Key Changes in the FRS 102 Triennial Review

In December 2017, the Financial Reporting Council (FRC) issued Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, following the conclusion of their first triennial review.

Many of the amendments are for clarification purposes, however, there are some more significant changes which could affect companies’ financial statements.

  • Simplified measurement of directors’ loan accounts for small companies

Under FRS 102 loans not at a market rate (i.e. interest free) are generally required to be measured at the present value of future payments discounted at a market rate of interest.

In May 2017 the FRC published an interim relief to permit small entities to measure loans from a director who is also a shareholder in the company (or a close family member of that person) to be measured at their transaction price.

The Triennial Review 2017 amendment replaces this interim relief. It has also been expanded with the description being changed to loans from a director or one of their close family members, where at least one of these people is a shareholder in the entity.

  • Fewer intangible assets to be separated from goodwill in business combinations

Previously FRS 102 required more intangibles to be separately recognised from goodwill than had been the case under “old UK GAAP”.

Under FRS 102 intangible assets should be recognised separately when they are separable or arise from contractual or other legal rights

This meant that assets which are acquired as part as a business combination (i.e customer lists and relationships), require separate valuation and are then recognised separately from goodwill.

Following the Triennial Review 2017 amendments, intangible assets must be recognised separately from goodwill where they are separable and arise from contractual or other legal rights.

This change will mean entities being required to recognise fewer intangible assets separately from goodwill in business combinations.

There is an accounting policy choice for those entities wishing to recognise more intangibles separately from goodwill to enable them to do so. Additional disclosures will be required in relation to the nature of such intangibles recognised and the reason why they have been separated from goodwill.

  • Removal of “undue cost and effort” exemptions

FRS 102 includes several exemptions from the requirement to account for items at their fair value where fair value cannot be established without undue cost or effort (Investments in Associates, Investments in Joint Ventures and Investment Property).

These exemptions have been removed in the Triennial Review 2017 amendments.

  • Accounting choice for investment properties rented to other group companies

Prior to the Triennial Review 2017 amendments, FRS 102 required all investment property to be measured at fair value with any movement in fair value to be recognised through the profit or loss, this included any investment property rented to another group company.

The Triennial Review 2017 amendments introduces an accounting policy choice whereby a company can choose to measure investment property rented to another group company:

  • At fair value through the profit or loss or;
  • At cost less depreciation and impairment.

Where the cost model is adopted it can either be applied:

  • Retrospectively – in this case any previous revaluations will be reversed, and the property held at its original cost less depreciation and impairment or;
  • The fair value of the property at the date of transition to the amended standard may be used as deemed cost.
  • Conditions for basic financial instruments

Under FRS 102 financial instruments are classified as either ‘basic’ or ‘other’, with the classification determining the accounting treatment for the instrument.

The Triennial Review 2017 amendments introduces an additional description of debt instruments which should be treated as basic financial instruments when the specific conditions set out in FRS 102 to account for them as basic are not otherwise met.

This change will result in a small number of financial instruments, which currently fail to meet the conditions for classification as basic instruments, now being classified as basic instruments and therefore measured at amortised cost rather than their fair value.

6   Key management personnel compensation

FRS 102 requires the disclosure of the aggregate compensation paid to key management personnel.

The Triennial Review 2017 amendments introduces an exemption from disclosing key management personnel compensation where:

  • The company is subject to a legal or regulatory requirement to disclose directors’ remuneration in its financial statements; and
  • The key management personnel and directors are the same.

This removes duplication where key management personnel and the directors are the same, and disclosure of the compensation paid to both is required in the financial statements.

These amendments are effective for accounting periods commencing on or after 1 January 2019, but early adoption is permitted. It is possible to adopt the changes to the accounting for directors’ loans separately, but otherwise early adopters must apply all the amendments in the triennial review at the same time. Also, where a company selects to early adopt the amendments, disclosures must be included within the financial statements stating that fact.

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