The practical implementation of FRS 102

26 October 2017

FRS 102 and FRS 105 have now been with us for well over eighteen months, and the first sets of small business accounts for which the new standards are mandatory are in the course of production and approval.

The new standards have a number of areas which are particularly relevant to farming businesses and a “straw poll” of over 60 practicing accountants was conducted at the annual conference of the ICAEWs farming special interest group. 

The survey concentrated on seven areas within the accounts which are particularly relevant to farmers, and on a technical level it showed that there were some areas of inconsistency. For example: 

  • 64% of attendees are now showing elected production herd at actual or deemed cost rather than tax cost. 15% are still disclosing the herd at tax cost and the remainder had not yet had to deal with the problem
  • Where a business has a year-end between Mid-May and December there is an element of professional judgement as to when the subsidy should be recognised. 60% of attendees are recognising the annual subsidy payment on a cash basis or performance basis (effectively deferring the income until it is received). 24% accrue it over the accounting period and 14% either deal with it inconsistently or have not yet had to decide.

Generally the survey found that whilst accountants are normally applying the new standard to corporate accounts (unless the changes are considered immaterial) they were rarely doing so for the unincorporated , which of course are the far more common structure for farming businesses. There is a danger here, since the new standards do represent UK generally accepted accountancy principles, so potentially, even if the items in question have no impact, tax authorities could use non-compliance with GAAP as a reason to launch a more comprehensive tax enquiry.

In addition to the implementation issues, the survey also asked three more general questions:

  • 69% of respondents thought accounts under the new standard were less informative, 26% thought they were about the same and only 5% felt they were more informative
  • Looking at how clients felt about the new standard, 34% felt their clients were negative or very negative, with 66% feeling their clients were neutral. None thought their clients viewed the changes positively.
  • 25% of those present saw the cost of producing accounts was over 20% higher, 61% thought it was 10-20% higher and 14% thought it was about the same. None thought costs were lower.

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