Are you ready for FRS102?

Are you prepared for FRS102?

For accounting years beginning on or after 1 January 2015, a new accounting standard, FRS102, will apply.

This replaces all the current accounting standards in place for unlisted entities, and aims to simplify the reporting requirements. The majority of items in financial statements will be unchanged by the new standard, but a few key areas will look different.

Whilst 31 December 2015, the date of the first sets of financial statements under the new regime, might seem like a long way off, where treatment changes under FRS102, the new treatment will have to be reflected in the comparatives in those accounts. In other words, the 2014 figures will need to reflect the new treatment, and information gathering for those figures is not so far away.

Companies that are classed as ‘small’ are currently not expected to adopt FRS102. However the Financial Reporting Standard for Smaller Entities (FRSSE) is expected to be reissued, and the likelihood is that the key changes in FRS102 will be mirrored in this updated FRSSE.

So every company could see some changes, which is why here at Richardson Swift we are looking at each set of financial statements as we prepare them this year, to identify what areas might see changes going forward, and talking to our clients about those changes. These areas include things like interest rate swaps and foreign exchange forward contracts, but also some things seen more commonly in our SME client accounts:

Investment properties

These are revalued each year in the accounts to reflect current market value. This will still happen, but the increase/decrease in value will now go through the profit and loss account, rather than through reserves, thereby having an impact on the bottom line profit.

This profit isn’t distributable though, meaning a record will still need to be kept of these movements.

Intangible assets

The current rules give a maximum life of 20 years for goodwill and other intangible assets. FRS102 gives a maximum life of 5 years, unless a longer term can be proven. So amortisation periods are likely to reduce, thereby increasing amortisation charges, or more evidence of a longer lifespan will be required.

With this comes an emphasis on separating the intangible assets acquired when a business is bought, rather than calling it all ‘goodwill’. So if part of the price paid for an existing business reflects, for example, a particular contract, that will be separately recognised, and amortised, in the accounts.

Operating lease commitments

Disclosure will still be needed of commitments under leases, but instead of the note showing the annual commitment, it will show the total amount to be paid.

Remuneration of key management personnel

We’re used to directors’ emoluments being disclosed in the accounts, but this requirement is being extended to remuneration of ‘key management personnel’, defined as anyone with an element of influence or control. As this is bound to be a sensitive area, we’ll be talking to clients now about anyone that might fall into this category and how best to manage this.

On reflection, there may not be many changes for you based on FRS102, but an awareness is needed and the earlier any planning can be done, the better.

If you want to discuss the impact of FRS102 on your business, please contact Catherine Edwards.