Interpretation and application of UK GAAP collings

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Interpretation and
Application of UK GAAP
for Accounting Periods
Commencing on or After
1 January 2015


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Interpretation and
Application of UK
GAAP for Accounting
Periods Commencing
on or After 1 January
2015
Steven Collings


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This edition first published 2015
© 2015 Steven Collings
Registered office
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Kingdom
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CONTENTS
About the Author
Foreword
Preface
Acknowledgements
Introduction

vii
ix
xi
xiii
xv

1

General Requirements of the Companies Act 2006

2

The Statutory Audit Requirement and Accounting Principles

27

3

The Primary Financial Statements and Disclosure Notes

43

4

Financial Reporting for Smaller Companies

65

5

Summary of the Key Differences between FRS 102 and ‘Old’ UK GAAP

83

6

Consolidated and Separate Financial Statements

103

7

Accounting Policies, Estimates and Errors

125

8

Revenue Recognition

137

9

Assets Held for Sale and Discontinued Operations

153

10

Employee Benefits

159

11

Income Tax

177

12

Intangible Assets

199

13

Property, Plant and Equipment and Investment Properties

213

14

Borrowing Costs

237

15

Impairment of Assets

241

16

Government Grants

261

17

Financial Instruments

267

18

Inventories and Work-in-Progress

299

19

Share-based Payment

309

20

Leases

321

21

Provisions and Contingencies

341

22

Statement of Cash Flows

351

23

Investments in Associates and Joint Ventures

365

24

Related Parties

379

25

Specialised Activities

395

26

Liabilities and Equity

421

27

Events after the Reporting Period

443

v

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Contents
28

Foreign Currency Translation

457

29

Small Company Abbreviated Financial Statements

467

30

Reduced Disclosure Framework

485

31

First-Time Adoption of FRS 102

491

Index

505

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ABOUT THE AUTHOR

Steve Collings FMAAT FCCA is the audit and technical partner at Leavitt Walmsley Associates Ltd, a firm of Chartered Certified Accountants based in Sale, Cheshire, in the United
Kingdom, where Steve trained and qualified. Steve was admitted as a member of the Association of Accounting Technicians (AAT) in 2001 and went on to qualify as a Chartered Certified
Accountant (ACCA) in 2005. He was admitted as a Fellow Member of the AAT in 2006 and
became a Fellow Member of ACCA in 2010. Steve also holds ACCA’s Diploma in International Financial Reporting Standards, Diploma in International Financial Reporting Standards

for Small–Medium Entities as well as ACCA’s Certificates in IFRS and International Auditing
Standards and holds Senior Statutory Auditor status in the UK.
Steve is the author of several books on the subjects of accounting and auditing, including Interpretation and Application of International Standards on Auditing (Wiley, March
2011), IFRS For Dummies (Wiley, March 2012), Frequently Asked Questions in IFRS (Wiley,
April 2013), Financial Accounting for Dummies (Wiley, April 2013) and Corporate Finance
for Dummies (Wiley, October 2013). He has had many articles published in the professional
accounting media, most notably AccountingWEB.co.uk and much of Steve’s work can be seen
on his website at www.stevecollings.co.uk.
Steve lectures professionally qualified accountants on the areas of accounting, auditing and Solicitors Accounts Rules and was named Accounting Technician of the Year at the
British Accountancy Awards in 2011. He was also awarded Outstanding Contribution to the
Accountancy Profession by the Association of International Accountants in 2013. In 2014 he
was shortlisted for Practitioner of the Year at the 2014 British Accountancy Awards.

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FOREWORD

When thinking about new UK GAAP the Chinese curse comes to mind, ‘May you live in
interesting times’, because applying new UK GAAP will be interesting times. Many people
will underestimate the size of the learning curve ahead of them. Yes, the standards are much

shorter, easier to read and there are many exemptions but that does not mean that there are not
many differences from the previous UK standards.
In my professional career there have been lots of changes to the UK accounting standards;
indeed I trained under SSAP 2! The difference this time is that everything is changing at the
same time. This is a ‘big bang’ move to a new you approach. There are lots of exciting headline changes in areas such as financial instruments and investment properties but perhaps more
importantly there is plenty of ‘devil in the detail’.
Ultimately, this is not a change to old UK GAAP, it is a move to something completely
different, based upon standards written by a standard setting committee based outside of the
UK. The new standards are not a ‘copy and paste’ job from what went before, so concentrating
on what has changed can be futile. Instead, focus on the new standards in their entirety.
I say all of this not to spread doom and gloom but to calibrate your expectations of the
journey ahead.
However, having said that, I have assumed that you are only familiar with old UK
GAAP. If you are a child of IFRS then your learning curve will be much shorter and less
steep. After all, new UK GAAP is based upon IFRS. Luckily for you, your author is an IFRS
man. Because new UK GAAP is so brief, knowledge of full IFRS is very useful indeed to
interpret standards like FRS 102. Sometimes the standard in new UK GAAP only gives you
half the story and in this book Steve uses his understanding of IFRS to fill in the GAAPs
(excuse the accounting pun).
I always tell accountants to ‘read the standards’ and this remains true for new UK GAAP.
However, the aforementioned brevity of the standards means that this will sometimes raise
as many questions as it answers. That is why books like this will be more essential than ever
under new UK GAAP. Sometimes people use textbooks as a short cut to find out what the
standard says. This book does more than that. It does what the standard sometimes does not do;
it helps you understand what the standard means and how it applies in practice.
I have admired the clarity of Steve’s writing for some time, particularly on the subject
of IFRS, where many writers assume that the only business that exists is big business. More
recently I have had the pleasure of working with Steve on joint projects writing on new UK
GAAP and I was honoured to be asked to write this foreword. I like the way that Steve starts
with the basics and uses clear examples to build on this and illustrate how new UK GAAP

works.
I hope that you find Steve’s wisdom useful on your journey up the new UK GAAP learning curve. I have been speaking about and writing about new UK GAAP for what seems like
a long time now and as I write this I think I am starting to get towards the top of that learning
curve, but I am not there yet. So as a fellow traveller on the journey to understanding new UK
GAAP, I wish you the best of luck and I finish as I started with a Chinese proverb, albeit this
time a more positive one. ‘Be not afraid of going slowly, be only afraid of standing still.’
John Selwood ACA
Lecturer and writer

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PREFACE
This is the first edition of Interpretation and Application of UK GAAP for Accounting
Periods Commencing on or After 1 January 2015. The focus of this book is to provide preparers of financial statements in the UK and Republic of Ireland with concise and transparent
information that will allow a clear understanding of how the UK GAAP works.
The publication of FRS 102 The Financial Reporting Standard applicable in the UK and
Republic of Ireland was the biggest change that the UK GAAP has seen in its history. Previous UK GAAP had become overly complex and voluminous and the issuance of FRS 102
marked the end of a long process of consultation by the Financial Reporting Council (FRC).
FRS 102 replaces all Financial Reporting Standards (FRSs), Statements of Standard Accounting Practice (SSAPs) and Urgent Issues Task Force Abstracts (UITFs) for accounting periods
commencing on or after 1 January 2015 (although earlier adoption is permissible).

The FRC are to be commended on their efforts in scaling down the UK GAAP from some
3,000+ pages down to approximately 360. FRS 102 brings with it a much more user-friendly
set of standards, organised by Section numbers as opposed to FRS/SSAP/UITF numbers, as
was previously the case in the UK GAAP. Certain accounting treatments have been modernised, reflecting the ways in which businesses operate in today’s climate as well as serving to
reduce diversity in the ways in which preparers will account for, and disclose, certain items
within the financial statements.
At the time of writing the small companies regime had been exposed for consultation by
both the Department for Business Innovation and Skills and the FRC following the introduction of the EU Accounting Directive (Chapter 4 looks in more detail about this issue). Relevant
chapters in this publication have incorporated the consultations but no decision had been made
as to how the small companies regime will take effect in the UK at the time this book went to
print and hence readers are encouraged to keep up to date with developments in this area by
regularly reviewing the Department for Business Innovation and Skills website and the FRC
website.
Most chapters in this book contain real-life practical examples in order to aid understanding.
My wish is that readers find this book informative and helpful in their day-to-day dealing
with the new UK GAAP. As a practitioner myself, I recognise the needs of accountants and
appreciate the complexities that we face within the profession. Financial reporting has evolved
considerably over recent years and more emphasis is placed on producing high-quality financial information that meets users’ needs. I hope that this book serves to meet those needs and
feedback is welcome via the publishers that can be incorporated in any future editions.
Steve Collings, FMAAT FCCA
September 2014

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Page xiii

ACKNOWLEDGEMENTS

Writing a book is a huge project and one in which an author needs to have a strong and
supportive team behind them. I would like to offer my sincere thanks to Gemma Valler, the
commissioning editor for this title, for the support offered during the writing process and also
extending the deadline so I could take account of sweeping changes currently taking place with
the small companies regime.
I would also like to thank my technical editor Caroline Fox, BA FCA, who has, once
again, done a remarkable job on ensuring the technical accuracy of this publication.
Finally, I would like to thank you the reader, who has picked up this book, and I hope that
it offers a helpful insight into the world of the UK GAAP and aids in the application of the
new reporting regime.

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Page xv

INTRODUCTION

Introduction
History of the UK and
Republic of Ireland
Standard-Setting Body
Issuance of the New UK GAAP

xv

Structure of the New UK GAAP
xix
Smaller Companies and the Financial
Reporting Standard for
Smaller Entities
xxii

xvi
xvii

INTRODUCTION
Interpretation and Application of UK GAAP for Accounting Periods Commencing on or
After 1 January 2015 is aimed at providing preparers of financial statements with comprehensive guidance and information that will allow financial statements prepared under the new
UK GAAP to conform to the new regime. This publication brings to life much of the theory
contained in UK GAAP and offers a practical approach to understanding the requirements of
UK GAAP from a real-life perspective.
Standard-setting around the world has evolved considerably over recent years and International Financial Reporting Standards (IFRS) have gathered faster pace, with many countries
adopting an international-based framework. At the time of writing the introduction of FRS
102 The Financial Reporting Standard applicable in the UK and Republic of Ireland was part
of a significant overhaul of UK GAAP. At the time of going to print, the UK and Republic of
Ireland were about to have a four-tiered structure to financial reporting, which is shown in the

following table:

Class of entity
Listed and
AIM listed
Medium and
unlisted
Small

EU-endorsed
IFRS

Mainstream UK GAAP
(FRS 102)

Small companies
regime (the
FRSSE)*

Micro-entities
regime (the
FRSME)

√

√

√
√

√

√

√

*At the time of writing the FRSSE was being tentatively withdrawn by the Financial Reporting Council (FRC) for
accounting periods commencing on or after 1 January 2016 and companies reporting under the small companies
regime are to be brought under the scope of FRS 102 (as amended for smaller companies). Consultations issued by the
Department for Business Innovation and Skills and the FRC on 29 August 2014 outline the proposed new structure.
The way forward for the small companies regime was to be outlined in Exposure Drafts to be issued towards the end
of 2014/early 2015, with final standards expected in the summer of 2015. For ‘micro-entities’, which are dealt with in
Chapter 4, such entities can apply the micro-entities legislation if they so wish.

The main objective of standard-setters around the globe is to enhance transparency.
Adopting an international-based financial reporting framework has the intended objective of
producing financial statements that are based on high-quality financial reporting standards,
which, in turn, strengthens understandability and transparency across all entities. Accounting
has evolved considerably over the years, with the concept of fair value accounting moving
higher up the ranks and as such there was a need to introduce a new UK GAAP.

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Introduction

HISTORY OF THE UK AND REPUBLIC OF IRELAND STANDARDSETTING BODY
The Financial Reporting Council (FRC) was established by the government back in 1990
and was charged with the promotion of good-quality financial reporting. This objective was to
be achieved through two subsidiary bodies:
r
Accounting Standards Board (ASB) and
r
The Financial Reporting Review Panel (FRRP).
Prior to the establishment of the ASB, standards were issued by the Accounting Standards Council (ASC). The standards issued by the ASC were known as Statements of Standard
Accounting Practice (SSAPs) and between 1971 and 1990, 34 SSAPs were issued by the ASC.
A number of these SSAPs were adopted by the newly formed ASB in 1990, although going
forward the ASB would not issue further SSAPs; rather they would be charged with issuing
Financial Reporting Standards (FRSs).
In 1991, a new department was formed to assist the ASB in carrying out their work, known
as the Urgent Issues Task Force (UITF). This department was set up to undertake investigations
in areas where conflicts with accounting standards existed or where interpretative guidance
was needed following ambiguous points, or clarification was sought by financial statement
preparers. The first UITF Abstract was issued on 24 July 1991 titled Convertible bonds – supplemental interest/premium.
Due to well-publicised corporate collapses in the United States, the government decided
in 2004 that the regulatory system in the UK needed to be further strengthened in an attempt
to restore confidence. This resulted in the FRC becoming the UK’s single independent regulator of the accounting and auditing profession, which would be solely responsible for issuing
accounting standards and enforcing their application.
The ASB survived a 22-year lifespan that ended on 2 July 2012 when it was integrated
with the FRC’s new Codes and Standards Division. This restructuring was brought about
because of the need for enhanced independence and the need to ensure effective governance of the regulatory activities under the responsibility of the FRC board. During this
22-year lifespan, the ASB issued 29 FRSs; however, it had become clear that due to the
intention by the ASB to aid a smooth transition to an international-based financial reporting framework, the ASB had essentially become more of an advisory body as opposed to
a standard-setting body. This was due to the fact that many of the later FRSs were merely

IFRSs/IASs that had been rebadged in the UK. For example, FRS 20 Share-based Payment was a UK version of IFRS 2 Share-based Payment, FRS 21 Events after the Balance
Sheet Date was IAS 10 Events after the Reporting Period and FRS 22 Earnings per Share
was essentially IAS 33 Earnings per Share. In addition to this, many of the later FRSs
had hardly any impact on private companies that make up the vast majority of the UK and
Republic of Ireland business market (such as FRS 24 Financial Reporting in Hyperinflationary Economies, FRS 27 Life Assurance, FRS 29 Financial Instruments: Disclosures
and FRS 30 Heritage Assets).
The Codes and Standards Committee was formed during this restructuring exercise and
the objective of this committee was to advise the board of the FRC on the maintenance of an
effective framework of UK codes and standards. The ASB was replaced with the Accounting Council, which provides an advisory role to the Codes and Standards Committee and the
board of the FRC. In addition, the UITF was disbanded as a result of the reforms. Accounting
standards previously issued by the ASB became the responsibility of the board of the FRC on
2 July 2012 when the restructuring was finalised.
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Introduction

ISSUANCE OF THE NEW UK GAAP
The process of modernising the old UK GAAP was a long and arduous one. The ASB had
already acknowledged prior to the issuance of Exposure Drafts that the UK GAAP in its old
form had become overly complex and voluminous. They had also expressed a desire for the
UK and Republic of Ireland to adopt an international-based financial reporting framework to

provide consistency in the way financial reporting works but within a high-quality and ‘fit for
purpose’ framework. This intention was further accentuated in 2009 when the ASB announced
that to essentially dispose of old FRSs/SSAPs and UITF Abstracts would be a significant task,
but they viewed the project as an opportunity to simplify UK GAAP with the intention of
ensuring that UK GAAP produced more relevant, comparable and understandable information.
FREDs 43 to 45 were published outlining the proposed changes to UK GAAP and these
FREDs were based on the International Accounting Standard Board’s IFRS for SMEs that was
planned to become (and was exposed as) the Financial Reporting Standard for Mid-Sized Entities in the UK. The name of the proposals was coined the ‘FRSME’.
This Exposure Draft caused a significant amount of outcry amongst the accountancy
profession as it was based around the concept of ‘public accountability’, which was a very
difficult concept to apply or define in the UK and Republic of Ireland. In addition, the Exposure Draft eliminated some of the more common accounting practices that have become
established in the UK and Republic of Ireland (such as the withdrawal of the revaluation
method for fixed assets, the writing-off of borrowing costs directly to profit or loss with no
option to capitalise such costs and the requirement to calculate deferred tax using a ‘temporary difference’ approach rather than a ‘timing difference’ approach, as was the case in FRS
19 Deferred Tax).
Having listened to feedback on FREDs 43 to 45, the ASB went back and redrafted the
proposals that became FREDs 46 to 48 and were exposed for comment. The revised Exposure
Drafts:
r
Eliminated the tier system for large, small–medium and micro-companies,
r
Introduced accounting treatments permitted under the old UK GAAP and
r
Incorporated guidance for public benefit entities into FRED 48.
FREDs 46 to 48 were to become FRSs 100, 101 and 102 respectively. FRS 103 Insurance Contracts is an industry-specific FRS, which was published in March 2014 and which
deals with insurance contracts. Due to its specialist nature, FRS 103 is outside the scope of
this book.
FRS 102 is part of a ‘family’ of standards, with the others being:
r
FRS 100 Application of Financial Reporting Requirements,
r
FRS 101 Reduced Disclosure Framework and
r
FRS 103 Insurance Contracts.
FRS 100 and FRS 101 were both issued on 22 November 2012. FRS 100 outlines which
entities can use which standard. Smaller companies will still continue to use the FRSSE (or

the relevant small companies regime following the changes to small company financial reporting in 2015/16). The FRSSE (effective April 2008) was updated for the consequential effects
of FRS 102 (see later in the chapter) and therefore the FRSSE was re-issued as the FRSSE
(effective January 2015), which is effective for accounting periods commencing on or after 1
January 2015, with earlier adoption permissible.
FRS 101 is basically EU-endorsed IFRS, but with reduced disclosure requirements for qualifying entities. The standard outlines the reduced disclosure framework, which is available for
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Introduction
qualifying entities that report under EU-adopted IFRS. When FRS 100 and 101 were both issued,
they were set with an effective from date for accounting periods commencing on or after 1 January
2015, although earlier adoption is permissible. Legislation was introduced in the UK for year-ends
ending on or after 1 October 2012, which allowed companies that are not required to apply IFRS
by the ‘IAS Regulation’ more flexibility to change their accounting framework to FRS 101 or FRS
102. The advantage here was in relation to groups with a 31 December 2012 year-end who were
being encouraged to adopt the standard early and take advantage of the reduced disclosures available, given that the disclosure requirements in EU-adopted IFRS are fairly vast.
In the press release, the FRC announced that they planned for FRS 102 to become effective for accounting periods commencing on or after 1 January 2015, with earlier adoption permissible (which did occur). There were two limited amendments that the FRC had recognised
which related to:
r
Accounting for multi-employer pensions and
r
Service concession arrangements.
In relation to the accounting for multi-employer pensions, the amendments related to the
situations where there was an agreement to fund a deficit in a multi-employer pension plan.

The FRC issued the proposed amendment following them, obtaining evidence of diversity in
practice where the previous FRS 17 Retirement Benefits was applied.
FRS 17 permitted entities who were not able to identify their share of the underlying
assets and liabilities of a multi-employer pension plan on a ‘consistent and reasonable basis’ to
account for such a scheme as if it were a defined contribution scheme and make additional disclosures within the financial statements. Where the scheme was a defined contribution scheme,
FRS 17 required contributions to be recognised as an expense in the profit and loss account.
As a consequence, FRS 17 did not explicitly require entities that were involved in a multiemployer scheme, which was accounted for as a defined contribution scheme and which had
not entered into a funding agreement for future payments, to recognise a liability on the balance sheet (statement of financial position) that represented obligations to pay pension benefits
in their financial statements.
The FRC took the decision not to amend FRS 17 to require entities that accounted for a
multi-employer scheme as a defined contribution scheme to recognise a liability to pay pension benefits in their financial statements on the grounds that FRS 17 was to have a very short
life going forward. Instead, the FRC decided to amend draft FRS 102 in order to clarify that a
liability should be recognised in such situations to represent a requirement to make payments
to fund a deficit relating to past service where the entity has entered into an agreement to make
those payments.
In addition, the FRC also acknowledged that paragraph 9(b) (v) in FRS 17 will be applicable in the period prior to FRS 102 becoming effective. This paragraph requires disclosure of
any implications for an employer of a deficit in a multi-employer scheme. The FRC said that
where a reporting entity has an agreed schedule for the funding of a deficit, they will need to
give careful consideration to this requirement and that they consider that information about an
agreement with the multi-employer scheme that determines how it will fund a deficit should
be disclosed with this requirement and would more than likely include:
r
The existence of the agreement,
r
The period over which the payments will be made and
r
Any available information about the expected amount of the payments.
The FRC clarified in the Exposure Draft that the above will not apply to individual
employers that participate in a group scheme due to the fact that different accounting requirements apply to the recognition of a surplus or deficit in a group scheme.
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Introduction
The second amendment related to service concession arrangements and the accounting,
by grantors, for service concession arrangements. Draft FRS 102 only included requirements
for operators of service concessions and it was flagged that grantors may also be within the
scope of FRS 102. As a result, the amendment requires grantors to recognise the infrastructure
assets and liabilities for service concession arrangements, with the accounting requirements
based on a finance lease liability model.
Following this Exposure Draft containing the two limited amendments, FRS 102 was
finally issued as a standard by the FRC on 5 March 2013 and marked the end of a long and
arduous project to overhaul accounting standards in the UK. The end result was a standard that
was clear, transparent and much less voluminous (a total of 335 pages including the Appendices as opposed to 3,000+ in old UK GAAP).
FRS 102 was re-published in August 2014 to take account of the changes in relation
to financial instruments and hedge accounting as well as dealing with some typographical
issues.

STRUCTURE OF THE NEW UK GAAP
The old UK GAAP was structured by FRS number order – for example, FRS 1 Cash
Flow Statements, FRS 2 Accounting for Subsidiary Undertakings, FRS 3 Reporting
Financial Performance and so forth. SSAPs and UITF Abstracts also followed a numerical
sequence.
The structure of the new UK GAAP is markedly different in that it is structured as a series
of FRSs (FRS 100, 101, 102 and 103).

FRS 100 Application of Financial Reporting Requirements
This is structured as follows:
r
Summary
r
Financial Reporting Standard 100
r
Application of Financial Reporting Requirements

r

r

r

r

r

r

r

r

r


Objective
Scope
Abbreviations and definitions
Basis of preparation of financial statements
Application of statements of recommended practice
Statement of compliance
Date from which effective and transitional arrangements
Withdrawal of current accounting standards
Consequential amendments to the FRSSE

r
Application Guidance

r
The interpretation of equivalence
r
Approval by the FRC

r
The Accounting Council’s Advice to the FRC to Issue FRS 100
r
Appendices

r

r

r

r


Glossary
Note on legal requirements
Previous consultations
Republic of Ireland (RoI) legal references
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Introduction

FRS 101 Reduced Disclosure Framework
r
Summary
r
Financial Reporting Standard 101
r
Reduced Disclosure Framework

r

r

r

r

r

r


Objective
Scope
Abbreviations and definitions
Reduced disclosures for subsidiaries and ultimate parents
Statement of compliance
Date from which effective and transitional arrangements

r
Application Guidance

r
Amendments to International Financial Reporting Standards as adopted in
the European Union for compliance with the Act and the Regulations
r
Approval by the FRC
r
The Accounting Council’s Advice to the FRC to Issue FRS 101
r
Appendices

r

r

r

r


Glossary
Note on legal requirements
Previous consultations

Republic of Ireland (RoI) legal references

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of
Ireland
r
Summary
r
Financial Reporting Standard 102
r
Financial Reporting Standard applicable in the UK and Republic of Ireland

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.

Scope
Concepts and Pervasive Principles
Financial Statement Presentation

Statement of Financial Position
Statement of Comprehensive Income and Income Statement
Appendix: Example showing presentation of discontinued operations
Statement of Changes in Equity and Statement of Income and Retained Earnings
Statement of Cash Flows
Notes to the Financial Statements
Consolidated and Separate Financial Statements
Accounting Policies, Estimates and Errors
Basic Financial Instruments
Other Financial Instruments Issues
Inventories
Investments in Associates
Investments in Joint Ventures
Investment Property
Property, Plant and Equipment
Intangible Assets other than Goodwill
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Introduction

19. Business Combinations and Goodwill

20. Leases
21. Provisions and Contingencies
Appendix: Examples of recognising and measuring provisions
22. Liabilities and Equity
Appendix: Example of the issuer’s accounting for convertible debt
23. Revenue
Appendix: Examples of revenue recognition
24. Government Grants
25. Borrowing Costs
26. Share-based Payment
27. Impairment of Assets
28. Employee Benefits
29. Income Tax
30. Foreign Currency Translation
31. Hyperinflation
32. Events after the End of the Reporting Period
33. Related Party Disclosures
34. Specialised Activities
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Agriculture
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Extractive Activities
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Service Concession Arrangements
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Financial Institutions
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Retirement Benefit Plans: Financial Statements
r
Heritage Assets
r
Funding Commitments
r
Incoming Resources from Non-exchange Transactions
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Public Benefit Entity Combinations
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Public Benefit Entity Concessionary Loans
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Appendix A: Guidance on funding commitments
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Appendix B: Guidance on incoming resources from non-exchange

transactions
35. Transition to this FRS
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Approval by the FRC
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The Accounting Council’s Advice to the FRC to issue FRS 102
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The Accounting Council’s Advice to the FRC to issue Amendments to FRS 102 – Basic
financial instruments and hedge accounting
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Appendices

r

r

r

r

r

r


Glossary
Significant Differences between FRS 102 and the IFRS for SMEs
Table of Equivalence for UK Companies Act Terminology
Note on Legal Requirements
Previous Consultations
Republic of Ireland (RoI) Legal References
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Introduction

SMALLER COMPANIES AND THE FINANCIAL REPORTING STANDARD
FOR SMALLER ENTITIES
Chapter 4 looks in more detail at the specific financial reporting requirements for companies at the smaller end of the scale. At the time of writing, small company financial reporting
was undergoing a significant period of change and consultations had been issued by both the
BIS and the FRC on 29 August 2014 as a consequence of the EU Accounting Directive. Consultations closed in November 2014 and final standards relating to the small companies regime
are expected in the summer of 2015 with an ‘effective from’ date of 1 January 2016 (although
at the time of writing this had not yet taken place).
Smaller companies are eligible to use the Financial Reporting Standard for Smaller Entities (the FRSSE). The FRSSE has been amended because of FRS 102 and the latest version
(at the time of writing) issued by the FRC was the FRSSE (effective January 2015), which is
effective for accounting periods commencing on or after 1 January 2015, with earlier adoption
permissible.
The Small Companies (Micro-Entities Accounts) Regulations 2013 (SI 2013/3008)
brought the European Union’s directive on ‘micro-company’ reporting into effect in November 2013. For the purposes of this statutory instrument, an entity can qualify as a micro-entity
if two, or more, of the following are not exceeded in a year:
r
Turnover
r
Balance sheet total
r
Employee head count

£632,000
£316,000
10

Companies that fail to meet two out of the above three criteria for two consecutive years
will fail to meet the qualifying criteria for micro-entities.
Under the micro-entities regime, a micro-entity will prepare a balance sheet, which will
present (where applicable):

Format 1 balance sheet
r

r

r

r

r

r

r

r

r

r

r


Called up share capital not paid
Fixed assets
Current assets
Prepayments and accrued income
Creditors due within one year
Net current assets (liabilities)
Total assets less current liabilities
Creditors due after more than one year
Provisions for liabilities
Accruals and deferred income
Capital and reserves

Format 2 balance sheet
Assets:
r

r

r

r


Called up share capital not paid
Fixed assets
Current assets
Prepayments and accrued income

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Introduction

Liabilities:
r

r

r

r


Capital and reserves
Provisions for liabilities
Creditors (those due within and more than one year are separated)

Accruals and deferred income

Profit and loss account:
r

r

r

r

r

r

r

r


Turnover
Other income
Cost of raw materials and consumables
Staff costs
Depreciation and other amounts written off assets
Other charges
Tax
Profit or loss

Notes to the micro-entity’s financial statements
Notes will be placed at the foot of the balance sheet and will merely consist of:
r
Guarantees and other financial commitments and
r
Directors’ benefits: advances, credits and guarantees.
The micro-entities regulations are effective for financial years ending on or after 30
September 2013 for companies filing their accounts on or after 1 December 2013. An important point to emphasise is the fact that the new regime will not affect the recognition or measurement of amounts included in a micro-entity’s financial statements. In addition, the reduced
disclosure regime will only affect companies who apply the FRSSE. Companies that will qualify to report under the micro-entities regulations will still apply the FRSSE but are eligible to
apply the reduced disclosures in the new Regulations.
As part of the overhaul of the small companies regime, the FRC announced their intention to issue a separate standard for micro-entities, namely the Financial Reporting Standard for Micro-Entities (FRSME), which will also offer further simplifications to micro-entity

accounts. Companies not eligible to apply the FRSME or who choose not to apply the FRSME
may have the option of applying FRS 102 ‘Light’, which will be an amended version of FRS
102 for small companies, and the FRC have suggested including a Section 1A Small Entities
in FRS 102 that will set out the framework and presentation and disclosure requirements for
small entities.
Financial reporting has developed considerably over the last few years and it is likely to
be further developed as new accounting practices emerge or existing practices are amended to
keep up with the ways in which entities conduct their business.

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