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Major accounting changes as new standard (FRS 102) is introduced

The financial reporting council (FRC) has replaced existing UK generally accepted accountancy principles (GAAP) with the financial reporting standard applicable in the UK and Republic of Ireland (‘FRS 102’) with effect from accounting periods beginning on or after 1 January 2015.

This will affect all companies currently reporting under UK GAAP with the exception of small companies currently applying the Financial Reporting Standard for Smaller Entities (FRSSE).

The impact of any changes should be considered nowso businesses are ready for transition to the new standard.

We summarise below a few areas where the new standard requires or allows different accounting treatment and also indicate where early planning would lead to
a smoother  transition.


These are to be revalued at each reporting date and any change in value will be measured in the profit and loss account. This will result in profits becoming more volatile.

The new Standard does allow cost less depreciation to be used if fair value cannot be measured reliably without undue cost or effort but this may be difficult to justify.


This will be recognised in more situations than under current UK GAAP. This will be particularly relevant to entities holding investment property as they will be required to recognise deferred tax liabilities in respect of unrealised revaluation gains. This will have the effect of reducing overall net assets, therefore may impact on covenants in place in respect of any borrowing. If this is the case it would be advisable to make early contact with the bank.


It will be much more likely that, on the acquisition of businesses, there will be a requirement to separately record and amortise not just goodwill, but intangibles for each separately identifiable asset acquired (e.g. trademarks, licences, customer lists, customer contracts, patents etc.). These assets will need to be recorded at fair value, the calculation of which will be a new issue for
many businesses.

In addition, it is expected that, in most cases, the maximum amortisation period for goodwill and intangibles will be reduced to five years leading to a higher amortisation charge and reduced profits.


Financial instruments such as loans with complex terms and foreign exchange forward contracts will be required to be measured at fair value at each balance sheet date.


Holiday pay accruals, where material, will need to be recognised. A calculation will be required to determine whether this amount is material.


Adopting FRS 102 will lead to a number of changes to the presentation of the financial statements. These will be disclosure points but also, for a number of entities, the profit and loss and net asset position  within the financial statements may also change.

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. For example, 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 does contain some provisions to ease the transition.

In certain circumstances transition exemptions may present opportunities to adopt more favourable accounting treatments.


This article is only a brief outline of the impact of the potential changes set out  in FRS 102.

Key points to note are:

•           Early action is required where valuation required as at transition date.

•           Potential for increased volatility in profits.

•           Ensure action taken early to update profit related agreements such as employee contracts and loan agreements.











Date: 24th June, 2014
Author: Jamie Wooldridge


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