Article: FRC proposes amendments to FRS 102
20 April 2017
In 2016, the Financial Reporting Council (FRC) asked for stakeholder feedback on the implementation of FRS 102 and consulted on its approach to the first triennial review (see Business Edge October 2016).
The FRC has now published FRED 67 which proposes incremental improvements and clarifications to FRS 102 as well as a copy of FRS 102 with all of the proposed changes tracked and an at a glance summary.
What are the main changes?
The principal proposed changes that the FRC believe will have an impact on the ﬁnancial statements are:
- Loans to small entities from a director who is also a shareholder can be initially measured at transaction price rather than present value.
- Investment properties rented to another entity in the same group can be measured either at cost (less depreciation and impairment) or at fair value in the individual financial statements of the lessor. Currently, such properties must be measured at fair value unless that would require undue cost or effort.
- A new principles based description of a ‘basic’ ﬁnancial instrument will be included to support the detailed conditions for classiﬁcation as basic. The description need only be considered for those instruments not meeting the prescriptive conditions. Making this change will result in a relatively small number of ﬁnancial instruments that breach the detailed conditions for classiﬁcation as basic, now being considered to be basic and measured at amortised cost.
- The criteria relating to intangibles acquired in a business combination will be revised so that fewer intangible assets will be required to be recognised separately from goodwill. This is achieved by requiring entities to recognise intangible assets separately if they:
- Meet the recognition criteria and
- Are separable and arise from contractual or other legal rights.
An entity will be able to recognise other intangible assets acquired in a business combination that meet the recognition criteria provided such an approach is applied consistently to the relevant class of intangible assets.
- In the light of comments on the deﬁnition of a ﬁnancial institution, the definition is amended to remove references to ‘generate wealth’ and ‘manage risk’.
When will it apply?
Once the FRED is finalised as a standard, it is proposed that it will be effective for accounting periods beginning on or after 1 January 2019, with early application permitted provided all amendments are applied at the same time. Limited transitional provisions are also proposed to:
- Permit entities to carry forward fair value as deemed cost for investment properties that are rented to another group entity, when they are to be measured based on cost going forward.
- Require entities to continue to recognise separately any intangible assets separated from goodwill in business combinations effected since transition to FRS 102.
The FRC is requesting comments on FRED 67 by 30 June 2017 - read FRED 67 (which included details on how to respond).
FRED 67 does not include the introduction of major changes arising from recent changes in IFRS, for example relating to the expected loss model for the impairment of ﬁnancial assets in IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases. Such changes, if any, will be the subject of a separate consultation and will not be effective before 1 January 2022.
For help and advice on FRS 102 please contact Richard Matthews.
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