The Financial Reporting Council has published the new – and long awaited - UK GAAP, today, reports Harris & Co accountancy services.
Known as FRS 102, its publication had originally been expected in October 2012, before the date was shifted to early 2013. Industry insiders had then expected to see the new standard by mid-February this year.
Roger Marshall, FRC board member and chairman of its Accounting Council, said: ‘FRS 102 modernises and simplifies financial reporting for unlisted companies and subsidiaries of listed companies as well as public benefit entities such as charities. The standard updates UK accounting to take account of evolving business practices.
‘It is succinct, easy to digest and use. Developed with considerable consultation, FRS 102 brings a distinctly British flavour to the international standard for small and medium sized businesses. At around 350 pages the standard replaces close to 3000 pages of UK GAAP.’
Helen Lloyd, a senior technical editor at CCH audit and accounting, has analysed the weighty tome to highlight a number of its key features.
Among them are accounting for intercompany loans. Loans to and from other group companies are financial instruments contained in the scope of sections 11 and 12. They will usually be classified as basic and therefore need to be held at amortised cost, with a finance charge recognised for each period.
Accounting for bank loans are also affected as are forward contracts and ‘acquisitions’. Similarly, accounting for associates and joint ventures and deferred tax both face important changes much like definitions for investment properties.
Where financial statement presentations are concerned, the FRC struggled with reconciling the original presentation requirements included in the IFRS for SMEs with company law requirements.
Sources of new policies are another key issue, particularly as FRS 102 is relatively concise and contains general outlines and principles rather than detailed guidance.
The final key feature concerns the calculation of impairment losses on non-financial assets is based on a different way of grouping them, which may give different results from FRS 11 – the impairment of fixed assets and goodwill.
Joyce Grant, Grant Thornton UK‘s technical partner said that ‘whilst the hard work of the standard setters is all but over, the hard work for preparers is just beginning.’
‘Although the headline issues from two years ago have been resolved, such as revaluation of fixed assets, the majority of companies will still find that they need to make changes to their accounts. The difficulty is that these differences may not always be obvious but could have the potential to alter profits, which will in turn affect a myriad of different aspects of a business, for instance banking covenants, tax bills and profit-related bonuses.
‘What people need to figure out is precisely how this standard will affect their business, and what they can do to minimise potential negative impacts; this takes planning. One of the most talked about changes is the introduction of more fair value accounting, in particular for instruments such as foreign exchange forward contracts and interest rate swaps.’
Early adoption of FRS 102 is permitted for accounting periods ending on or after 31 December 2012.