The new UK GAAP: FRS 102 explained

For accounting periods commencing on or after 1 January 2015, FRS 102 will come into effect.

Recently, TCM Resource Services talked with noted expert-in-the-field, Steve Collings about

some of the practical challenges that will result from the introduction of these new Financial

Reporting Standards.

Why did the Financial Reporting Council introduce FRS 102?

The introduction of FRS 102 in 2013, marked the end of a long period of uncertainty as to the

future direction of UK GAAP. “Essentially, accounting standards had become arduous,

voluminous and disjointed,” says Steve Collings, audit and technical partner at Leavitt Walmsley

and publisher of numerous works on FRS and IFRS. “Accounting standards had become very

complicated, and when FRS 102 was drafted it got rid of 3,000 pages of standards in UK GAAP

and replaced them with approximately 350. These new standards are easier to use, simplified

and more reflective of modern accounting standards, and are intended to align and minimise the

difference between UK GAAP and IFRS,” says Collings.

There are choices of accounting frameworks available in the new standards. What does

this mean for businesses?

“Some of the professional bodies wanted to see a two tier financial reporting regime,” says

Collings. “Small entities are covered by the FRSSE (Financial Reporting Standard for Smaller

Entities). And AIM listed companies are governed by EU IFRS. So, FRS 102 would largely apply

to mid-size companies. The option for companies that are subsidiaries to move from EU IFRS to

FRS 102 is there following a relaxation in company law in 2012.” However, Collings stresses that

while companies may choose to reduce their disclosure burdens as soon as possible by moving

from EU IFRS to FRS 102, they must adopt early to ensure compliance.

When should companies start planning for the changes?

Collings is unequivocal about the need for companies to start planning FRS102 implementation

immediately. “We’re already coming to the end of 2013, and I’m advising finance practitioners to

do a couple of dry-runs [with the new standards] while they’re continuing to prepare under the

old standards. That way, they can experience the pitfalls for themselves.” Collings states that

there are significant changes to some aspects of reporting that will take time to accommodate.

“Investment properties is an area where there is considerable change in the accounting

treatment,” he says and adds that under FRS 102, short-term employee benefits outstanding at

the financial year-end (which will be subsequently paid in the next accounting year) will also

need to be calculated. “A practical point could possibly be to align a company’s holiday year to

the financial year to eliminate the need for holiday-pay accruals.”

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In your opinion, which aspects of FRS 102 could prove to be the most problematic?

“The transition for practitioners dealing with mid-size businesses could be the most difficult.

For example, year end accounts for December 31, 2014, will have been finalised some time

before FRS 102 becomes mandatory (it becomes mandatory for accounting periods

commencing on or after 1 January 2015). To complete the transition to FRS 102 properly,

you’re going to have to go back to January 01, 2014 (date of transition), and effectively

restate the 2013 trial balance to arrive at an FRS 102 compliant opening balance sheet

position. So, assuming you have a December year end, you must disclose your opening

balance sheet as at January 01, 2014 (as well as other transitional disclosures). This is why

I’m encouraging practitioners across the country to familiarise themselves with the new

standards as soon as possible and conduct a couple of dry runs.”

Are there any other points you’d like to raise?

“Adopting FRS 102 is like any other project. You need to approach it in a logical manner,

deciding who’s responsible for what and what resources are going to be required. But you

need to start thinking about it now and doing dry-runs, so that you can experience where you

might run into problems. Then you’re going to have to do some work and think about the

logistics.

“At a minimum, at least take a look at FRS 102 and the differences between that and current

UK GAAP. That should spur you on to research and develop a plan.

“Accountants with their heads in the sand will need to be aware. It’s like training for a

marathon – you need to prepare for these things. By taking a methodical and logical

approach – not attacking it with a hatchet – companies should be able to position themselves

to minimise disruption and develop a smooth transition.”

Steve Collings is the Audit and Technical partner at Leavitt Walmsley and a contributing

author for AccountingWEB. He has published extensively, including IFRS for Dummies, and

was named Accounting Technician of the Year at the 2011 British Accountancy Awards.

For more information on this subject:

www.stevecollings.co.uk

Financial Reporting for Unlisted Companies in the UK and Republic of Ireland