Generally Accepted Accounting Practice in the UK, or UK GAAP, is the overall body of regulation establishing how company accounts must be prepared in the United Kingdom. This includes not only accounting standards, but also UK company law. (Wikipedia)
UK GAAP was over 3,000 pages, but in March 2013 the new Financial Reporting Standard – FRS 102 – was finalised. It’s a mere 342 pages and will succeed UK GAAP and bring the UK closer to International Financial Reporting Standards (IFRS).
FRS 102 will be mandatory for periods beginning on or after 1st January 2015 but you can adopt it for periods ending after 31st December 2012.
It will apply to all entities with the main exceptions being:
- Those small companies who have adopted FRSSE (Financial Reporting Standard Small Entities)
- Those companies applying IFRS (International Financial Reporting Standards)
The Financial Reporting Council (FRC), in an article in Financial Director Magazine April 2013, claim:
- UK GAAP provided inadequate guidance on accounting for financial instruments
- There were inconsistencies in standards between IFRS and older standards
- Trainee accountants now learn IFRS so knowledge of UK GAAP is being lost
- FRS 102 allows for benchmarking which could lead to reduced borrowing costs
There are a number of key areas which you should start to consider now so that you can prepare for FRS 102:
Financial Instruments (FI) – FRS 102 deals with FI in two chapters:  Chapter 11 deals with basic FI such as debtors, creditors and simple loans, chapter 12 deals with more complex FI such as forward contracts, interest rate swaps and derivatives. Basic FI will continue to be recognised at amortised cost, however, the more complex transactions that fall into Chapter 12 will need to be measured at fair value with movements being recognised in P&L a/c.
Business Combinations – For most acquisitions accounted for under FRS 10 intangible assets such as brands, customer lists etc are mainly rolled into the goodwill figure rather than recognised separately. Under FRS 102 it is more likely that intangible assets will be recognised separately from goodwill and each might well be amortised over different useful lives.
Investment Property – FRS 102 requires revaluation gains and losses on investment properties are recognised directly in P&L a/c rather than the current procedure under UK GAAP which is for gains and losses to be held in the Statement of Total Recognised Gains and Losses (STRGL) until realised. This is likely to lead to more volatility in the P&L a/c.
Deferred Tax – changes to the deferred tax treatment of revaluations of property, plant, equipment and investment property, fair value adjustments under business combinations, unremitted earnings of overseas associates and joint ventures are likely to result in more deferred tax entries in the future.
http://community.cimaglobal.com/blogs/nick-topazios-blog/key-changes-uk-accounting-requirements
steve@bicknells.net
