Start preparing now for FRS 102

20th November 2013

The Financial Reporting Council has replaced current UK GAAP with FRS 102, with effect from periods beginning on or after 1 January 2015, with earlier adoption permitted.

FRS 102 is based on the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) and has been amended for use in the UK. The introduction of FRS 102 will have an impact on the financial statements of any entity currently preparing accounts under UK GAAP. Large parts of FRS 102, dealing for example with inventories, property, plant and equipment and business combinations, are broadly similar to existing UK GAAP.  However, there are many parts of FRS 102 which will bring in changed or new requirements, for example the sections dealing with financial instruments, deferred tax, investment properties and specialised activities. Many entities with relatively straight forward business transactions may find the impact slight, possibly extending only to changed format and disclosure requirements.  On the other hand, some large groups with complex overseas operations and complex financial instruments will be affected to a large degree and need to study the new requirements very carefully. The adoption of FRS 102 will also lead to some changes in the format of the financial statements and the disclosures required, but not as much as first envisaged. The formats for the balance sheet (now to be called the statement of financial position) and profit and loss account (to be called the statement of comprehensive income and income statement) must comply with the requirements of the Regulations to CA 2006, as well as the particular requirements of Sections 3 to 6 of FRS 102, and therefore the change is mostly the fact the title has changed rather than any major layout changes. However, the format of the statement of cash flows is quite different from that in FRS 1.  In addition, the statement under FRS 102 should reconcile to cash and cash equivalents, as opposed to cash under FRS 1. For many entities, the total amount of disclosure may not be significantly greater as compared with existing UK GAAP.  However, several of the disclosure requirements are different in detail from the equivalent under existing UK GAAP, for example those relating to inventories and leasing commitments. The starting point for applying FRS 102 will be to restate the opening balance sheet at the start of the comparative period for the first accounts prepared under FRS 102.  This is known as the date of transition.  If a company prepares its first accounts under FRS 102 for the year ending 31 December 2015, its date of transition will be 1 January 2014. FRS 102 includes provisions to ease the transition. For further information on how this is likely to affect your business please contact Martin Wharin, Business Services Partner on T: 0114 251 8850 or email: martin.wharin@hartshaw.co.uk.