FRS 101 Reduced Disclosure Framework

Key points

  • Will benefit preparers of subsidiary company accounts that are currently prepared under IFRS by offering a reduced disclosure framework.
  • Recognition and measurement criteria will remain consistent with IFRS except for certain amendments for government grants and negative goodwill and contingent consideration arising on a business combination.

Scope

FRS 101 may be applied to the individual accounts of a qualifying entity that otherwise applies the recognition, measurement and disclosure requirements of EU-adopted International Financial Reporting Standards (IFRS). A qualifying entity is a member of a group where the parent of the group prepares publicly available consolidated financial statements and that member is included in the consolidation. Such consolidated financial statements need only intend to give a true and fair view and hence may be prepared under accounting frameworks other than IFRS, such as US accounting standards. This definition would include the entity accounts of a parent company as well as the financial statements of subsidiary companies. Consolidated accounts are not included in the scope of FRS 101. Parents or subsidiaries currently applying UKGAAP would be required to transition to the recognition and measurement criteria of IFRS, subject to certain amendments, should they wish to apply FRS 101. Should they wish to continue to apply UKGAAP FRS 102 will contain disclosure exemptions for their individual financial statements.

Applying FRS 101

The conditions are:

  1. The shareholders must have been notified in writing and do not object to the use of the disclosure exemption. In order to prevent the use of FRS 101 the objection must be from the immediate parent or from shareholders holding more than 5% of the total allotted shares or more than half of the shares not held by the immediate parent.
  2. The recognition and measurement criteria of EU-adopted IFRS must be applied but certain amendments need to be made to comply with the Companies Act. The amendments to IFRS which must be applied for those entities adopting FRS 101 impact the  treatment of government grants and business combinations which involve negative goodwill and contingent consideration. This could result in a discrepancy between the reported results of the subsidiary and those used for consolidation purposes. As FRS 101 is classed as a form of UKGAAP and not IFRS the terminology used in the financial statements must be consistent with Companies Act formats and not IFRS (for example the financial statements would contain a Profit and Loss Account instead of an Income Statement and a Balance Sheet instead of a Statement of Financial Position).
  3. The notes must include a brief narrative of the exemptions adopted, the name of the parent in whose consolidated financial statements the financial statements are consolidated and where those financial statements may be obtained.
Exemptions available

The following disclosure exemptions are available where the relevant standard has been applied:

  1. IFRS 2 Share-based Payment
    Exemption from most of the disclosure requirements of the standard, subject to disclosure still being needed in the following areas:
    • a description of each type of share-based payment arrangements included the general terms and conditions
    • the weighted average share price at the date of exercise for options exercised in the period
    • the range of exercise prices and the weighted average remaining contractual life for outstanding options.
  2. IFRS 3 Business Combinations
    Exemption from most of the detailed disclosure requirements of the standard, however, some basic information would still need to be disclosed on the acquisition, including:
    • the name of the acquired entity, the date of the acquisition and the percentage equity acquired
    • the fair value of the consideration paid and the assets and liabilities acquired.
  3. IFRS 5 Non-current Assets Held for Sale
    Exemption from the disclosure of the net cash flows attributable to the operating, investing and financing activities of discontinued operations.
  4. IFRS 7 Financial Instruments: Disclosure
    Entities adopting FRS 101 are exempt from the requirements of this standard except for qualifying entities which are financial institutions which must continue to comply with IFRS 7.
  5. IFRS 13 Fair Value Measurement
    Entities adopting FRS 101 are exempt from the disclosure requirements of this standard except for qualifying entities which are financial institutions which must continue to comply with IFRS 13.
  6. IAS 1 Presentation of Financial Statements
    All qualifying entities are exempt from the requirements to present comparative information for the number of shares outstanding, property, plant and equipment and intangible assets. Additionally, qualifying entities that are not financial institutions are exempt from the requirement to disclose their objectives, policies and processes for managing capital.
  7. IAS 7 Statement of Cash Flows
    Exemption from this standard and hence entities will not be required to produce a statement of cash flows.
  8. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
    Entities will not be required to disclose where they have not adopted standards that have been issued but are not yet effective. They will also be exempt from disclosing the impact of the application of those standards.
  9. IAS 24 Related Party Disclosures
    Qualifying entities are exempt from the requirement to disclose key management personnel compensation (note that disclosure of directors’ remuneration is still required as this is mandated in the Companies Act 2006). They are also exempt from the requirement to disclosure related party transactions between wholly owned group companies, including transactions with the parent company.
  10.  IAS 36 Impairment of Assets
    Exempt from the requirements to disclose assumptions, valuation techniques and key sensitivities arising from impairment tests.