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Changes To FRS 102 Accounting Rules

28th March 2017

While most UK entities are either recovering from adopting FRS 102 for the first time or preparing for the process, the Financial Reporting Council (FRC) have proposed changes to FRS 102 through exposure draft FRED67.

If accepted the proposed changes will come into force for accounting periods beginning on or after 1 January 2019. Early adoption will be permitted but you would have to adopt all changes at the same time and also disclose the fact within the accounts (unless you are a small entity where the disclosure is only encouraged).

There are a large number of changes being proposed with the main proposals being:

  • Directors Loan rules for small companies (see below)
  • Permitting investment properties rented to another group entity to be measured based on cost rather than its fair value.
  • Simplification to the acquisition accounting rules whereby there is less need for intangible assets to be separately identified.
  • Changes to the definition of what is classified as a basic financial instrument. There are a large number of change to chapter 11 of FRS 102 which deals with basic financial instruments. The FRC believe this will lead to fewer financial instruments being classified as complex and thereby being measured at fair value.
  • Removing number of entities from the definition of financial institutions which will reduce their disclosure requirements.

The most significant of these changes is the change to Directors loan rules. Previously, under FRS 102 interest free loans from Directors had to be discounted using a market rate of interest for the accounts. This was an unwanted complication for many entities. They now propose that basic financial loans from a director who is an individual and shareholder in a small entity (or close member of the family of that person) may now initially be measured at cost rather than being discounted using a market rate of interest. The same exemption would also apply to a public benefit entity concessionary loan.

The FRC are looking for responses to FRED67 by 30 June and plan to finalise the amendments to FRS 102 by December 2017. We will provide updates once the standard is finalised.

Steven Cunningham, Technical Partner