FRS 100 Introduction

Application of financial reporting requirements

The most radical overhaul of accounting standards in the UK since the early 1980s is now complete and UK Generally Accepted Accounting Practice (UK GAAP) has changed completely.

The background and framework for the new UK GAAP are set out in Financial Reporting Standard 100 (FRS 100). The other standards that have been issued are:

  • FRS 101: a reporting framework for the subsidiaries of entities that prepares financial statements in accordance with EU-adopted International Financial Reporting Standards (IFRS)
  • FRS 102: this replaces all the current UK accounting standard
  • FRS 103: insurance contracts.

The Financial Reporting Standards for Smaller Entities (FRSSE) remains in place but has been updated to reflect some of the changes introduced by FRS 102.

The 11 Statements of Recommended Practice (SORPs) have been reviewed and although some have been withdrawn the majority have been updated for the new regime and re-issued.

The new framework is mandatory for financial years commencing on or after 1 January 2015, and the prior period results will need to be restated upon first time adoption. Companies should start planning for the transition now to ensure it is done in the most efficient manner possible.

Financial Reporting Frameworks in the UK

Corporate entities in the UK (except charities) have a choice of accounting framework to use for their statutory financial statements. The Companies Act 2006 specifies this as being ‘International Accounting Standards’, i.e. IFRS, or Companies Act accounts, being UK GAAP.

UK GAAP will now have three components:

  • FRS 101: the reduced disclosure framework available to subsidiaries of companies that prepare group financial statements under IFRS
  • FRS 102: ‘full UK GAAP’ for large entities
  • FRSSE: the standard available to eligible small entities.

Moving accounting frameworks

Companies are allowed to move between accounting frameworks (i.e. between IFRS and UK GAAP or vice versa) no more than once every five years. This represents a change to the previous practice, where the adoption of IFRS was, effectively, a permanent change with some exceptions for specified circumstances.

Accordingly, some companies (including parent entities within listed groups) now have the option of moving back to UK GAAP.

What you need to do

To plan for the proposed changes, you should consider:

  • the current accounting framework (i.e. IFRS or UK GAAP) used to prepare your financial statements
  • the options available to you
  • for group companies, if there are various options, which is most pragmatic?
  • how the different frameworks will impact on your business
  • the impact changes in accounting framework would have on other factors relevant to your business, e.g. planned acquisitions, disposals, bank covenants
  • the timing of any preparatory work required for the transition.
Listed companies

Companies which are listed on the London Stock Exchange or AIM are required to prepare consolidated financial statements using IFRS.The directors retain a choice as to whether to use UK GAAP or IFRS for the parent company’s entity accounts and for the accounts of subsidiary companies.

Groups

The Companies Act 2006 requires directors of parent companies that prepare group accounts to ensure that all UK entities in the group prepare financial statements using a common accounting framework, although there are some choices:

  • the group, parent and subsidiary financial statements all use the same accounting framework, whether that is IFRS or UK GAAP
  • the group and parent use IFRS but the subsidiaries all use UK GAAP
  • the group uses IFRS but the parent and all subsidiaries use UK GAAP.

Under the new regime, the options available to the directors of parent entities that prepare group accounts are:

Group financial statements Group financial statements Group financial statements
IFRS IFRS IFRS
IFRS IFRS FRS101
IFRS IFRS FRS102
IFRS FRS101 FRS101
IFRS FRS101 FRS102
IFRS FRS102 FRS102
IFRS FRS102 FRS101
Unlisted parent

All the options for listed companies are available as well as:

Group financial statements FRS102 FRS102
Parent financial statements FRS102 FRS102
Subsidiary financial statements (not small entities) FRS102 FRS102
Subsidiary financial statements (small entities) FRS102 FRSSE