This document discusses the future of UK GAAP and the key changes that will result from the implementation of FRS 102. Some of the major changes include more intangible assets being recognized, changes to the accounting of leases, holiday pay, and investment properties. These changes could impact reported profits, taxes, and financial covenants. Companies need to understand how the new standards will affect them and prepare by gathering information, reviewing systems, and planning their transition approach and timetable. An early focus should be on fixed asset values, financial instruments, acquisition planning, and calculating holiday pay accruals.

1. Welcome
The Future of UK GAAP
6th May 2014
www.jamescowperkreston.co.uk

2. Introduction
Robert Holland

3. The Future of UK GAAP
• FRS 100, 101 & 102
• IFRS
• FRSSE [?]
• All other UK GAAP is superceded

4. FRS 102 – The Financial Reporting Standard
applicable in the UK and Republic of Ireland
• ‘IFRS’s’ UK GAAP, but with some important and subtle
differences.
• Replaces current UK GAAP for all medium and large
entities
• Smaller organisations can choose from FRSSE, FRS 102
or Full EU-adopted IFRS

5. When will you be affected?
• Accounts for periods beginning on or after 1st January
2015.
• Comparative figures are restated
• Know your transition date
Year End First Period Affected Transition Date
31st December 31st December 2015 1st January 2014
31st March 31st March 2016 1st April 2014
30th September 30th September 2016 1st October 2014

6. How will you be affected?
• Could affect your reported profits
• Could have a knock on impact on tax payable, bank
covenants and ability to pay dividends
• Changes to format and content of accounts
• Transitional arrangements

7. Key changes
Alan Poole

8. Business combinations
• Recognition of separate intangibles
• Acquisition expenses
• Fair value approach to non-controlling interests
• No profit or loss on changes in controlling interest that do
not result in a loss of control
• Merger accounting is generally not permitted

9. Useful life of goodwill and intangibles
• Life of goodwill under current UK GAAP assumed to be 20
years in many cases
• Under new rules, assumption is 5 years
• Indefinite life of goodwill no longer allowed
• Under FRS102, more intangible assets recognised

10. Lease incentives
• Now spread the benefit over the full lease term unless the
break is expected to be used
• Exception: carry on as before if the lease is already in
places
• Consider treatment of new leases after your transition date
• £100k rent a year, 6 months rent free at start
• 10 year lease, rent review or break after 5 years
• Under old rules £50k is spread over 5 years
• Under new rules, the £50k is spread over
10 years.

11. Holiday pay
• Must accrue for holiday benefit accrued but not used at
year end
• Issue if staff costs are significant and a lot of holiday is
carried over year end, or holiday year doesn’t match
financial year
• Make sure the records are kept for transition

12. Investment properties
• Option on accounting treatment if directors deem
revaluation to involve undue cost or effort
• Changes in fair value measured in profit or loss
• Alignment with IFRS treatment for properties that are both
rented out or occupied by the organisation

13. Financial Instruments
• Basic or Non-basic
• Basic financial instruments measured at amortised cost
• Non-basic financial instruments measured at fair value
• Can bring items onto balance sheet that were not
previously recognised
• Need fair value at transition date
• Example

14. Fair value as deemed cost
• Tangible fixed assets, investment property or an intangible,
brought in at deemed cost
• A one-off opportunity to revalue an asset without having to
revalue every year
• Revalue a property at transition
• Previous policy to revalue can be abandoned
• Over-depreciated plant/machinery could be re-valued

15. Other Significant changes
• Grant income
• Biological assets
• Defined benefit pension schemes

16. Format and language of financial
statements
• In first year, include reconciliations in notes
• IFRS style
• Terminology
• Accounting policies

17. Transitional Arrangements
• first-time adoption rules
• exemptions – mandatory/optional
• fair value as deemed cost

18. Tax Implications
Alex Peal

19. Tax implications of FRS 102
Changes fall into 2 categories:
• Those that affect the quantum or timing of the corporate
tax charge
• Changes to accounting disclosures with no direct impact
on tax payable

20. Changes that affect the quantum or timing
of tax charge.....

21. Investment property
• No immediate tax impact of revaluing investment
properties
• Consider impact of holding investment property on
eligibility for tax reliefs.
• If necessary, restructuring will be required to remove
investments from the group.

22. Intangibles and Goodwill
• Generally tax relief is available on the amortisation/
impairment of goodwill and intangibles
• Changes in accounting under FRS 102 could accelerate or
defer tax relief
• Consider impact of transitional adjustments

23. Financial Instruments
• FRS 102 is likely to require more financial instruments to
be accounted for at fair value
• The loan relationships legislation generally taxes profit and
losses on financial instruments regardless of whether the
debit or credit is booked through the P&L or taken directly
to reserves, changes in equity etc
• Complex rules are currently under consultation so these
may change

24. Government grants
• Recognition criteria is moving from an accruals model to a
performance model
• Grant income is generally taxed in line with the accounting
treatment, so changes in accounts recognition will impact
on timing of tax liability

25. Employment costs
• Holiday pay accrual
• Pension schemes

26. Changes to tax accounting and disclosure
requirements.......

27. Revaluations
• With FRS 19, deferred tax would not have been
recognised on revaluations of property, plant, equipment or
investment properties unless there was a binding
commitment to dispose of the asset.
• FRS 102 instead requires deferred tax to be recognised
on all timing differences whether arising within the profit or
loss account or not.

28. Business combinations
• Changes from the introduction of FRS 102 mean more
intangibles (separate to goodwill) will be recognised on the
balance sheet
• Deferred tax will need to be recognised on these acquired
intangibles

29. Changes to the tax note
• FRS 19 requires a reconciliation of pre tax income
multiplied by the tax rate, whereas FRS 102 requires a
reconciliation to total tax
• An estimate of net deferred tax reversals expected to occur
in the following financial year will need to be disclosed

30. Preparing for change....

31. Approach - Planning
• Review
• Information gathering
• Systems and software
• Timetable
• Roles and responsibilities

32. Approach - Execution
• Opening balance sheet conversion
• Comparative period P&L conversion
• Disclosures
• Exemptions
• Reporting

33. Date of transition
Comparative Period
Current GAAP
FRS 102
1 April 2014 31 March 2015 31 March 2016
FRS 102
Reporting Date

34. Reconciliation
Reconciliation
1 April 2014 31 March 2015 31 March 2016
FRS 102
Reporting Date

35. Areas for early consideration
• Fixed asset values
• Financial instruments
• Acquisition planning
• Holiday accrual calculation

36. Summary
• Know your transition date
• Do you have enough in-house resources?
• What will affect transition balance sheet?
• Any changes to systems required?
• Plan for the changes, talk to your team now!

37. Thank You
Any Questions?
www.jamescowperkreston.co.uk