FRS 102 Centre - commercial & accounting

The biggest change in UK accounting for a generation

FRS 102 – commercial & accounting Implications

Important changes have been made to UK GAAP with the introduction of FRS 102.

Set out below are the key commercial issues and implications that you need to be aware of on implementation of FRS 102. The precise impact of FRS 102 will differ from one company to another. For some, the impact could be minimal but for many others the devil will be in the detail.

Please watch our short “90 second guide to the tax implications of  FRS 102″.


Reported profits could change

Companies will need to assess how the following changes will affect their reported profits and communicate this to affected stakeholders:

  • changes in the recognition of certain fair value movements (e.g. investment properties);
  • changes in the timing of certain gains and losses (e.g. forward exchange contracts); and
  • other changes in the way certain items are recorded in profit or loss (e.g. holiday pay accruals)

The balance sheet position could be significantly affected

FRS 102 has slightly different definitions of what constitutes certain tangible and intangible assets and also changes the way certain assets and liabilities are measured. Furthermore, specific definitions for, and treatment of, financial assets and liabilities are set out for the first time.

FRS 102 requires deferred tax to be recognised on items such as the revaluation of investment properties and certain other assets. Consequently, balance sheets of affected companies could be negatively impacted through the recognition of new deferred tax liabilities.

Effect on banking covenants and other commercial and practical considerations

A change in the recognition criteria of assets and liabilities, as well as profits and losses could have an impact on the credit rating of a company. Additionally, where loan covenants are calculated based on profit or balance sheet measures, the move to FRS 102 could have an impact on the headroom of those covenants.

Where companies pay bonuses out of profit, have profit-related pay schemes, or have earn-out agreements spanning the transition date, the basis of these calculations should be reconsidered.

Also, with changes in fair value being reflected in the profit or loss for the period, companies will need to take more care when determining taxable profits and companies will need to ensure that dividends are paid out of distributable profits.

There are opportunities on transition

Generally, on transition to FRS 102, companies are required to restate the opening comparative balance sheet. However, in some instances options are available and these options require careful consideration as the options taken could have a significant effect on the accounts.

Accounts will look different

Fundamentally, the formats of the financial statements will be similar. However, there will be some subtle, yet key differences.

The notes to the accounts will be different. In some areas new or additional disclosures are required, in other areas less will need to be disclosed. The differences in notes disclosures are far ranging so companies need to be aware of the need to retain comparative information.

Companies will need to gather more information, both at the date of transition and on an ongoing basis, for the preparation of their accounts. They will also need to consider whether their current systems and software will be sufficient to prepare accounts under FRS 102.

Contact us for a free initial meeting

To find out more about how one of the leading firms of accountants in Sheffield, Doncaster and Northampton can help you, please contact one of our specialists. We believe in long-term client relationships and understand the importance of meeting to establish that you like us and we like you. This is why we offer all new clients a free initial meeting which will enable you to have a discussion about you and your business issues.

Free initial meeting

Chris Hill

Senior Partner, Sheffield

0114 266 7141

Martin Wilmott

Partner, Doncaster

01302 367 262

David Owens

David Owens

Partner, Northampton

01604 645 600