The new UK accounting standards – what are they?
All companies that file statutory accounts will be affected by the introduction of the new UK accounting standards which start to be implemented this year.
The new standards represent the biggest overhaul in UK financial reporting in a generation. The new regime which replaces all existing standards will become mandatory for all large and medium-sized businesses for periods beginning 1 January 2015 (effectively 31 December 2015 year ends). Smaller businesses will follow a year later, for periods beginning 1 January 2016 (effectively 31 December 2016 year ends).
FRS102 – 5 things you need to know:
FRS102 applies to large and medium companies for periods commencing 1 January 2015
Small companies will adopt a version of FRS102 with reduced disclosures for periods commencing 1 January 2016
The accounting treatment of certain items will change and could necessitate adjustment of prior year figures. This could affect your company’s profitability, distributable reserves and corporation tax position
Companies need to assess what effect FRS102 will have on banking covenants, staff performance indicators etc
Making an accrual for holiday pay will become mandatory under FRS102
So what exactly are the new standards?
The new standards currently comprise six components which are summarised below:
FRS102 will form the backbone of the new UK accounting regime. It is entitled “The Reporting Standard Applicable in the UK and Republic of Ireland”. It replaces all of the current Financial Reporting Standards (FRSs) and Statement of Standard Accounting Practices (SSAPs).
Large and medium-sized businesses will adopt the full FRS102 standard as per the table above. Small companies will follow FRS102 with reduced disclosures required in the financial statements as specified by chapter 1A to FRS102.
How will the FRS102 impact on company accounts?
FRS102 will introduce changes in the way certain items are accounted for and will also change the layout of statutory financial statements. Some of the main accounting changes include:
- The way goodwill and other intangible assets are accounted for. Under FRS102 more intangibles are likely to be recognised separately and the maximum useful life will be 5 years instead of the current 20 years.
- Investment properties are now required to be revalued to fair value each year where this can be measured without undue cost or effort. Any changes to the fair value are treated as realised and will affect profit or loss directly.
- The definition of financial instruments is much wider under FRS102 and now encompasses items such as cash, trade debtors & creditors, bonds, loans and currency contracts.
- Accruals for holiday pay are mandatory under FRS102 if material.
How the changes will affect you?
In the first year of adoption of FRS102, comparative figures will need to be restated if there are accounting differences between old UK GAAP and FRS102. This will require a prior year adjustment to the comparative figures and could affect profitability, distributable reserves and the company’s Corporation Tax position.
Companies will also need to consider the impact this could have on bank covenants, staff performance indicators and the levels of dividend extracted from the company.
The transition to FRS102 will pose some interesting challenges but could also create some planning opportunities to take advantage of. At Dafferns, our team is ready to guide you through this transitional process and will provide you with the support and advice you need to make the transition a seamless experience.