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to LLPs and charities) are being updated to provide guidance on the application of FRS 102, however some SORPs will be withdrawn when the new regime becomes effective.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.
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