21 Mar 2013 02:47pm

FRS102: The final piece of the jigsaw

From start to finish in two-and-a-half years. Not bad for a complete rewrite of a national GAAP

While the original proposals for IFRS convergence surfaced back in 2004 it wasn’t until the IASB published the IFRS for SMEs in 2009 that things really got moving. Two and a half years from the first exposure draft in October 2010 to publication in March 2013 is pretty good going for a standard setter.

Do I think we have a useable GAAP that UK businesses can apply and users understand? Yes. Is it what we want? As far as the FRC can tell, yes it is. Unlike some other consultations where the outcome is never really in doubt (say a typical government consultation) the FRC has really listened to those with something to say.

The FRC has really listened to those with something to say

At times the consultation process went into overdrive, "tell us what you want and we'll see what we can do" and as a result FRS102’s scope covers all entities that are not forced to use EU IFRS, allows the revaluation of fixed assets, capitalisation of borrowing costs, stays close to the UK concept of deferred taxes arising out of timing differences and continues to allow merger accounting for group reconstructions- none of which are allowed under the IFRS for SMEs but are allowed under current UK GAAP.

Avoiding gold-plating EU IFRS requirements was important to both government and corporates. Although financial institutions (such as banks and insurers) can use FRS102 we’ll have to wait and see whether market forces will push them to EU IFRS.

Yes there are a few prices to pay. Gone are the days when financial instruments are just talked about via disclosure rather than being accounted for. Regardless of your viewpoint on fair valuing financial instruments I think there is at least general acceptance that they should be recognised in the modern day and age.

Although FRS102 tells us to put them on the balance sheet it’s without some of the complexities that IFRS (or FRS 26) bring and ongoing fair value adjustments won’t be required in a lot of cases.

The other big ticket changes include employee benefits – expected returns on assets are no longer recognised being replaced by the net interest charge concept recently introduced into IAS 19. Goodwill is still amortised although the rebuttable life has moved from 20 to 5 years (a little bit of EU alignment slipped in by the FRC) and deferred taxes won’t be discounted but will be recognised on revaluations and business combinations.

"What does it all mean for me" is a question I regularly get asked. Now that we have the completed framework in place that's much easier to answer - ignoring of course the insurance industry who seem to relish being the last to the table (FRS103 is still in progress). Choice. Lots of choice, is the response.

Do you want to apply EU IFRS, nearly IFRS with some reduced disclosures (FRS101), UK GAAP (FRS102 with or without reduced disclosures) or the FRSSE? In fact if you stay away from EU IFRS you can mix and match all of the others within your group if you meet the individual criteria for each standard. On reflection, a two year implementation period doesn't seem that long to sort all of this out.

Sensible people will at least consider the myriad of options now rather than in late 2014 even if the action plan that results is spread out over the next 18 months.


Iain Selfridge  Iain Selfridge is partner at PwC

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