the new uk gaap - preparing for change | accountex 2015

BUSINESS WITH CONFIDENCE icaew.com© ICAEW 2015

May 2015

The new UK GAAP - Preparing for changeMarianne Mau FCA


Contents

An outline of the UK financial reporting regime

Proposed changes to the small company regime

FRS 102 The Financial Reporting Standard

Practical implications of first-time application

Resources


THE NEW UK FINANCIAL REPORTING REGIME

The new UK GAAP - Preparing for change


UK Financial Reporting Regime pre 2015

EU-adopted IFRS Mandatory for listed and AIM companies Can be voluntarily adopted by most other companies

UK GAAP (excluding the FRSSE) Available to all entities not required to apply EU-adopted IFRSs Includes all FRSs, SSAPs, UITF Abstracts

FRSSE (2008) Available to most small and micro-entities as defined by CA 2006 Amended for 2013 micro-entity regulations


Qualifying for micro-entity accounting exemptions


Format of micro-entity accounts

Choice of two balance sheet formats

• vertical or horizontal (eight or ten line items only respectively)

One profit and loss account format

• Eight line items only

All line items prefixed by a letter• Cannot change names or combine• Must appear on the face and in order

Option to include additional line items on the face• Directors’ advances, credit and guarantees• Details of other guarantees and financial commitments

No notes but some disclosures at the foot of the balance sheet

Deemed to give a true and fair view


UK Financial Reporting Regime 2015


FRS 101 Reduced Disclosure Framework Qualifying entities who otherwise adopt the recognition, measurement and disclosure requirements of EU-endorsed IFRSFRS 102 The Financial Reporting Standard For all entities not applying EU-adopted IFRS, FRS 101 or then FRSSE. Reduced disclosures available for qualifying entitiesFRSSE (2015) Available to most small and micro-entities as defined by CA 2006


PROPOSED CHANGES TO THE SMALL COMPANY REGIME



Changes to the small companies regime

New EU Accounting Directive• A number of member state options available• Significant changes to small company reporting requirements

Changes to company law• Increase in small company accounting thresholds• Limited notes required in small company accounts• Option to file abbreviated accounts removed; option for small companies

to prepare and file abridged accounts.

FRC proposed changes to UK accounting standards• Small entity reporting to be brought within FRS 102 but with separate

section with reduced disclosure/presentation requirements.• A new reporting standard for micro-entities (FRS 105) developed from the

recognition and measurement requirements in FRS 102 with a number of accounting simplifications.

Changes effective for financial years beginning on or after 1 January 2016. Early adoption possible.


Individual company Current Revised

Turnover £6.5 million £10.2 million

Balance sheet £3.26 million £5.1 million

Employees 50 50

Revised thresholds for small companies

Group (gross) Current Revised

Turnover £7.8 million £12.2 million

Balance sheet £3.9 million £6.1 million

Employees 50 50


UK Financial Reporting Regime 2016?


FRS 101 Reduced Disclosure Framework Qualifying entities who otherwise adopt the recognition, measurement and disclosure requirements of EU-endorsed IFRSFRS 102 The Financial Reporting Standard For all entities not applying EU-adopted IFRS, FRS 101 or FRS 105FRS 102 Section 1A Small Entities to set out reduced presentation and disclosure requirements

FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime

To be available to micro-entities as defined by CA 2006


FRS 102 THE FINANCIAL REPORTING STANDARD



Transition

Full retrospective application is the

norm

Exceptions to full retrospective

application

Optional exemptions from retrospective

application which can be selected on an individual basis

Detailed disclosures and reconciliations

are required on first-time adoption

© ICAEW 2013 13


Based on IFRS for SMEs – but with differences Wider scope More accounting

options

Reduced disclosures for qualifying entities 35 sections Replaces FRSs, UITF

Abstracts and SSAPs



Format of the financial statements

Primary statements

• Statement of financial position• Separate income statement and statement of comprehensive

income or single statement of comprehensive income • Statement of changes in equity• Statement of cash flows

Notes

Company law formats continue to apply

Flexible regarding the titles of the primary statements

A single statement of income and retained earnings may be presented in some circumstances

The statement of cash flows analyses movements in cash and cash equivalents between changes arising from operating activities, investing activities and financing activities


Mind your language


Major differences

Financial instruments

Investment properties

Defined benefit pension plans

Holiday pay accruals

Lease incentives

Merger accounting

Identifying goodwill and intangibles

Useful life of goodwill & intangibles

Deferred tax

Share-based payments (if moving from FRSSE)


Basic financial instruments

Section 11

• Straightforward terms eg, trade debtors, trade creditors, simple bank loans

• Rules to determine whether an instrument is ‘basic’• Generally measured at amortised cost• Investments in shares generally at fair value through profit or loss


Other financial instruments

Section 12

• Those that are not basic• Includes derivatives such as foreign exchange forward

contracts and more complex loan agreements (eg, where interest rates are linked to commodity prices or equity prices)

• Almost all at fair value through profit or loss


Useful life of goodwill and intangibles

Current UK GAAP FRS 102

Life of goodwill can be indefinite

Maximum useful life of 20 years but this can be rebutted when longer or indefinite life can be justified

Must have a finite life

Where no reliable estimate can be made, the useful life is presumed to be no more than 5* years

* Proposed to extend to 10 years as a result of recent changes to company law


Deferred tax

Current UK GAAP FRS 102

FRS 19 requires an approach based on the concept of timing differences

Permits but does not require discounting

Timing difference plus approach means additional liabilities will have to be recognised in some instances

Does not allow discounting


Deferred tax

•FRS 102 requires deferred tax to be recognised on all revaluation gains rather than only when there is an agreement to sell a revalued asset.

Revaluation gains

•FRS 102 requires deferred tax to be recognised on fair value adjustments when consolidating a subsidiary for the first time. The deferred tax asset or liability adjusts the amount of goodwill recognised.

Fair value adjustments

•FRS 102 requires that, unless certain criteria have been met, deferred tax should be recognised on the unremitted earnings of subsidiaries, associates and joint ventures rather than only to the extent that distribution of earnings has been agreed.

Unremitted earnings


PRACTICAL IMPLICATIONS OF FIRST-TIME APPLICATION



FRS 102 Adoption timeline

1.1.2014 31.12.2015

Amendments to be applied retrospectively

Date of transition to FRS 102

Current UK GAAP reporting ends

First FRS 102 financial statements

31.1.2014


Reconciliations

1.1.2014 31.12.2015

Reconciliation of equity

Reconciliation of equity

First FRS 102 reporting with reconciliations

31.1.2014

Reconciliation of profit or loss

Description of each material change in accounting policy


General approach to transition


More than accounting change

Information systems may need to be upgraded or

replaced

Employees may need to be trained

Investors and lenders may need

to be educated

Implications for individual transactions or arrangements may need to be considered

Dividend planning

Tax implications

27


RESOURCESThe new UK GAAP - Preparing for change


FRC website – new UK GAAP

• Electronic versions of the standards

• Staff Education Notes

• Editorial amendments and clarification statements

• Status of SORPs

• Latest developments


icaew.com/newukgaap


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Wrap up

An outline of the UK financial reporting regime

Proposed changes to the small company regime


Practical implications of first-time application

Resources


Questions?

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