEmphasis is more on fair- values. Change of basis on which the business is reported on – need to be continuously aware of this. Related partiesConcept of ‘key management personnel’ and wider disclosures. 34

35 FRS 102 Main changes to look out for: Other accounting issues: Also consider tax issues:Fair value accounting – particularly financial instruments Amortisation of intangibles Alternative accounting treatments permitted 35

36 FRS 102 Main changes to look out for: Other accounting issues: SORPsThese are to be progressively rewritten to comply with FRS 102. Charity SORP draft already issued. Companies Act 2006 is still there! Capital maintenance/use of reserves/share premium etc. 36

37 FRS 102 Main changes to look out for: Other things to think about: Describe the basis of preparation: two types of accounting policy: Accounting policies to be rewritten. Significant accounting policies Critical accounting estimates and judgments Statement of complianceSpecifically required. 37

38 FRS 102 Main changes to look out for: Other things to think about Some practical issues:Accounting systems – need to change? Compilation and sources of fair-value data. Corporation tax and deferred tax/’iXBRL’ tagging methodology Stakeholder education/owners/key employees/banks 38

39 FRS 102 Main changes to look out for: Other things to think about Questions 39


Download ppt "FRS 100/101 and 102 The new accounting standards for the UK 1."

Similar presentations


Ads by Google