The reduced disclosure framework (FRS 101) allows groups reporting under International Financial Reporting Standards (IFRS) to have their subsidiaries report using the same recognition and measurement principles, but without the effort involved in complying with exhaustive IFRS disclosure requirements.
The reduced disclosure framework (RDF) option is equally useful for groups reporting under US GAAP.
At present, many groups have their subsidiaries report under UK GAAP to minimise the reporting costs involved with full IFRS compliance, even though this results in additional effort to adjust their statutory financial statements for group reporting purposes. Large organisations may also benefit from the use of shared service centres.
Iain Selfridge discusses some of the things to consider before deciding FRS 101, The Reduced Disclosure Framework (FRS 101) is right for you.
If you are interested in using FRS 101 - that’s the reduced disclosure framework - a couple of things that you should think about are that the great advantage for your subsidiaries is that you get to do the recognition and measurement under IFRS - like you do in your group - but you have vastly reduced disclosures. Also if you are in a US GAAP group it might still be relevant because it allows you to give less information in your subsidiary accounts and it would also allow you take away the need to report UK GAAP statutory accounts because you will be able to apply effectively your group reporting pack and use that to drive your statutory accounts.
The group reporting has some flexibility now. You will be able to mix between the reduced disclosure framework of FRS 101 or the new UK GAAP of FRS 102. But there are some limitations in applying FRS 101. It only applies to separate accounts. You are not allowed to use it for consolidations – even if you prepare them voluntarily – and it isn’t suitable if you are actually looking to list your group or a subsidiary entity. You would have to use full IFRS for that, and there is a slight possibility that you might have lack of comparability with your peers if you choose a reduced disclosure framework and they use UK GAAP or full IFRS.
And if you are a financial institution, unfortunately you get slightly less relief because you have to give more discl0sures around IFRS 7 for your financial instruments. And then lastly, if you are currently on UK GAAP moving up to the RDF, which is the Reduced Disclosure Framework for IFRS, it might actually be a little bit more complex given that you are going to have to change your accounting as well as your disclosures.
FRS 101 introduces various disclosure exemptions. This means less onerous data requirements and reduced complexity compared to the requirements of full IFRS. Key disclosure exemptions include: cash flow statement, financial instruments (less relevant for financial institutions and entities with certain financial instruments held at fair value), business combinations, share-based payments, certain comparative information, certain related-party disclosures, key management compensation, impairments etc.
Entities that are not a financial institution (as defined in FRS 101) or that do not have certain financial instruments carried at fair value, are unlikely to incur significant impact from generating the disclosure information required under the RDF. As such, the transition is unlikely to result in major systems and process upgrades.
Financial institutions and entities with certain financial instruments held at fair value may find they are not impacted significantly, provided the parent entity is capable of generating any required new information centrally.