ICAEW responds to FRC’s first triennial review of FRS 102

After several months of outreach and debate, ICAEW has now submitted its response to the FRC’s proposed improvements and clarifications to FRS 102. A summary of the FRC’s key proposals (set out in exposure draft FRED 67) can be found in our blog posted in March 2017.

General thoughts…

We are broadly supportive of the FRC’s proposed amendments to FRS 102, which represent the first triennial review of the new UK GAAP standard. In particular, we agree with the FRC’S decision to focus on incremental improvements and clarifications to FRS 102, as opposed to proposing any fundamental changes at a time when the standard is still bedding down. 

However, we still believe there is room for improvement and have highlighted a number of areas where, in our view,  further thought is needed. Our views are the culmination of extensive outreach with ICAEW members, who over the last few months have provided their thoughts via comments on blogs, direct contact with the Financial Reporting Faculty, or through involvement with the working party set up to help formulate the ICAEW response to this important consultation. In addition, our event in April gave an opportunity for members to hear directly from FRC staff, and to comment on the proposals via polls and a lively Q&A session.  

Room for improvement…

The areas which need to be revisited by the FRC are outlined below:

Directors’ and intragroup loans

We welcome the FRC’s decision to enable small entities to account for loans from director-shareholders at transaction price rather than at present value. In our view, this is a pragmatic solution that reflects the unique nature of such loans.

In our response we highlight how many have also argued on a number of grounds that this exemption should be extended to intragroup loans within small groups. Although the balance of views we heard in formulating our response was not in favour of the introduction of any additional exemption for intragroup loans, we expressed sympathy for the arguments advanced for an exemption and noted that many of our members have strong doubts about the value of the information that would be provided by this accounting.  The issues are not clear cut and as a result we recommended that the FRC weighs very carefully the comments it receives from constituents in relation to this point.

Goodwill and intangibles

In our view, the current model is not working well in practice as there is considerable diversity when it comes to which intangibles are and are not being recognised separately from goodwill. While we agree that a pragmatic solution is needed we are not convinced by the proposals set out in FRED 67. In our response we put forward an alternative approach which would give entities a straight accounting policy choice.

Undue cost and effort

While we accept the rationale for removing the existing undue cost or effort exemptions, we are not convinced by the FRC’s arguments for disregarding the possibility of introducing any new ones in the future. In our opinion, the FRC should keep their options open as circumstances may arise in future where introducing such an exemption would be the best solution.

Please see our representation letter for more detailed comments on the above and our responses to the specific questions/proposals outlined in FRED 67. 

What next?

The Financial Reporting Faculty will be monitoring the FRC’s response to the feedback received on FRED 67 and is ready to facilitate further discussions in the coming weeks and months. If you have any further comments please let us know at frfac@icaew.com