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FRS 102 Triennial Amendments

By Kathryn Burns

Many companies and their advisors complain that financial reporting regulation is always changing! Companies will turn to their accountants and advisors for help in navigating the recent amendments. When FRS 102 was originally released back in 2015, many firms hoped that it would mean a period of stability for Irish companies, who would have had a significant amount of work to do to prepare themselves for the transition to FRS 102. Perhaps this was not necessarily the case as we have seen the Financial Reporting Council (FRC) undertake a triennial review of this “new GAAP” and make further changes to FRS 102 that will affect Irish companies.

The FRC committed to undertaking a triennial review of the accounting standards in Ireland and UK, looking every three years at implementation issues that had arisen for preparers of financial statements. The amendments take mandatory effect for periods starting on or after 1 January 2019 and early adoption is permissible. The article doesn’t highlight all the changes introduced but reviews the key issues which are going to most affect those preparing financial statements.

Removal of undue cost or effort exemptions

The FRC have decided to remove the exemption of “undue cost or effort” which they felt was being abused somewhat by many companies. Prior to the review, companies were required to measure all investment property at fair value, unless there was undue cost or effort in determining such a fair value. This exemption has been removed so all investment property (with the exception of investment property rented to another group entity) must now be measured at fair value. I think many companies were interpreting “undue cost or effort” as an accounting policy choice, rather than an exemption to measure investment properties at cost, so for this reason the FRC have decided to remove it altogether. The consequence is that all investment properties must be valued at fair value (except for those rented to another group entity), with gains or losses hitting the profit and loss account and deferred tax must be calculated. For many companies, if they have previously measured at cost using this exemption, they must now assess a fair value. It is worth noting that the valuation does not necessarily need to be undertaken by an expert valuer, and directors could possibly value the investment property, although they must disclose in the financial statements the methods and significant assumptions made by management in determining fair value. 

On the flip side, a new accounting policy choice has been introduced, specifically in relation to investment property rented out to another group company. Under previous GAAP you measured these properties at cost less depreciation, although this choice was removed when FRS 102 was introduced. After some feedback, the FRC have decided to allow companies to choose to measure such investment properties rented out to group members at cost (less depreciation and impairment) or fair value. If the company decides to choose this cost model for such properties, then on transition to this new accounting policy, an entity is permitted to use the fair value of such an investment property as its deemed cost at the date of transition to the Triennial Review 2017 Amendments (i.e. the start of the comparative period). It is worth noting, that all other investment properties rented out to third parties must be measured at fair value and there is no cost model choice. 


Director/shareholder loans exemption

For most small companies, director/shareholders will enter into loans with the company at lower than market interest (or zero interest). FRS 102 stated that these loans were “financing transactions” and present value should be measured on initial recognition, with the difference being a capital contribution. Many small companies found this calculation very cumbersome and I think this new exemption will prove to be most popular with small companies, as it allows an option to measure loans from a director (or their group of close family members when that group contains at least one shareholder) at transaction price, rather than present value. Companies that have avoided the present value calculation by making these type of loans by/to director/shareholders “repayable by demand” and classified these are short term liabilities, can now be moved into long term liabilities without having to complete the present value calculation. Many companies may be pleased to know that this exemption may be early adopted in isolation to the other changes. Whereas, if a company want to early adopt any other changes from the Triennial Review, it triggers the early adoption of all changes.


Intangibles acquired in business combinations

The FRC have amended section 18 on intangible assets acquired in a business combination. The requirements have now made it clear that companies are only required to recognise such intangible assets separately from goodwill if they meet the recognition criteria, are separable and arise from contractual or other legal rights. Companies are given the choice to separately recognise additional intangible assets on acquisition so long as they meet the recognition criteria as mentioned above.


Other important amendments

FRS 102 Section 1A has been updated to reflect the implementation of the EU Accounting Directive in the Republic of Ireland, so all Irish disclosure requirements are in an appendix to the standard. A new appendix has been inserted (Appendix D) setting out the disclosure requirements applicable to small entities in the Republic of Ireland. 


Statement of Cash Flows - Net debt reconciliation introduced

An unpopular change, many may say, but the FRC have decided to introduce the requirement to disclose a net debt reconciliation. This disclosure is based on, but not identical to, the requirements of “old GAAP”, FRS 1 Cash Flow Statements.

For many readers, you may think that none of these proposed changes are relevant, although we would recommend that you communicate as soon as possible to your clients so that they can prepare for their accounting periods beginning on or after 1 January 2019. The full text of the Triennial Review can be found on the FRC website. 


CPD Course: 'Triennial Amendments- Implementing the Changes to UK GAAP'

The first Triennial Amendments to FRS 102, issued in December 2017, represent the first comprehensive overhaul of new UK GAAP. It’s vitally important that preparers and auditors of FRS 102 accounts understand the amendments, their effect on the accounts, and whether these should be early-adopted.

Our CPD course 'Triennial Amendments- Implementing the Changes to UK GAAP' is running in venues throughout the UK later this year and will provide an in-depth look at the amendments. Click here to find out more and book online or contact our friendly team on the details below.

- Tel: 0330 058 7141
- Email: enquiries@mercia-group.co.uk

Northern Ireland
- Tel: +353 (0)1 8090080
- Email: enquiries@merciaireland.com


March 2019 


This article is published with the understanding that SWAT UK Limited is not engaged in rendering legal or professional services. The material contained in this article neither purports, nor is intended to be, advice on any particular matter. This article is an aid and cannot be expected to replace professional judgment. SWAT UK accepts no responsibility or liability to any person in respect of anything done or omitted to be done by any such person in reliance, whether sole or partial, upon the whole or any part of the contents of this article.