financial reporting 2009 uk gaap checklist

Financial Reporting 2009 UK GAAP Checklist KPMG LLP (UK)

June 2009

ContentsMandatory years starting March 2007Abstract 44 FRS 20 – Group and Treasury Share Transactions

Mandatory years starting 6 April 2007Amendment to FRS 17 Retirement Benefits

Mandatory years starting 1 October 2007Impact of Companies Act 2006 on Directors’ report – Business review

Mandatory years starting 6 April 2008Amendment to FRS 8 Related Party Disclosures

Companies Act 2006 – Fifth Commencement Order, including accounts provisions

Updated Financial Reporting Standard for Smaller Entities

Effective years starting 29 June 2008Updated Combined Code

Effective from 1 July 2008Amendments to FRS 26 (IAS 39) Financial Instruments: Recognition and Measurement and FRS 29 (IFRS 7) Financial Instruments: Disclosures

Mandatory years starting 1 October 2008Abstract 46 – Hedges of a Net Investment in a Foreign Operation

Mandatory years starting March 2007Abstract 44 (IFRIC 11): FRS 20 (IFRS 2) – Group and Treasury Share Transactions

Issued February 2007

Mandatory for periods starting on/after 1 March 2007

Early adoption encouraged

Abstract 44 is identical to IFRIC 11 and provides guidance on whether share-based

payment arrangements, in which employees of a subsidiary are provided with

equity instruments of the parent, should be accounted for as cash-settled or equity-

settled in the subsidiary’s accounts. Abstract 44 is limited to classification and does

not change the existing requirement of FRS 20 for the subsidiary to recognise a

share-based payment.

Main effects

• Arrangements granted by the parent that are accounted for as equity-settled in the

group accounts should also be accounted for as equity-settled in the subsidiary’s

individual accounts.

• Arrangements granted by the subsidiary (over its parent’s shares) should be

accounted for as cash-settled in the subsidiary’s individual accounts.

• Share-based payment arrangements in which an entity receives goods or services

as consideration for its own equity instruments should be accounted for as

equity-settled share-based payment transactions, regardless of how the equity

instruments needed are obtained.

Continued on next page

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2 Financial Reporting 2009 UK GAAP Checklist

Mandatory years starting 1 January 2009Improvements to FRSs

Amendment to FRS 20 (IFRS 2) Vesting Conditions and Cancellations

Mandatory years starting 1 July 2009Amendment to FRS 26 Financial Instruments: Recognition and Measurement – Eligible Hedged Items

Mandatory years starting 1 January 2010Amendment to FRS 25 Financial Instruments: Presentation

Publications

Mandatory years starting 6 April 2007Amendment to FRS 17: Retirement Benefits

Issued December 2006

Mandatory for periods starting on/after 6 April 2007


Non-mandatory best practice disclosure statement also issued

Amendment replaces the current disclosures required by FRS 17 for defined

benefit schemes with the disclosures required by IAS 19 Employee Benefits

(as revised in December 2004). ASB also published a Reporting Statement

Retirement Benefits – Disclosures which, as a best practice guide, is intended to

have persuasive rather than mandatory force. Recommendations aim to assist

users to obtain a clear view of the risks and rewards arising from the defined

benefit schemes and to identify the funding obligations of the entity with respect to

the liabilities of the scheme. Recommendations may be applied by any entity that

operates or sponsors a defined benefit scheme, regardless of whether it prepares

accounts under UK GAAP or EU-endorsed IFRS.

Main effects

• Current bid price to be used as fair value of quoted securities held as plan assets,

rather than mid-market price.

• As amendment applied retrospectively, bid price valuations required going back

three years.

• Separate opening to closing reconciliations for scheme assets and liabilities instead

of a single reconciliation of the scheme’s net surplus or deficit.

• More extensive disclosure of actuarial assumptions required, e.g., in many cases,

of mortality assumptions.

• Reporting Statement notes that directors should assess the significance of the

company’s exposure to defined benefit schemes in planning their disclosures.

• Recommended disclosures complement the existing FRS 17 (and IAS 19)

disclosures. Reporting Statement contains illustrative examples of the disclosures.

Mandatory years starting 1 October 2007Impact of Companies Act 2006 on Directors’ report – Business review

Effective for periods starting on/after 1 October 2007

The Companies Act 2006 is being phased in over time. CA 2006 section 417,

which sets out the requirements for the business review in the directors’ report, is

effective for financial years beginning on or after 1 October 2007; CA 1985 section

234ZZB, which contains the business review requirements of that Act, is repealed

for those financial years. 2006 Act’s requirements for quoted companies are more

extensive than those of 1985 Act.



Financial Reporting 2009 UK GAAP Checklist 3

Main effects

• Purpose is to inform members and help them assess how the directors have

performed their duties to promote the success of the company.

• Requirement of the business review to contain a fair review of the business and

description of principal risks and uncertainties facing the company apply to all

companies.

• (For quoted companies) Information about environmental matters, employees and

social and community issues including policies and the effectiveness of policies in

relation to these matters. If this information has not been given, a statement must

be made to this effect.

• (For quoted companies) Information about persons with whom there are

contractual or other arrangements which are essential to the business (so-called

‘supply chain’ disclosures). Subject to limited exemption from disclosure where

disclosure would be seriously prejudicial to that person and contrary to the public

interest (use of this exemption is expected to be extremely rare in practice).

• (For all companies preparing a business review) General exemption from disclosure

of any impending matters/matters in the course of negotiations where disclosure

would be seriously prejudicial to the interests of the company (no comparable

exemption provided in section CA 1985 234ZZB).

Mandatory years starting 6 April 2008Amendment to FRS 8 Related Party Disclosures


Mandatory for periods beginning on or after 6 April 2008

Fully retrospective application required

Amendment made to align definition of related party with that in the law and IAS 24

Related Party Disclosures and refine definition of key management personnel.

Main effects

• Only wholly-owned subsidiaries exempt from disclosure of intra-group transactions

(previously available to 90 per cent and above subsidiaries).

• No exemption from disclosure of related party transactions in parent company’s

own financial statements. Consequently, parent companies must now additionally

disclose in their own financial statements any transactions with subsidiaries not

wholly-owned.

• Comparative information disclosure exemption available to those entities no longer

able to take advantage of 90 per cent scope exclusion only where necessary

information cannot be obtained. Explanation required where exemption applied.




Companies Act 2006


Most requirements mandatory for years beginning on or after 6 April 2008

The Fifth Commencement Order relating to the Companies Act 2006 was made

on 17 December 2007. It brings into force the remainder – and majority – of Part

15 of the 2006 Act (regarding the preparation, publication and filing of a company’s

annual accounts), in most cases applying to financial years beginning on or after

6 April 2008.

Some provisions of Part 15 have already commenced, the most important being

the “safe harbour” provision (section 463) on 20 January 2007, and the business

review in the directors’ report (section 417) for financial years beginning on or after

1 October 2007 (see above).

Notable changes

• 2006 Act provides that directors should approve accounts only if they give a true

and fair view. This obligation applies to all accounts, regardless of GAAP applied.

Owing to changes made in 2005, the 1985 Act imposes this obligation only with

respect to UK GAAP accounts; the new Act therefore restores welcome clarity to

the need for accounts always to give a true and fair view.

• Medium-sized groups are not exempt from preparing consolidated accounts on

grounds of their size alone (exemption is still available for groups qualifying for the

small companies regime).

• Disclose employee numbers and costs on a consolidated basis only. (1985 Act

requires disclosure of this information for both the parent company and the group.)

• Disclosure requirements relating to directors’ loans and transactions are less

detailed than those of the 1985 Act.

• Quoted companies (i.e., those whose equity shares are included on the official

list of the UK Listing Authority, are officially listed in an EEA state, or are admitted

to dealing on either the New York Stock Exchange or NASDAQ) are required to

publish their accounts on their Web sites as soon as is reasonably practicable.

• Filing deadlines for accounts have been reduced from seven months to six months

for public companies, and from ten months to nine months for private companies.

• Small companies may omit to file the directors’ report and the profit and loss

account (including related notes) without the need to obtain and file a special

auditor’s report therewith (i.e., the audit report on the “full” accounts must

be used).

• Private companies are no longer required to hold an annual general meeting

(although they may elect to do so if they wish). As a result, there is no longer

a requirement for private companies to lay accounts before the members in

general meeting.




• Disclosureisrequiredinrelationtoanyarrangementthatisnotreflectedinthe

company’s balance sheet and from which, at the balance sheet, date material

risks or benefits arise; the disclosures required in such cases are the nature and

purpose of the arrangements, and the financial impact of such arrangements on

the company. The requirement applies regardless of whether the accounts are

prepared under UK GAAP or IFRS. The principle in this new requirement will be met

by many of the more specific disclosure requirements of accounting standards,

but specific attention should be given to this new principle-based requirement; for

example, the recitals to the EU Directive from which the requirement is derived

refer to, among other things, debt factoring, take-or-pay, and outsourcing. The ASB

issued a Press Notice on 30 June 2008 concerning this issue. (Companies subject

to the small companies’ regime are exempt; eligible medium-sized companies are

exempt from disclosing the financial impact of these arrangements.)

Updated Financial Reporting Standard for Smaller Entities

Updated version of FRSSE issued June 2008

Effective for periods starting on/after 6 April 2008

Early adoption not permitted

Updated version of FRSSE issued to reflect changes arising from the Companies

Act 2006. No changes are made to the requirements that are derived from UK

GAAP.

Effective years starting 29 June 2008Updated Combined Code

Issued June 2008

Applicable for periods beginning on or after 29 June 2008

Main effects

Revised Code relaxes two requirements of the 2007 Code:

• Restriction on an individual chairing more than one FTSE 100 company removed.

• Chairman of a listed company below FTSE 350 permitted to be a member of, but

not chair, the audit committee provided he or she considered independent on

appointment.



Effective from 1 July 2008Amendments to FRS 26 (IAS 39) Financial Instruments: Recognition and Measurement and FRS 29 (IFRS 7) Financial Instruments: Disclosures

Issued October 2008 and updated December 2008

Applicable from 1 July 2008

Limited transitional arrangements apply

Amendments approved by the ASB permit reclassification of certain financial

assets and are identical to the amendments to IAS 39 issued by the IASB in

October 2008. Generally the effects of any reclassifications are accounted for

prospectively from reclassification date. On issue, a temporary transitional

provision permitted retroactive application from 1 July 2008 provided that such a

reclassification was made by 1 November 2008. In its update in December 2008,

the ASB clarified that any reclassifications made on or after 1 November 2008

take effect from the date of reclassification. Further, any reclassification before 1

November 2008 may take effect from 1 July 2008 or a subsequent date.

Main effects

Reclassification of certain financial assets permitted, including:

• Certain held-for-trading non-derivative financial assets out of the fair value through

profit or loss (FVTPL) category in rare circumstances. Such a reclassification would

avoid the subsequent need to reflect changes in fair value through profit or loss.

• Certain qualifying financial assets to the loans and receivables category (and so

measured on a cost basis) if the entity has the intention and ability to hold them for

the foreseeable future or until maturity.

The amendments do not permit reclassification of financial assets to which the

entity applied the ‘fair value option’ on initial recognition.

Mandatory years starting 1 October 2008Abstract 46 – Hedges of a Net Investment in a Foreign Operation

Issued October 2008

Mandatory for periods starting on/after 1 October 2008

Early adoption permitted

Abstract 46 determines those foreign exchange risks arising from investments in

foreign operations which qualify for hedge accounting in accordance with FRS 26.

Main effects

• Hedge accounting may be applied only to the foreign exchange differences arising

between the functional currency of the foreign operation and any parent entity’s

functional currency.




• Exposure to foreign currency risk arising from a net investment in a foreign

operation qualifies for hedge accounting only once in the consolidated financial

statements.

• A derivative or a non-derivative instrument (or a combination thereof) may be

designated as a hedging instrument. The hedging instrument(s) may be held by any

entity or entities within the group (except the foreign operation that itself is being

hedged).

• On disposal of the foreign operation, the cumulative gain/loss arising on the

hedging instrument (in an effective hedge) is reclassified from the foreign

currency translation reserve to profit or loss in the parent’s consolidated financial

statements.

Mandatory years starting 1 January 2009Improvements to FRSs


Mandatory for periods starting on/after 1 January 2009

Early adoption normally permitted

Standard issued to maintain convergence with IFRSs. Most of the amendments

arise as a consequence of the IASB’s annual improvements process which saw an

IFRS Improvements to IFRSs published in May 2008. Some other changes too.

Main effects

• FRS 7 Fair values in acquisition accounting amended to require contingent

consideration satisfied by shares to be allocated in accordance with classification

principles of FRS 25 Financial Instruments: Presentation.

• FRS 17 Retirement benefits amended to clarify fair value of unitised securities as

current bid price.

• FRS 21 Events after the balance sheet date amended to confirm no obligation

exists at balance sheet date for dividends declared after that date.

• FRS 22 Earnings per share amended to clarify its scope, i.e., applies to both

consolidated and individual financial statements of entities whose ordinary or

potential ordinary shares are traded in a public market and entities that file or are in

the process of filing accounts for the purposes of issuing ordinary shares in a public

market.

• FRS 23 The effects of changes in foreign exchange rates amended to require

presentation of cumulative amount of exchange differences on translation of

foreign operations in a separate component of reserves.

• FRS 24 Financial reporting in hyperinflationary economies amended to reflect the

requirement that a number of assets and liabilities may or must be measured on a

current value rather than an historical value basis.

• FRS 25 Financial instruments: presentation amended to remove entities held for

resale from the scope paragraph.




• FRS 26 Financial instruments: recognition and measurement amended to clarify

that reclassification of derivatives into or out of the fair value through profit or

loss category allowed in certain cases. Also amended to clarify application of the

effective interest rate on remeasuring at cessation of fair value hedge accounting;

to remove reference to designating hedges at segment level; and to amend scope

paragraph of FRS 26 as for FRS 25 above.

• FRS 29 Financial instruments: disclosure amended to clarify that interest income

is not a component of finance costs and to amend scope paragraph as for FRS 25

and FRS 26 above.

Amendment to FRS 20 (IFRS 2): Vesting Conditions and Cancellations

Issued January 2008




Amendment follows a similar amendment to IFRS 2 issued in January 2008

by the IASB. The amendment clarifies the definition of vesting conditions and

introduces the concept of non-vesting conditions. It also amends the accounting for

cancellations and settlements by parties other than the entity.

Main effects

• Restricts the definition of vesting conditions to newly-defined service and

performance conditions.

• Non-vesting conditions must be reflected in the grant date fair value of the award.

• Not possible to reverse a share-based payment charge for conditions that the

standard defines as non-vesting. Examples might include the requirement for an

employee to save in a SAYE scheme, hold a share to be entitled to a free share, or a

payment linked to commodity prices.

• Changes the scope of cancellations and settlements to include those by parties

other than the entity. Examples will include ceasing to save in a SAYE scheme

by the employee. Many will be required to be accounted for as an acceleration of

vesting and therefore will result in an accelerated charge in the entity’s financial

statements.





Mandatory years starting 1 July 2009Amendment to FRS 26 Financial Instruments: Recognition and Measurement – Eligible Hedged Items

Issued November 2008

Mandatory for periods starting on/after 1 July 2009

Early adoption permitted


Amendment clarifies how the existing principles underlying hedge accounting

should be applied in the designation of one-sided risk in a hedged item and the

designation of inflation as a hedged item.

Main effects

• Clarifies that changes in cash flows or fair value associated with ‘one-sided risk’

may be designated as a qualifying hedged item. Also clarifies that a hedge of a one-

sided risk using an option cannot include the option’s time value without giving rise

to ineffectiveness.

• Inflation may not be designated as a risk or portion of a financial instrument unless

it is separately identifiable or measurable reliably, i.e., it must be a contractually

specified portion of the cash flows of a recognised inflation-linked bond and not

affect other cash flows.

Mandatory years starting 1 January 2010Amendment to FRS 25 Financial Instruments: Presentation

Issued August 2008


Early adoption permitted only for periods starting on or after 1 January 2009

Amendment to change the classification of certain financial instruments from

liabilities to equity in line with that made by the IASB to IAS 32 in February 2008.

Main effects

• Certain puttable financial instruments and certain financial instruments that impose

an obligation on the entity to deliver a pro rata share of its net assets to another

party on liquidation will be classified as equity rather than liabilities.

• Additional disclosure requirements in relation to puttable instruments classified as

equity reflected in FRS 25 as well as FRS 29 in order to ensure they apply to entities

that are outside the scope of FRS 29.



PublicationsRecent books and publications from KPMG member firms relevant to financial

reporting:

Published by KPMG IFRG Limited:

• Insights into IFRS (5th Edition 2008/9): a practical guide to International Financial

Reporting Standards.

• IFRS: an overview (August 2008): an executive summary of the key requirements

of IFRSs for financial periods beginning on or after 1 January 2008.

• The Application of IFRS: Power and Utilities (December 2008): an assessment

of the impact of IFRSs for power and utility companies.

• The Application of IFRS: Oil and Gas (October 2008): a review of the consolidated

financial statements of 33 oil and gas companies from fourteen countries.

• Illustrative financial statements for banks – IFRS (December 2008) – Annual

periods beginning on or after 1 January 2008.

• Illustrative financial statements – IFRS (July 2008) – Annual periods beginning

on or after 1 January 2008.

• Disclosure checklist: IFRS (June 2008) – Annual periods beginning on or after

1 January 2008.

• IFRS compared to US GAAP (June 2008) – an overview of significant differences

between IFRS and US GAAP.

• First Impressions IFRIC 17 Distributions of non-cash assets to owners (February

2009): an assessment of the impact of implementation of IFRIC 17.

• First Impressions IFRS 3 and FAS 141R Business Combinations (January 2008):

an assessment of the impact of implementation of the revised IFRS 3 and FAS 141.

• First Impressions: IFRS 8 Operating Segments (July 2007): an assessment of the

impact of implementation of IFRS 8.

• First Impressions: IFRIC 12 Service Concession Arrangements (January 2007):

an assessment of the impact of implementation of IFRIC 12.

Published by KPMG LLP (UK):

• Financial Reporting Supplement – IFRS 7: A survey of disclosures in practice

(August 2008): a survey of the annual reports of a selection of corporates with

year ends from September 2007 to March 2008.

• Financial Reporting Supplement – The DTR and IAS 34 in practice (October 2007):

summarises the financial reporting and other key aspects of applying IAS 34.

• Financial Reporting Supplement – Companies Act 2006 (November 2006):

summarises the financial reporting and other key aspects of the Companies

Act 2006.




Recent corporate governance publications from the KPMG-sponsored Audit Committee Institute (ACI) include:

• Audit Committee Quarterly, Issue 24 (April 2009).

• Horizon, Issue 6 (March 2009): briefing paper for audit committee members and

finance directors.

• ACI Perspectives (March 2009): summary of the meeting of the European Audit

Committee Chairman’s Forum November 2008.

• Audit Committee Survey 2007/2008 (June 2008) – illustrates the key findings from

the survey in which nearly 150 audit committee members of public companies

shared their perspectives and priorities for the year ahead.

• ACI Ten To-Do’s for Audit Committees (February 2008): Ten things that audit

committees should consider when deciding upon their 2008 agenda.


kpmg.co.uk

Publications may be requested from your usual contact at KPMG LLP (UK) or via

our Web site (www.kpmg.co.uk) using ‘Contact us’.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Users are cautioned to read this publication in conjunction with the actual text of the Standards and Interpretation guidance issued, and consult with their professional advisers before concluding on accounting treatments for their own transactions. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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financial reporting 2009 uk gaap checklist

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