UK: The FRS102 Revolution: A Marathon, Not A Sprint – Planning For Success

Last Updated: 27 January 2014
Article by Jackie Oakes

For some sectors, the impact of the new standard will not be immediate. This is not the case for the RP sector. For all RPs FRS102 will result in substantial changes. A comprehensive and customised assessment of where you are now, and what condition you will need to be in before the transition date will be a pre-requisite of a stand-out performance.

What do you need to do?

You will need to invest time to:

  • determine how big an issue this is for you and your business
  • identify whether there are any crucial areas which will require immediate attention
  • pull together a properly resourced plan and timetable covering the steps you will need to follow
  • consider whether or not you will need some outside help and where best to source this.

The first challenge is when and where to start.

When to start?

2016 may seem a long way off however for the majority of RPs with a 31 March year end, the transition date will be 1 April 2014 (effectively 31 March 2014), just months away!

The transition date is key as for some transactions your ability to influence the outcome may be lost after this date, for example hedge accounting (although note some of the practical issues in this area in Jonathan's article on p6 of this publication). Also some choices available at transition need to have been fully evaluated prior to the transition date or opportunities may be lost. Furthermore some business discussion may look sensible now but could appear calamitous in light of future reporting requirements (most notably any financial restructuring and any property developments such as grant funded schemes). Consequently the timeline is much closer than you think.

Where to start?

We have developed a modular approach to help you assess, design, implement and assure the transition to FRS102. In this article we will consider the planning phases 1 and 2.

Planning is not necessarily looking at the detail; there is a lot of work that can be done upfront to make the transition process easier. These are explored further below.

Reporting standards review

Most RPs are expected to adopt FRS102, however for other entities within the group e.g. development and financing companies you may wish to assess the alternative options.

Impact assessment and stakeholder map

Strategic and operational areas will need to be considered, for example.

  • Have you identified all applicable stakeholders?
  • What is your stakeholders' current understanding of the changes
  • What communication are your stakeholders expecting?
  • Does your risk assessment process and register incorporate the implications of FRS102?
  • How are your systems placed to process the changes?
  • Do you need to implement any further internal controls?
  • What internal/external reports are required and can these be produced with the current software?
  • Are there any implications for taxation?
  • How does the impact of FRS102 fit into the organisation's wider strategy, objectives and KPIs?
  • What level of external support should you seek and for which areas?
  • What are your training needs and where should these be sourced from?

Accounting options

There are a surprising number of choices available both on transition and going forward. Having all the facts to hand will determine the quality of that decision.

Tax implications

Organisations that are tax paying will also need to assess the implications for taxation and gift aid – not all changes arising as a result of accounting under FRS102 will be tax neutral e.g. financial instruments, lease incentives. In addition the added volatility likely to arise from fair value movements may also make it harder to estimate gift aid payments.

Gearing and interest cover covenants

There are a combination of effects from FRS102 (the radical changes to grant accounting, impairment and financial instruments) that will have a profound impact on covenant calculations. We are anticipating that between 50 and 100 RPs will breach covenants as a result of the different accounting treatments unless actions are taken.

Project plan and division of responsibility

You will need to pull together a well-articulated project plan for the transition, including quality control and project management. In order to ensure that no key areas are missed a clear understanding of the above factors will be essential.


Although you are likely to have attended a variety of seminars and events already you will undoubtedly require further training between now and 2016. Typically there are three main audiences to be considered: the finance team, the board/audit committee and the senior management team. In addition to the series of RP seminars we ran during 2013 on FRS102, we have the following dedicated RP seminars coming up in the next few months.

Upcoming seminars

  • 30 January 2014 seminar – practical issues relating to FRS102
  • 11 March 2014
  • 9 October 2014

However we have also delivered a series of dedicated one-to-one training sessions for RPs which cover the very specific issues faced by the individual RP. These provide a wonderful opportunity to explore in more detail any gaps in understanding and help articulate the key areas of focus for the RP in responding to the FRS102 challenge. The feedback from these sessions has been overwhelmingly positive. If you would like to find out more please do contact any of the Smith & Williamson team for more information.

Case study

For many of our clients we have started the FRS102 planning process with a bespoke training and brainstorming session, enabling knowledge to be developed within the wider team, as well as establishing a work plan for meeting the challenges ahead and identifying issues previously not considered.

Before the session

  • Performing a review of the financial statements to identify the main areas where FRS102 will have an effect.
  • Reviewing financial instruments in overview. This involves provision of a summary of the existing loans and swaps etc. (if any stand-alone ones) so that we can assess provisionally how they are likely to be treated.
  • Reviewing the main financial covenants in overview.
  • Preparation of a tailored briefing document.

At the session

Presentation of the briefing document. Typically these sessions last around 2 to 3 hours and include a combination of general briefing, specific discussion of your affairs and the more significant of the various policy choices available.

Who attends?

Key finance and treasury team members.

After the session

  • Provision of a summary note of the key points emerging from the session requiring follow-up action.
  • Where required assistance in producing a comprehensive project plan.
  • Presentation to the board/audit committee, emphasising their role in overseeing the transition process. The focus is very much on the key things that they should be aware of and should be monitoring rather than the technical effects of the changes, although the latter are covered briefly.

We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2014. code 13/051 exp: 31/07/14

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Jackie Oakes
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