An amendment to FRS 3 confirms that recycling previously recognised gains and losses is allowed in some circumstances.
It has long been a tenet of UK financial reporting that once gains have been recognised, whether in the profit and loss account or the statement of recognised gains and losses, they should not be recognised again. However, some of the more recent UK standards based on IFRS require the ‘recycling of gains and losses’ recognised initially in reserves back through the profit and loss account.
In July, the Accounting Standards Board (ASB) published a limited amendment to FRS 3 confirming that recycling previously recognised gains and losses is permitted in certain limited circumstances.
FRS 3 contains a blanket prohibition on recycling, but FRS 26 ‘Financial instruments: measurement’ and FRS 23 ‘Foreign exchange’ require recycling in certain circumstances. For example, FRS 26 requires unrealised gains and losses on ‘available for sale’ financial assets to be recognised in the statement of changes in equity, and then recognised again in profit and loss when those gains are realised on a sale. While FRS 3 has now been amended to allow recycling in these specific circumstances, the ASB has, however, reiterated that it is opposed to recycling as a principle, and does not want to promote it as a concept.
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The question of recycling highlights that some fundamental conceptual differences between IFRS and UK GAAP still exist. Many UK GAAP preparers and users have reservations about recycling. Nevertheless, it would appear that this concept is now here to stay in UK GAAP. |
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