Legal Focus Autumn 2015 – New UK GAAP: FRS 102

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22 October 2015


Hazlewoods200FRS 102 is a new accounting standard, which replaces all of the current SSAPs and FRSs. It is a single standard, with 35 sections covering the various different items previously dealt with in separate standards, and is 350 pages long, compared to the 3,000 or so pages of current UK GAAP.

FRS 102 will become the standard for accounting for LLPs and unlisted limited companies in the UK. For medium sized and large entities it applies to accounting periods commencing on or after 1 January 2015, and therefore the first financial statements to be affected will generally be 31 December 2015 year ends. The comparatives in those accounts will also need to be restated, meaning the opening balance sheet at 1 January 2014 (i.e. at 31 December 2013) will have to be recalculated in accordance with FRS 102.

FRS102 will apply to small LLPs and companies the following year, i.e. for accounting periods commencing on or after 1 January 2016.

Despite the fact that FRS 102 becomes effective in just a few months’ time, there is some dispute over how it will impact on legal practices. Based on current interpretation, the main areas where we believe that we may see significant differences between existing UK GAAP and FRS 102 are outlined above.

  1. Revenue recognition. Currently, UITF 40 permits contingent WIP to be excluded from the financial statements until the contingent event occurs. However, FRS 102 does not include this exemption, and instead requires income to be recognised when it can be reliably measured and it is probable that it will be received in future.
  2. Directors’ / members’ loans. There may be a requirement to discount the book values of these loans where they carry no interest, or where interest is below market rate, unless it can be demonstrated that the loans are short term and repayable on demand.
  3. Amortisation of goodwill. Unless practices can make a reliable estimate of the useful economic life of any goodwill, the default amortisation period will be ten years (this has recently been increased from five years in the draft standard).

Our in-house Technical Team have been looking very closely at this for several months, and have spoken to a number of experts on accounting standards. We will report back as soon as we know more.

Please see the full Legal Focus – Autumn 2015 here.



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