the new uk gaap: frs 102 explained
TRANSCRIPT
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