This year will see many UK companies implementing FRS 102. This will be a significant change, and preparers of financial statements need to carefully consider their implementation strategy.
As a reminder of the key facts, FRS 102 is effectively the replacement of old UK GAAP. It can also be adopted by smaller companies that used to apply the Financial Reporting Standard for Small Entities (FRSSE) which is now withdrawn. FRS 102 applies to accounting periods commencing on or after 1 January 2015. Thus, in many cases the first accounts that must be FRS 102 compliant will be 31 December 2015 year ends.
There are some potentially significant changes to accounting policies and disclosures. While accounting software should be able to deal with many of the transitional issues, there may some practical matters that company directors and their advisors should bear in mind. The questions below are pertinent to implementation planning.
- Have accounting policies been scrutinised for compliance with FRS 102?
This is the only way to ensure that any necessary accounting policies changes are identified.
- As well as changes to accounting policies, have additional or amended disclosure requirements been identified?
It can be difficult to obtain information retrospectively so early planning is essential, especially if the information is provided from external sources like actuaries, banks or property valuers.
- Are any assets carried at revalued amount? In particular, are there any investment properties?
Under FRS 102 gains and losses on revaluation of investment properties are taken through P+L, a significant difference from old UK GAAP.
- Does the company have any interest-free loans, or loans with interest below market rate?
If so, these liabilities are recognised and measured under FRS 102 by discounting the expected cash flows using a market rate of interest. This may be subjective to deal with and changes the carrying value of liabilities on the balance sheet.
- Does the company's holiday pay year end align with the end of the accounting period?
FRS 102 requires accruals for holiday pay to be recognised and not all companies have the necessary systems in place to generate the required figures.