New UK GAAP (FRS 102) is relatively similar to existing UK GAAP. However, the guidance is more concise, with all accounting and disclosure requirements specified within a single standard. FRS 102, ‘The financial reporting standard applicable in the UK and Republic of Ireland’ replaces all existing UK standards (FRSs and SSAPs) and UITF abstracts.
FRS allows reporters to look to other GAAPs for guidance where the standard is silent. There is no mandatory fallback to International Financial Reporting Standards (IFRS) so, for example, groups reporting under US GAAP may be able to minimise adjustments required for group reporting purposes by electing policies aligned to those adopted by the group.
Iain Selfridge gives a short overview of some of the things to consider before deciding FRS 102 (new UK GAAP) is right for you.
When looking at FRS 102 and how you might wish to use it within your group, you should bear in mind that it’s very similar to existing UK GAAP. But in fact it’s a lot more compact and there are less disclosure requirements. You could actually look to other GAAPs, So if you are in a US GAAP group, if there is accounting that isn’t covered by FRS 102 you would be allowed to look at your US GAAP accounting policies. As long as they follow the principals of UK GAAP you could apply those. And yes, you will now have to account for financial instruments but they are a lot less onerous than IFRS. There are effectively, basic or complex financial instruments, not all of them need to be of fair value and you can – if you want to – step up to full IFRS as an option. And, it also maintains all of our UK disclosure exemptions that we are used to and it’s a lot less than full IFRS.
There is the group reporting flexibility in that you are allowed to mix your subsidiaries between FRS 102 (the new UK GAAP), or FRS 101 the reduced disclosure framework, should you choose. There are a couple of limitations you should think about. You are not allowed to list your subsidiary or your group using FRS 102. You would have to use full IFRS for that, so bear that in mind if you have an exit mechanism coming up and there is potentially a lack of comparability if you are going to apply UK GAAP - the new 102 - compared to your peers who may well be using IFRS.
FRS 102 contains several disclosure exemptions. The benefits of this include less significant data requirements and reduced complexity compared to the requirements under full/EU IFRS.
Key disclosure exemptions include: cash flow statement, certain disclosure requirements relating to share-based payments, key management personnel compensation and financial instruments and hedge accounting related disclosures* (*not available to financial institutions and entities with certain financial liabilities held at fair value).
It is now acceptable to have a mix FRS 101, FRS 102 and FRSSE reporting within the group – as all three options are within the Company Act’s framework.
For most entities there is unlikely to be a need for significant systems and process changes. And for entities that are not a financial institution, or that do not have certain financial instruments carried at fair value, there should be no significant impact in generating disclosure information under FRS 102.Financial institutions and entities with certain financial instruments held at fair value may also find no significant impact if the parent entity has the capability to generate this information for group reporting purposes.