Getting ready for FRS 102

Financial reporting

standards

Ian Whyteside

Director, Consultant trainer and consultant,

The CIPP

July 2015

The Chartered Institute of Payroll

Professionals

• Only Chartered body for payroll

• Established 1980

• Almost 11,000 individual members

– Aim to increase to 15,000 in five years

• Over 160 pieces of legislation

• Represent payroll and pensions

– Government

– Employers

– Schools

Sage HR & Payroll

• A leading provider of HR and payroll systems and

services

• Award winning software for SME business and

accounting practices

• Regular partners with CIPP on payroll and pensions

related issues.

Recent developments

AAT members facility

• Recent successful initiative

• AAT members able to use the CIPP advisory facility

• Call 0121 712 1099

• Identify yourself as an AAT member

• Access is limited to normal office hours

• Not unlimited access but make the call and ask us

anyway, we may answer it

• And then ask you to sign up!

Introduction• Ian Whyteside

– APSA member from 1979

– CIPP member since it started

– AAT member since 1981

– ATT member since 2009

– Payroll since 1979

– Tutor and examiner for the Diploma in Payroll

Management 1991 to 2001

– Partner in accounting practice since 2009.

Introduction

• Ian Whyteside

– CIPP Non-executive director 1996 to 2001

– CIPP Director since 2008

– AAT Chief examiner for payroll L2 and L3 2002 till it

finished and now lead writer for Introduction to Payroll

– AAT Lead writer for ITAX since 2010

– Adviser on employment and consultation matters to

AAT member services

– AAT MiP since 2009

– Volunteer tax adviser to TOP.

Financial Reporting Standards

“To enable users of accounts to receive high-quality

understandable financial reporting proportionate to the size

and complexity of the entity and users’ information needs.”

“Aims to provide succinct financial reporting standards that:

• have consistency with international accounting standards

• reflect up-to-date thinking and developments

• balance consistent principles for accounting

• promote efficiency

• are cost-effective to apply.”(Extracted from FRS 102, The Financial Reporting Standard applicable in the

UK and Republic of Ireland – August 2014)

10


Agenda:

• Overview of FRS102

• Key changes

• Where do we go now?


Background to FRS102

• Ten year period of consultation, from 2002

• Largely based on IFRS requirements, but

– Appropriate to the entity

• 2010 saw the publishing of FRED43 and 44

• Two standards to replace most of the current ones

• Confirmation of IFRS based framework.


Timeline

Where are we now?

Application of FRS102 Comments

Accounting periods ending on or after 31 December 2012

Any business applying this FRS from these accounting periods had to disclose the fact

Accounting periods starting on or after 1 January 2015

Mandatory requirement unless the FRS does not apply


Concepts and Pervasive Principles• Understandability

• Relevance

• Materiality

• Reliability

• Substance over form

• Prudence

• Completeness

• Comparability

• Timeliness

• Balance between benefit and cost

• No significant difference to IFRS.

Financial position

• Statements are still only a snapshot of businesses financial position at a specific point in time

• Assets

• Liabilities

• Equity



Recognition of assets, liabilities, income and expenses

• Probability of future financial benefit

• Cost or value which can be measured

• Reliability of that measurement

• If a reasonable estimate is not possible, the item is

not to be recognised

Measurement of assets, liabilities, income and

expenses

• Historical

• Fair value.


Pervasive recognition and measurement

principles

• Derived from the 2010 IASB Framework for the

Preparation and Presentation of Financial Statements

• EU- adopted IFRS

This provides guidance for and the hierarchy to follow in

deciding the financial principles.

It also provides consistency between different reporting

standards.


Accruals basis

• All entities to use the accruals basis in the statements

• So, no change there either.


• Intangible assets• Must have a finite useful life

• Must be based on a reliable estimate

• If not possible then cannot exceed 5 years

• FRS102 refers to intangibles and goodwill

• Non-monetary and without physical substance• Development of internal project

• If feasible for it to be used or sold

• Its intended to be used or sold

• Its able to be used or sold

• It will generate future benefit by use or sale

• It can be completed to be used or sold

• Can be reliable measured

• Does not include research costs, brands, logos, customer lists.


• Intangible assets• Must be valued at cost, or

• Fair value if acquired by business combination or grant

• Or by exchange of assets

• Usually uses a residual value of zero

• Two models• Cost and Revaluation

• Revaluation model requires regular revaluation exercises

• Must have been recognised as assets and at cost first

• No set revaluation period, entity selects this

• Reporting of gains or losses as profit or loss as “other

comprehensive income”.


• Intangible assets• Derecognised on disposal or

• Becomes clear that no future benefit can be realised

• De-recognition produces a profit or loss value

• Significant disclosure requirements of

• Amortisation rates, methods and carrying amounts

• Statement of comprehensive income

• Reconciliation of carrying amount over the period

• Description, remaining period, grants and fair value

• So, more than just a change of valuation.


• Tangible assets (Staff education note 4/5)

• Investment property stated at fair value (SEN4)

• Revalued annually

• All others stated at valuation

• Valuation reviewed with “sufficient regularity”

• Movements in period recognised as profit or loss

• Again changes are not just disclosures but in the values.


• Investments (if fixed assets)

• Shares must now be recognised at fair value

• Valuation movements tracked and entered in the profit and

loss section

• Only if this can be reliably measured

• If not revert back to previous reporting of cost.


• Current assets – Stocks• Long term contracts no longer accounted for here

• All costs now included in revenue

• Cost of stocks stated as FIFO or weighted average

• LIFO is not permitted under FRS102

• Current assets – Debtors• Some items now considered to be financial instruments

• Staff education note 2/3

• Must then be disclosed as such and accounted for

• Includes trade debtors

• Good chance that most accounts will need a financial

instruments statement.


• Current assets – cash in hand and at bank

• Cash flow statement required for all accounts

• Staff education note 1

• Only three categories

• Cash from operating activities

• Investment activities

• Financing activities

• Reconcile balance here to balance shown in the cash flow

statement.


• Creditors – amounts falling due within one year

• Staff education note 6

• Leases still need to be classified as finance or operating

• Substance over form principle applies

• Consideration of risk and rewards of ownership still applies

• Slight difference in finance lease identification guidance, but

• Reality is, no change.


• Provisions

• Deferred taxation recognised on all revalued assets

• Agreement to sell or not is not relevant

• Discounting of deferred taxation is not permitted

• Accruals and deferred income

• Accrual for holiday pay is required (SEN9)

• Applies only where the financial and holiday years are

different

• Where employees carry forward entitlement

• Materiality rules will apply.


• Defined benefit pension plan liability (SEN10)

• Current rules will apply, generally

• FRS102 removes requirement for actuarial revaluation

• Removes requirement for independent actuary involvement

• Also removes set intervals of revaluation

• If assumptions have not significantly changed,

• Obligation is adjusted to reflect employee changes.


• Capital and reserves

• Statement of changes in equity now required

• Reconciliation of carrying amount between start and end of

period

• Movements in each item, effect on profit and loss and other

comprehensive income

• Statement of income and retained earnings may be

accepted if profit or loss are only effects.


• Revaluation reserve

• Investment property gains or losses recognised in profit or

loss

• No carry forward of existing reserve balance for investment

properties

• Balance of this on transition must be written off to profit and

loss reserve.


• Summary

• New standards are more closely related to IFRS and EU

adopted IFRS

• Not just definitions changed, in cases tighter definitions used

• Disclosure requirements have changed, but

• The measurement and valuation has also changed

• These are not minor tweaks to reporting standards.


• Systems considerations

• If its there, use it

• The system is there to make life easier

• However,

• System produced FRS102 format final accounts is a start

• Human intervention must then work this into the final

version

• System can only go so far


• So, what do we need to do?

• Firstly we need to consider the timing

• FRS102 was permitted from 1 January 2014, i.e. accounting

periods ending on or before 31 December 2014

• FRS102 is mandatory from 1 January 2015, i.e. accounting

periods commencing on or after 1 January 2015

• So who is affected?



• Decide if the business is affected, or

• If clients accounts are affected

• Exclusions:

• Business required to report under EU – Adopted IFRS

• Business choosing to report under FRSSE, but

• FRSSE going from 1 January 2016!

• Special considerations for Public Benefit Entities



• Business choosing to report under FRSSE

• Might want to consider switching to FRS102, maybe

• Very few reasons why they might want to, but

• If seeking finance for fast expansion, may wish to use the more

informative format of FRS102

• If they are being looked at for the purposes of acquisition, maybe

there is an advantage

• The potential buyer may insist on the new format



• Business affected must consider their accounts format

• If using FRSSE no problem – for now

• If it is not permitted to use this then FRS102 will apply

• We know the financial year so we know when it applies

• But what happens with previous periods?


“An entity’s date of transition to this FRS is the beginning of

the earliest period for which the entity presents full

comparative information in accordance with this FRS in its

first financial statements that comply with this FRS.”(FRS102 The Financial Reporting Standard applicable in the UK and Republic of Ireland

August 2014)



• Whenever a set of final accounts is produced

• The previous periods figures must be included for comparison

• But these will be in the old format, old calculations

• This is not permitted in any standard.



• The requirement of the new reporting standard clearly allows for

the restatement of previous periods in the new format

• We have to do this in at least the first set of accounts to which

the new reporting standards apply

• We may have to go back further depending on the reporting

choices of the business

• But who pays for this?



• If in house – business needs to understand the extra work

• If client work then client needs to know sooner, rather than later

• We need to decide if we can absorb the work, or

• Make an appropriate charge for restating previous periods

• If we charge let the client know soon

• Could actually start now on preparation

• CIPP has already been told by its accountants that:

• Firstly: the work has to be done and

• Secondly: the work will be chargeable

• We don’t like it, but there isn’t a lot we can do about it.


• Try the Sage interactive balance sheet

– https://sage-exchange.co.uk/news/new-uk-gaap-frs102/frs102-

balance-sheet-tool

– Opportunity to see that the format and titles have not changed

– The way the values are calculated are, and the pop up

explanations give a basic idea of how they are different, if at all.

https://sage-exchange.co.uk/news/new-uk-gaap-frs102/frs102-balance-sheet-tool



LinkedIn – CIPP Group

Twitter – @CIPP_UK

AND

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Date post:	14-Aug-2015
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Getting ready for FRS 102

Technology