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FRS 102 – A stable future?

Mercia Blog FRS 102 A Stable Future

It seemed possible for a while that there would be significant changes soon to FRS 102 in respect of revenue, leases and financial instruments. But a new statement from the FRC has confirmed that these plans are now deferred, so preparers can look forward to a period of stability.

In recent years UK GAAP seems to have been battered by a storm of upheavals. Starting with the introduction of the new UK GAAP framework for 2015, small entities managed to defer the problem by keeping the FRSSE for another year, but then for 2016 had to choose between the new FRS 105 for micros or the small entities regime in FRS 102. This has come with changes to company law, too, including updating the size limits and precise conditions to qualify as small.

Some preparers might have hoped that there would now be a period of stability, but in fact the FRC’s commitment to three-yearly reviews, and the length of the consultation process, meant that already towards the end of 2016 the first triennial review was launched, proposing a number of potentially quite significant changes to FRS 102.

The first part of that review has already resulted in FRED 67, which details a number of proposed changes, including some simplifications. Information about those proposals can be found in our March article and they are expected to take effect from accounting periods commencing on or after 1 January 2019. The results of the second part of that review, which considered new IFRS and whether they should impact FRS 102, were announced last week. You will be pleasantly surprised, no doubt, to hear that the FRC has scaled down its proposals, so there will be few changes of any substance in the near future.

In financial instruments accounting, already a challenging area for many, the FRC was proposing to bring in a model for impairment of financial assets which looked at so called “expected losses” and would have imposed a more complex way of calculating provisions for bad debts, based on expectations rather than experience. The model is arguably a technical improvement on what is in FRS 102, but is undoubtedly harder to implement, so many will be relieved to hear that the FRC is going to wait and see how implementation works for IFRS preparers before it brings anything similar into UK GAAP.

Similarly there was a plan to introduce changes to revenue accounting, which might have led to delays in recognition particularly for income streams from providing services, in line with the new IFRS 15, which again has been put aside until there is a clearer picture of how adoption has worked in practice for IFRS entities. And the plan to make drastic changes to the lease accounting model, removing the distinction between operating and financing leases and instead having all leases recognised on the balance sheet, based on the new IFRS 16, has been set aside for now.

What we are left with for now is a UK standard for all but the smallest entities that has a good internal consistency, and should be relatively stable for a while, subject to the implementation of the FRED 67 proposals. It has the disadvantage that UK companies’ accounts will not be as easy to compare with those of IFRS preparers, but for most smaller entities this is not a pressing concern, and they still have the option of using FRS 101 if this is very important to them.

So – a relief for many, and a chance to concentrate on getting really familiar with FRS 102 as it stands before having to embrace another set of changes.