FRS 102 updates - five important changes
In December 2017, the Financial Reporting Council (FRC) concluded their triennial review of UK GAAP by publishing amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
Apart from the amendments that are editorial in nature or clarify existing guidance, there are five more important changes:
- Simplified measurement of directors’ loans to small entities; a loan from a director, or a close member of his/her family, when one of them is also a shareholder of a small entity, which is not at market rate (e.g. interest-free) may be measured at transaction price (i.e. face value) rather than by discounting future payments at a market rate of interest.
- Fewer intangible assets to be separated from goodwill in business combinations; intangibles are required to be separately recognised only if they meet 3 specific criteria. However entities have the option of recognising additional intangibles if this provides valuable additional information to the users of the financial statements. Retrospective application of the changes is not allowed and therefore intangibles that were separately recognised under the previous version of FRS 102 cannot be subsumed within goodwill.
- New option for investment properties rented to another group entity to be measured at cost less depreciation and impairment, rather than at fair value; an entity using the option for the first time may also avoid restating retrospectively the value of a property at cost and use instead fair value as previously reported in its accounts as its deemed cost.
- An additional description of debt instruments that should be treated as basic financial instruments when the specific conditions set in the standard to account for them as basic are not otherwise met; more financial instruments that are consistent with the principle-based description will be treated as basic and measured at amortised cost, rather than fair value; and
- A simplified definition of a financial institution; fewer entities will be considered financial institutions and therefore subject to restrictions in respect of certain disclosure exemptions. Stockbrokers have been excluded from the definition.
The options available will require careful consideration, but most of the amendments are not mandatory until accounting periods beginning on or after 1 January 2019, but early adoption is available. It is possible to adopt the changes to the accounting for directors' loans on a standalone basis, but otherwise early adopters have to apply the changes to FRS 102 in full. Additionally, where early adoption is taken disclosures must be included within the financial statements to that effect.