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.
- 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.
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.