Impact on changes of FRS 102 on businesses accounts. Are you ready?

29th January 2016

Impact on changes on FRS 102 on business accounts. Are you ready?


FRS102 is replacing current accounting standards. So what? This will mean your accounts will look different, profits could change, your remuneration packages and bonus schemes may also change as well as your tax position. Are you ready?

How ready are you for this change and how well do you understand the impact it will have on your business? Here are our Top Five points for you on first time adoption:

1. Know when the change is taking place

2. Know your transition date

3. Calculate your opening balance sheet: The 4 main steps in preparing this balance sheet are:

  • Recognise all assets & liabilities required by FRS102
  • Omit assets & liabilities for which recognition is prohibited by FRS102
  • Reclassify any items which recognition is different under FRS102 to that of previous UK GAAP
  • Apply FRS102 in the measurement of all such assets & liabilities

4. Prepare reconciliations: In accordance with Section 35 of FRS102 you are required to include the following in your financial statements:

  • An explanation of the nature of all changes to accounting policies
  • A reconciliation of equity to that reported under the previous UK GAAP at both of the following dates:
  • transition date.
  • the end of the latest period presented in the entity’s most recent annual financial statements determined in accordance with its previous financial reporting framework.
  • A reconciliation of profit or loss determined in accordance with its previous financial reporting framework for the latest period in the entity’s most recent annual financial statements to its profit or loss determined in accordance with FRS 102 for the same period.

5. Understand the financial and taxation implications

Accounting standard and basis is changing for accounting periods from 1st January 2016

Key changes that will impact on the clients accounts such as:

Employment costs, provisions re holiday pay: If you have sent an EPS (Employer Payment Summary) in 15/16 activating employment allowance you do not need to notify HMRC again for 16/17. The option will remain activated in both your payroll software and in HMRC records. Continue with your payroll as normal, you will only need to send an EPS if the normal requirements apply for statutory payment recovery/compensation, CIS deductions suffered or inactivity of PAYE.

Current UK GAAP is much less explicit about the accounting for short-term benefits than FRS 102, but there is no conceptual difference between the two. However, in practice many UK reporting entities do not provide for holiday pay (short-term compensated absences) and will need to consider this when applying FRS 102 for the first time.

Treatment of negative revaluation reserves on Property and Deferred tax on property revaluations: Transition to the new FRS 102 accounting standard will allow business owners to inject a one-off boost to the balance sheet, with a revaluation of land and buildings. It also relaxes the requirements for ongoing property revaluations as Lancaster Clements Limited explains.

If you have a property asset sat on the balance sheet at, say, £150,000 but with an actual value of £1 million, FRS 102 would allow you to have a final ‘one off’ valuation at transition date and for this valuation to be used as the deemed cost. This means you don’t have to apply a policy of revaluation going forward and can then revert to a depreciation method.

This can also work for plant and machinery but be aware that you have to apply the valuation to the whole class of plant and machinery. It’s the same for Property but is generally more manageable as fewer property assets are held.

Under the old accounting rules, if you opted to revalue your property, you would then have needed to maintain this policy of revaluation every year – an expensive and time-consuming exercise.

Under FRS 102, the requirements simply state that ‘revaluations are carried out with sufficient regularity to ensure the carrying value does not differ materially from the fair value at the end of the reporting period.’

In other words, FRS 102 gives business owners a one-off opportunity to revalue their property assets and then revert back to accounting for them on a depreciation basis.

Impact on profit and loss reserves which could mean less distributable reserves, and therefore, availability of dividends: There is some additional disclosure required by FRS 102 in relation to capital and reserves, and the standard allows for this to be presented either on the face of the balance sheet or by way of Note. The standard requires a description of each reserve; and for each class of share a capital, the rights, preferences and restrictions attaching to that class including restrictions on dividends and repayment of capital must be disclosed. FRS 102 also requires details of shares in the entity held by ‘its subsidiaries, associates, or joint ventures’. Although it should be noted that Companies Act 2006, section 136 prohibits a subsidiary from holding shares in its parent, unless the subsidiary is acting as personal representative or trustee, or as an authorised dealer in securities.

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