FRS 102The Main Differences from previous Irish Gaap and the Transition rules

PresenterRobert KirkProfessor of Financial Reporting

Differences between current Irish Gaap and FRS 102

• Inclusion of basic concepts and principles (Section 2)

• Marriage of EU Law in Companies Act with IFRSSME need for major headings in B/S – current/non current and equity

• Need for multi column reporting in profit and loss account for discontinued operations

Differences between current Irish Gaap and FRS 102

• Inclusion of Statement of Changes in Equity

• Possible option of Statement of Income and Retained Earnings

• Compulsory Cash Flow Statement (reconcile to cash and cash equivalents) (only three headings – operating, investing and financing) (direct and indirect methods – operating activities)

Differences from Irish Gaapand FRS 102

• Introduction of two options in accounting for grants – accruals and performance models

• Need to disclose other government assistance

• Introducing a specific section on Revenue which includes construction contracts

• Inclusion of employee benefits section NOT just retirement benefits

Differences from Irish Gaapand FRS 102

• Implementation of the concept of Functional Currency and death of the temporal method

• Use of weighted average method only for translating profit and loss

• Single line for associates after tax in pre tax profit and loss

• Use of effective interest rate model for most financial instruments

Differences from Irish Gaapand FRS 102

• Deferred tax – timing differences +

• VAT and withholding tax

• Material NOT fundamental errors

• Information about judgments and key sources of estimation uncertainty

• Introduction of two models for agriculture – cost and fair value

Differences from Irish Gaapand FRS 102

• Operating lease disclosure – total commitments NOT annual

• No 90% test for finance leases – more subjective judgment

• Investment property – more fair values – gains and losses through profit

Differences from Irish Gaapand FRS 102

• Death of merger accounting for business combinations

• More intangibles in business combinations

• Ability to reverse inventory writedowns

• More emphasis on component accounting

Differences from Irish Gaapand FRS 102

• Goodwill – max 10 yr life if no reliable EU

• Impairment writedown - first to goodwill then other assets pro rata basis and no reversal of goodwill impairment

• New section on hyperinflation

• Need to split hybrid financial instruments into debt and equity

Differences from Irish Gaapand FRS 102

• Service concessions – introduced

• Financial institutions – additional disclosures

• Retirement benefits plans – content

• PBEs - Concessionary loans, non exchange transactions, mergers

Topics excluded from the IFRS for SMEs but under FRS 102 must follow full standard if adopt

• Operating Segments

• Earnings Per Share

• Interim Financial Reporting

First Time Adoption of FRS 102

• Must apply Section 35• Explicit and Unreserved Statement of Compliance

EXAMPLE – STATEMENT OF COMPLIANCE The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain assets. The financial statements of the company for the year ended 31 December 2015 have been prepared in accordance with the Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland (FRS 102) issued by the Financial Reporting Council and endorsed by The Institute of Chartered Accountants in Ireland. These are the company’s first set of financial statements prepared in accordance with FRS 102

Transition Date - 31 December year end

Comparative year

1st year of adoption

Transition Date

1.1.14 31.12.14 31.12.15

First full FRS 102 accounts

Transitional Arrangements

Requirements• Opening Balance Sheet (i.e. equity) as at 1st January 2014 and

reconciled to UK Gaap (Date of Transition)

• Closing Balance Sheet (i.e. equity) as at 31st December 2014 and reconciled to UK Gaap

• Reconcile profit and loss for year ended 31st December 2014

• Fully into FRS 102 year ended 31st December 2015

RECONCILIATIONS at TRANSITION

Four Steps

(i) Recognise assets and/or liabilities previously not recognised – e.g. forward exchange contracts, holiday pay accrual;

(ii) Derecognise items as assets or liabilities if FRS 102 does not permit their recognition – e.g. homegrown brand names;

(iii) Restate certain assets and liabilities at a different value – e.g. financial instruments measured at amortised cost using the effective interest rate, which may vary from a previously used historical cost, deferred tax under timing differences + method;

(iv) Reclassify items – e.g. into different groupings within equity (revaluation reserve on investment property into retained earnings

Adjustments on transition are usually recognised in retained profit (or loss), or where appropriate another category within capital and reserves.

List of Mandatory Exceptions to Retrospective Application of FRS 102

• Derecognition of financial assets & financial liabilities• Hedge accounting• Accounting estimates

• Discontinued operations• Measuring Non

Controlling Interests

FRS 102 prohibits retrospective application of these items.

List of Possible Exemptions

• Business combinations• Share based payment• Fair value or revaluations at

deemed cost• Individual or separate financial

statements• Dormant companies• Deferred development costs

• Compound financial instruments• Service concessions• Extractive Industries• Arrangements containing a lease• Decommissioning liabilities in

PP&E

Entities may elect to apply these exemptions.

(a) Business combinations including group reconstructions Business combinations after the transition date must be accounted for under FRS 102. This includes the treatment and measurement of intangible assets and NCIs. The entity may elect not to apply FRS 102 to business combinations before the date of transition, but if it elects to apply FRS 102 to some transactions before the transition date, it must apply it to all later business combinations, but is not required to apply it to earlier ones.

(b) Share based payment transactions A first-time adopter is not required to Section 26 (Share based payments) to equity instruments that were granted before the date of transition, or to liabilities that were settled before the date of transition. However if the first time adopter has previously followed FRS 20 or IFRS 2, no amendment can be made on transition.

(c) Fair value as deemed cost A first-time adopter may elect to measure an item of P,P & E, investment property or Intangible asset at the date of transition at its fair value and use that fair value as its deemed cost at the date of transition. This may be of interest to an entity which has previously revalued property but has not kept the valuations up to date, and does not wish to keep valuations up to date.

(d) Revaluation as deemed cost On a similar basis to (c) above, a previous revaluation may be used as deemed cost revaluation may be used as deemed cost.(e) Not used

(f) Individual and separate financial statements In a parent company accounts investments in subsidiaries, associates and joint ventures may be carried at cost or valuation. A first time adopter may use previous GAAP as deemed cost.

(g) Compound financial instruments Section 22 requires a compound financial instrument to be split into liability and equity elements. Where the liability component is not outstanding at the date of transition, a first-time adopter need not separate the elements.

(h) Not used

(i) Service concession arrangements – accounting by operators No requirement to apply sections 34.12J to 34.16A to service concessions entered into before the date of transition. Such concession should continue to be accounted for under previous GAAP.

(j) Extractive industries Special transitional rules may apply

(k) Arrangements containing a lease

May elect to determine whether an arrangement existing at the date of transition contains a lease on the basis of facts and circumstances existing at that date, rather than when thearrangement was entered into.

(l) Decommissioning liabilities included in the cost of property, plant and equipment

May elect to measure initial estimate of the costs of dismantling and removing the item and restoring the site in the cost of an item of property, plant and equipment at the date oftransition to this FRS, rather than on the date(s) when the obligation initially arose.

(m) Dormant companies May elect to retain its accounting policies for measurement until there is any change to the balances or the company undertakes any new transactions. This ensures that, in general, the adoption of FRS 102 does not of itself trigger a transaction which needs to be recorded and therefore causes the company to cease to be dormant. However, where FRS 102 required the recognition of a new asset or liability, this would need to be recorded and the company would cease to be dormant.

(n) Deferred development costs as deemed cost A first-time adopter may use the deferred development costs under SSAP 13 as deemed cost for the purposes of section 18 of FRS 102.

(o) Borrowing costs The date of transition may be the date on which capitalisation of borrowing costs commences.

(p) Lease incentives Not to apply requirements of section 20.15 where term of lease commenced before date of transition.

(q) Public benefit entity combinations

May elect not to apply paragraphs PBE34.75 to PBE34.86 relating to PBE entity combinations to combinations that were effected before the date of transition to this FRS. However, if on first-time adoption a public benefit entity restates any entity combination to comply with this section, it shall restate all later entity combinations.

(r) Assets and liabilities of subsidiaries, associates or joint ventures

This exemption relates to subsidiaries, joint ventures and associates which become first time adopters later than the parent entity, and allows them to use date of parent transition for consolidation purposes, but own date of transition for other requirements of FRS 102.

(s) Designation of previously recognised financial instruments

Permitted to designate, as at the date of transition to this FRS, any financial asset or financial liability at fair value through profit or loss provided the asset or liability meets the criteria in paragraph 11.14(b) at that date.

(t) Hedge accounting

Detailed transition rules apply

Travelodge under FRS 102

Travelodge under FRS 102

Travelodge under FRS 102

END OF PRESENTATION

Thank you for your kind attention

Any questions?

Thank you for your kind attention

Any questions?