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New UK Generally Accepted Accounting Principles and FRS 102

After using current UK GAAP for such a long time, we will soon be getting used to the long awaited FRS 102. This Financial Reporting Standard is applicable in the UK and Republic of Ireland and will apply to non-small, unlisted UK companies and charities and is effective for accounting periods beginning on or after 1 January 2015.

Based on the international standard for small and medium sized businesses, with a number of important differences for the UK, the opinion is widely held that the end result is pretty good.

 

At around 350 pages the new standard replaces 3000 pages of UK GAAP which, let’s be honest, makes it instantly sound much better.  It is intended to bring about modernised and simplified reporting, however, is a major overhaul of UK accounting and the impact of the change will be significant.  There are a number of key differences between current UK GAAP and FRS 102 which need to be understood and planned for.

 

Transition to FRS102 will change not only the format of, and disclosures in, accounts but also the numbers within them, with changes to the criteria for recognition of some assets and liabilities, the measurement of some items and the treatment of some gains and losses.

 

For example,

 

-       Investment properties will now have to be revalued each year to fair value with differences in value going to the profit and loss account instead of a revaluation reserve.

-       There will be a requirement for short term employee benefits eg. Paid annual leave and paid sick leave, to be accrued in the accounts

-       Subsequent expenditure on fixed assets – FRS102 allows determining whether subsequent costs are capitalised or not to be more subjective rather than prescriptive

-       FRS 102 requires listed shares to be valued at fair value with UK GAAP previously allowing cost as an option

-       FRS 102 now says that intangible assets and goodwill always have a limited life. If no reliable estimate can be made, the useful life will be limited to a maximum of five years.

 

A major impact of this new standard will be the necessary restatement of the prior year.  We will need to plan to restate the opening balance sheet at the start of the comparative period for the first accounts prepared under FRS 102.  The time involved will definitely add to the workload of accountants and businesses.

 

Obviously it is hoped that support from accounting software providers will make the transition a little easier for ourselves and we can, in turn, make it easier for you.

 

Most small businesses will still continue to follow the FRSSE (The Financial Reporting Standard for Smaller Entities) but this will change in time as well.

Fitch

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