In December 2017 the FRC issued amendments to UK and Irish GAAP. These changes are pitched at simplifying, clarifying and making incremental improvements to the UK and Irish accounting standards published over the past few years. Let's take a look at the headline changes.
What's changing and why?
Changes are being made to the full suite of UK and Irish accounting standards, with the main changes being to FRS 102 and FRS 105.
The document setting out the amendments is 194 pages long and is the result of a consultation process that sought stakeholder feedback on implementation of the new standards as part of the FRC's triennial review of the Standards. It also wraps up the outcomes of other, more recent consultations, for example on payments from subsidiaries to charitable parents subject to gift aid.
What are the headline changes and when do they kick in?
Whilst the amended standards have to be adopted in their entirety for periods commencing on or after 1 January 2019, there are elements that kick in for periods commencing on or after 1 January 2017, bits that can be early adopted in isolation as well as the revised standards being early adoptable as a whole. Let's look at the key changes in the order of they must, or may, kick in.
Periods commencing 1 January 2017
A fair old chunk of the 194 pages is there due to the incorporation of the new Republic of Ireland small and micro entity accounting requirements deriving from the Companies (Accounting) Act 2017. Changes to FRSs 102 and 105 in this regard have a mandatory application date of periods commencing on or after 1 January 2017.
In the UK, there has been some debate since recent changes to company law as to whether or not a UK micro-entity needed to disclose certain additional information in its notes, such as employee numbers and off balance sheet arrangements. The FRC have now decided there is a requirement so make changes to FRS 105 in this area that kick in earlier than some of the other, relatively minor, changes made to this standard.
Early adoption available in isolation
There are a couple of amendments to FRS 102 that can be adopted early on their own prior to periods commencing 1 January 2017, without having to adopt all other amendments as would usually be the case. These are in the following areas:
- broadening the scope of May 2017's simplification for small entity financing transactions to now refer to loans from a person who is within a director's group of close family members when that group contains at least one shareholder;
- changes to accounting for payments made, or expected to be made, by a subsidiary to its charitable parent that will qualify for gift aid and the tax effect thereof.
We'll look at the finer detail of these, and other key areas, in future blog posts.
Periods commencing on or after 1 January 2019 (early adoption available)
Other amendments to the standards apply for periods commencing on or after 1 January 2019, unless the amendments are early adopted as a whole. The main areas of change here include:
- requiring fewer intangible assets to be separated from goodwill in a business combination;
- permitting investment property rented to another group entity to be measured by reference to cost, rather than fair value, with removal of references to undue cost or effort;
- expanding the circumstances in which a financial instrument may be measured at amortised cost, rather than fair value;
- simplifying the definition of a financial institution.
There are also a large number of other relatively minor amendments, for example relating to disclosures or clarifications.
What do we need to do now?
Those seeking, or with clients seeking, early adoption or having to adopt certain changes now will need to get into the detail to assess potential consequences straight away. Additionally, those using FRS 105 will need to ensure that the extra disclosures are included (software may well not yet have been adjusted for these).
Others have a little longer to consider implications, though will need to familiarise themselves with the changes to ensure they are not caught out by the complexities arising when transitioning out of the previous new UK and Irish GAAP onto this updated version. We will provide additional detail on the key changes through blogs, our monthly Newswire, face to face and online training over the coming months.
Also keep an eye out for updates to our technical manuals that include disclosure checklists and example accounts based on the standards, as well as other products we will have to help explain these changes to clients, including our client letters.