The Triennial Review amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland were issued in December 2017. In parts 1 and 2 of this three-part blog, I provided an overview of the areas affected by the amendments together with some details of which changes can be implemented when.
In this part I outline how to implement the amendments.
How are the changes adopted?
As most of the amendments are clarifications, there should be fairly limited circumstances in which a change in accounting policy arises. However, where this is the case the change in policy should be applied retrospectively in accordance with Section 10 of FRS 102 (rather than as a transitional adjustment on initial application of FRS 102 under Section 35).
There are two exceptions to this rule which are discussed further below.
When retrospective application is applied, changes will be implemented from the date of transition for the 2017 triennial review amendments, being the start of the comparative period to which the amendments are first adopted.
To illustrate, suppose an entity decides to early adopt the amendments in full for the year ending 30 June 2017, with comparatives presented for the year ending 30 June 2016. The date of transition is the start of this comparative period, 1 July 2015. Assets and liabilities will need to be measured in accordance with the amendments as at 1 July 2015 (although there is no requirement for an additional statement of financial position to be presented).
If this results in adjustments being made, the corresponding entries will be to retained earnings (or if appropriate, another category of equity). Adjustments will need to be reflected in the comparative statement of financial position, with the effect of restatement on opening balances being disclosed in the related notes.
A change in accounting policy note will also be required.
Paragraph 13 of the amendments does contain limited specific transitional provisions, with exemptions from retrospective application for investment properties rented to other group entities and intangible assets acquired in business combinations.
If the property had previously been measured at fair value, but the option to measure it under the cost model is now adopted, its fair value at the date of transition may be used as its deemed cost at this date. Depreciation and impairment losses are then recognised from the transition date. This eliminates the need to restate the property to a carrying value based on its historic cost at the date of transition.
Where intangibles have previously been recognised separately from goodwill but a change in policy now arises such that they would no longer be separately recognised, the change is applied prospectively (comparative information is not restated). These particular assets will continue to be recognised separately, preventing them from being subsumed into goodwill.
Entities should carefully consider the implications of early adoption and will need to ensure that all appropriate adjustments and disclosures are made on the transition.
The Financial Reporting Faculty is working to provide guidance to members on the changes, including but not limited to this series of blogs. We are hosting a UK GAAP update webinar on 22 March presented by Jenny Carter, director of UK Accounting Standards at the FRC, and Danielle Stewart, Head of Financial Reporting at RSM. They will discuss the key changes and provide some practical insights.
A further webinar focusing on financial instruments under FRS 102 will take place on 31 May, and further resources will follow as we listen to member questions and concerns.
Details on how to join the Faculty can be found here. Members of the Faculty have access to its webinars without further charge.