UK: Financial Reporting: A Reporting Revolution - Summer 2013


Following a lengthy consultation process we finally have certainty as to the shape of future accounting in the UK and Republic of Ireland.

In November 2012 the Financial Reporting Council (FRC) issued two financial reporting standards. FRS 100 Application of Financial Reporting Requirements and FRS 101 Reduced Disclosure Framework. These were followed in March this year by FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

FRS 100 sets out which financial reporting standards apply to which entities when they intend to produce financial statements that give a true and fair view.

For those entities currently required to apply EU-adopted International Financial Reporting Standards (IFRS), for example fully listed groups or AIM listed groups, they will continue to do so. There is no extension of the existing rules on when the use of EU-adopted IFRS is mandatory. Qualifying entities as defined in FRS 101 (see the later article in this newsletter) may use the reduced disclosures of that standard. Small entities (defined by reference to the limits in the Companies Act 2006 but not restricted to companies and LLPs) may, as now, choose to use the Financial Reporting Standard for Smaller Entities (FRSSE) although, as discussed below, there have been some amendments to that standard.

All other entities will be required to apply FRS 102 unless they choose to adopt EU- adopted IFRS.

If the financial statements are prepared in accordance with FRS 102 or the FRSSE, Statements of Recommended Practice (SORPs) will apply where relevant. Many of the existing SORPs (for example those applying to LLPs and charities) are being updated to provide guidance on the application of FRS 102, however some SORPs will be withdrawn when the new regime becomes effective.

FRS 100 has a mandatory application date for accounting periods beginning on or after 1 January 2015, although early adoption is permitted.

The standard setters have found it necessary to make some consequential amendments to the FRSSE, including reducing the rebuttable presumption as to the maximum economic life of goodwill and intangible assets from 20 years to five years, clarification of the requirement to make an annual assessment for impairments where any indicators exist and exemption from disclosing related party transactions between group members where any subsidiaries are wholly owned.

Smith & Williamson commentary

We are pleased that there is now certainty as to the accounting framework and entities will need to evaluate the options that may be available to them. For those entities that will need to apply FRS 102 there could be a lot to do if they are to be ready for the mandatory application date in 2015. For small entities the retention of the FRSSE will be a welcome option but they will also need to understand if the changes to that standard will have an effect on their financial statements.


FRS 102 is the single standard that will replace all current SSAPs, FRSs, and UITFs. It will also bring UK GAAP closer to EU- adopted IFRSs as it was originally based on the IFRS for SMEs.

Since the first exposure draft was issued in 2010, the standard has been amended quite substantially to take into account comments received on the original and revised proposals.

The standard we now have includes a number of accounting options permitted in existing UK GAAP but which do not form part of the IFRS for SMEs.

The standard is mandatory for periods commencing on or after 1 January 2015 and early adoption is permitted for periods ending on or after 31 December 2012. Where an entity is within the scope of a SORP, early adoption is permitted, providing it does not conflict with the requirements of the current SORP or legal requirements.

Key differences to existing UK GAAP

While there will be much that is familiar to UK GAAP preparers there are going to be some areas of significant change which will have an effect on the reported results and financial position of many entities. Some of the major differences are considered in the table below.

Transition to FRS 102

The first set of FRS 102 compliant financial statements that an entity produces will need to include restated comparatives. The general principle is that all amounts and disclosures must be restated - however some exemptions do exist. An entity can choose which, if any, exemptions they wish to take advantage of.

In addition, extra disclosure will be required in the first set of FRS 102 compliant financial statements to assist users in understanding the impact that the standard has had on the entity's financial statements. These disclosures include:

  • a reconciliation of equity shown under the previous financial reporting framework to equity determined in accordance with FRS 102

    • at the date of transition*
    • at the end of the comparative period presented in the financial statements
  • a reconciliation of the profit or loss determined in accordance with the previous financial reporting framework and the new framework for the comparative period.

* The date of transition is the beginning of the earliest accounting period for which comparative information is presented. For example, an entity with a December year end that does not adopt the standard early will have a transition date of 1 January 2014.

Reduced disclosure for parent and subsidiary Companies

Subsidiaries and parent companies applying FRS 102 will be able to take advantage of certain disclosure exemptions, provided that they are included in the consolidated financial statements of an entity whose financial statements give a true and fair view and are publically available. These exemptions, and the circumstances in which they may be taken, mirror the concessions offered to IFRS preparers in FRS 101 as discussed in the following article.

Public benefit entities

The ASB had originally suggested a separate, supplementary standard containing guidance specific to public benefit entities (PBEs), for example charities and registered providers. However, the final version of the standard includes this guidance as part of a separate section in the standard (Section 34 on 'Specialised Activities').

Further amendments to the standard

The UK FRC has indicated that they intend to amend the financial instrument sections of FRS 102 to bring it in line with the hedge accounting and impairment provisions in the new standard on financial instruments in full IFRS (IFRS 9 Financial Instruments) that is currently being developed by the IASB. This will result in FRS 102 being amended prior to its effective date although the exact timetable of any amendments is dependent upon when the IASB finalises these remaining parts of IFRS 9.

Smith & Williamson commentary

This is a fundamental change in accounting that will affect a large range of entities of all sizes and across all business sectors. While there will be some areas of the new standard that will be familiar from current UK GAAP there are also a number of significant differences. Entities should not underestimate the effect these differences may have on their financial statements and their reported performance. Early preparation will be key not just in understanding what the standard requires but also in getting a detailed appreciation of how figures that are currently well understood may change.


The reduced disclosure framework of FRS provides certain disclosure exceptions to subsidiaries (including intermediate parents) and ultimate parents that are preparing their accounts in accordance with EU-adopted IFRS. The exemptions will be available in the single entity financial statements of the subsidiaries and parent only; they cannot be taken in any consolidated financial statements. To qualify for the exemptions, the financial statements of the parent or subsidiary must be included in publically available consolidated financial statements that give a true and fair view. These consolidated financial statements do not however need to have been prepared in accordance with EU-adopted IFRS.

Entities eligible to take the exemptions are referred to in FRS 101 as "qualifying entities". Charities cannot be qualifying entities.

Qualifying entities may take advantage of the disclosure exemptions only if:

  • the entity's shareholders are notified in writing about the exemptions and those holding a specified percentage of shares do not object
  • the entity's financial statements apply the recognition, measurement and disclosure requirements of EU-adopted IFRS but are otherwise prepared so that they comply with the Companies Act 2006
  • the notes to the financial statements disclose details of the exemptions taken and the name of the parent in whose consolidated statements the entity is included.

The disclosure exemptions can be categorised into those that are equivalent to those allowed under UK GAAP, areas where disclosures are made on a group basis and certain other exemptions.

Disclosures not required by current UK GAAP

  • No statement of cash flows required
  • No disclosure of intragroup transactions (provided that any subsidiary involved is wholly owned) and no disclosure of the compensation of key management personnel

Items disclosed on a group basis

  • No disclosure of share-based payments related to equity instruments of group entities or the ultimate parent's own equity instruments
  • Various exemptions in respect of business combinations
  • No disclosure of discontinued operations
  • Exemption from all disclosure requirements in IFRS 7 'Financial Instruments – Disclosure'* and IFRS 13 'Fair Value Measurement'*
  • Exemption from certain disclosures about assumptions in impairment assessments

* not available for financial institutions

The disclosure exemptions in this category are permitted provided that the equivalent disclosures are made in the consolidated financial statements in which the entity is included.

Other exemptions

  • No disclosure of comparatives in the notes for property, plant and equipment, intangible assets, investment property and agriculture, no requirement for an opening statement of financial position for the comparative period where the entity makes a retrospective restatement or reclassification, and exemption from certain disclosures about the entity's capital management objectives, policies or processes
  • No disclosure of standards not applied.

Reporting entities can choose which of the exemptions they want to take and there is no requirement to apply all of them.

Qualifying entities with financial liabilities held at fair value that are neither held for trading nor derivatives will be required to apply certain of the disclosure requirements of IFRS 7. In addition, a qualifying entity that is a financial institution as defined in the standard will not be able to take advantage of any of the exemptions from IFRS 7 and IFRS 13 nor that from IAS 1's requirements with regard to capital management.

Any entity currently applying EU-adopted IFRS that adopts FRS 101 will be preparing Companies Act individual accounts and not IAS individual accounts. The presentation of the financial statements will therefore need to be in accordance with the Companies Act, and FRS 101 includes a small number of amendments to the measurement and recognition criteria to maintain compliance.

FRS 101 applies for accounting periods beginning on or after 1 January 2015, although early adoption is permitted.

Smith & Williamson Commentary

FRS 101 may make it easier for consistency to be achieved across groups as the lengthy disclosure requirements of IFRS have previously been a deterrent for many entities. The option does, however, still exist for subsidiary and parent financial statements to be prepared in accordance with FRS 102. Careful analysis of the choices will be needed and the interaction between accounting policies, tax and distributable profit may still be the deciding factor in determining which accounting framework to follow rather than the extent and nature of disclosure required.


Subsequent to IFRS 10 Consolidated Financial Statements being issued in May 2011, the IASB has addressed the accounting implications of the new standard for investment entities. These are entities where, because of the nature of their investments, information about the fair value of an investment in a subsidiary may be more relevant than consolidation of its individual assets and liabilities. In particular the IASB has considered the circumstances where relief from consolidation might be appropriate. As a consequence an amendment to IFRS 10 was issued in October 2012. The amendment will exempt many investment funds and similar entities from the requirement to prepare consolidated accounts.

The amendment defines an investment entity as one that:

  • obtains funds from one or more investors for the purpose of providing those investors with investment management services
  • commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both
  • measures and evaluates the performance of substantially all of its investments on a fair value basis.

An entity meeting the definition must also have regard to certain characteristics as set out below. While failure to meet one or more of the characteristics does not preclude classification as an investment entity, the amendment does indicate that additional judgement may be required.

  • Multiple investments
  • Multiple investors
  • Investors that are not related to the parent entity or the investment manager
  • Ownership interests in the form of equity or partnership interests

Under the amendment an investment entity is required to account for its investments at fair value through profit or loss (FVTPL) and any investments in associates and joint ventures must also be accounted for at FVTPL if the entity is to qualify as an investment entity.

The amendment, which applies for periods beginning on or after 1 January 2014, can be applied early and is retrospective.

Smith & Williamson commentary

The amendment addresses many of the concerns raised by investment entities in response to the original standard, but in some circumstances subsidiaries will still require consolidation. Non-investment entities are not eligible for relief from consolidation even where they have subsidiaries that are investment entities. Consequently, a non-investment parent will have to consolidate all subsidiaries including those controlled through a subsidiary meeting the definition of investment entity.


The efforts of the IASB to change lease accounting have stretched over a number of years. Their 2010 exposure draft received considerable criticism and since then a great deal of work has been done to refine the detail of how a new model might work, while keeping the overarching principle of having all leases included on the balance sheet. In May the IASB and the US Financial Accounting Standards Board (FASB) published an exposure draft of their revised proposals.

The fundamental principle of bringing what are currently classified as operating leases onto the balance sheet remains. The key changes in the new exposure draft are as follows:

  • a lessee will not be required to recognise assets and liabilities for leases with a maximum lease term of no more than 12 months
  • leases will be split into 'Type A' and 'Type B'. A Type A lease is one where the lessee consumes "more than an insignificant portion" of the asset over the lease term, i.e. most equipment and vehicle leases. A Type B lease is one where the lessee only consumes an insignificant portion of the asset over the lease term, i.e. most property leases.

    • Lessees under Type A leases would present amortisation and interest separately in the income statement, and principal paid and interest paid separately in the cash flow statement. Under Type B leases, a single straight- line lease expense and a single cash outflow would be presented.
    • Lessors of Type A leases would derecognise the underlying asset and instead recognise a lease receivable and a retained interest in the underlying asset in the balance sheet. Interest income on both the lease receivable and the residual asset would be recognised over the lease term. For Type B leases, a lessor would continue to report the asset being leased in the balance sheet and recognise rental income in the income statement.
  • the guidance on how to apply the definition of a lease has been changed with the intention that fewer contracts (such as certain types of service contracts) will be classified as leases
  • variable lease payments (unless fixed in substance or linked to an index or rate) and payments in optional renewal periods (unless the lessee has a significant economic incentive to renew) will now be excluded from the measurement of lease assets and liabilities.

The comment deadline is 13 September 2013, after which the boards "expect to have received sufficient information to proceed with and finalise the standard". The effective date of the new standard has yet to be decided.

Smith & Williamson commentary

The proposals set out in the new exposure draft represent a significant improvement, addressing many of the issues raised in the feedback on the original version. The removal of much of the complexity in measurement contained in the earlier proposals is particularly welcome. Nearly all entities have leases and many are currently classified as operating. In spite of the proposed improvements and simplifications, this will still be a significant change in accounting for a large proportion of IFRS preparers.


Exposure draft on revenue recognition

The revised exposure draft on revenue recognition issued in 2011 was discussed in the Spring 2012 edition of Financial Reporting. The IASB has indicated that it expects to issue the final standard in the third quarter of 2013. In the revised exposure draft it was anticipated that the standard would be issued in the second half of 2012 with an effective date no earlier than 1 January 2015, to allow companies providing two years of comparative data adequate time to prepare. If a similar timetable is now followed, it would indicate a standard with an effective date of 1 January 2016 at the earliest, although this could be even later.

IFRS annual improvements

The IASB uses the annual improvements process to make necessary, but non-urgent, amendments to IFRSs. The latest improvements:

  • permit repeated application of IFRS 1 First-time Adoption of International Financial Reporting Standards
  • amend the treatment of borrowing costs relating to qualifying assets where the commencement date for capitalisation is before the date of transition to IFRS
  • clarify the requirements for comparative information
  • set out the classification of servicing equipment under IAS 16 Property, Plant and Equipment
  • clarify that the tax effect of distributions to holders of equity instruments should be accounted for under IAS 12 Income Taxes
  • clarify the interim reporting of segment information for total assets and liabilities.

The amendments are effective for annual periods beginning on or after 1 January 2013, although entities are permitted to apply them earlier.


The table below summarises the effective dates for new and revised IFRS and IFRS interpretations. Those that are shaded have not yet been endorsed by the EU and the effective date will be contingent on successful endorsement.

* These transition dates apply for entities reporting under IFRS as adopted in the EU. Earlier dates apply for entities reporting under IFRS as issued by the IASB. Early adoption is permitted.

In addition, the following standards may be published by the IASB before the end of 2013. Standard title, effective date and EU endorsement will be confirmed following publication.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Jeff Selden
Giles Murphy
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.