FRS 102, published in 2013, is the new Irish GAAP that came into force for accounting periods that started on or after 1 January this year.
This means your business is likely to be operating under it right now. It has been many years in the making, and it applies in the United Kingdom as well. The early adoption and transition periods are now over – FRS 102 is here. It applies to all businesses using the existing UK and ROI GAAP incorporating FRSs and SSAPs.
But what does it mean for your business? Most businesses will face some changes in how their finances are reported. Here are the major ones to look out for.
One of the main differences concerns financial instruments as FRS 102 distinguishes between basic and other types of financial instrument. Basic financial instruments include debtors, creditors and normal bank loans. Usually these can be measured at the undiscounted amount of money that you expect to be paid or received.
All “other” financial instruments must be measured at fair value. They include things like foreign exchange forward contracts and complicated bank loans. They must be measured in a way that takes into account movements, and these must be recorded in the profit and loss account.
The way that deferred tax is calculated has become more complicated under FRS 102 and is likely to result in it being applicable in more situations. Under the new rules deferred tax cannot be discounted (unlike the previous system) and it must be recognised in more scenarios – for example, on the revaluation of property.
Goodwill and Intangible Assets
This includes how the depreciation rate of assets is calculated. Under the old guidelines it was possible to depreciate intangible assets including goodwill over 20 years. Under the new regime there is a requirement for such assets to have a finite life that cannot exceed five years. This will obviously have an immediate impact on any companies who are currently depreciating intangible assets over longer periods of time.
Some other key things that are changing include:
- Government grant accounting – there is now the option to account for grants under the amortisation method, as is the case now, or on a contingency basis.
- Investment property – the value at which investment properties are recorded is changing, as well as the way any profit and loss is recorded in relation to that value. They must now initially be accounted for at cost and then at fair value, with adjustments through the profit and loss account.
- Cash flow statements – the requirements for this have been simplified, but the majority of companies will now be required to complete cash flow statements. In the past smaller companies did not have to complete them. The complete list of primary statements that are now required under FRS 102 is a balance sheet, profit and loss account, statement of comprehensive income, cash flow statement, and a statement of changes in equity or retained earnings.
- Employee benefits – these must now be accounted for at the end of the financial year, rather than the old system where they could be recorded when paid.
- Associates – will now appear on the profit and loss account as a single line
- Correction of prior period errors – these must be corrected by restating the comparative amounts
- Foreign currencies – your business will have to have a functional currency. This is the currency that you normally operate with and for most businesses will be the Euro.
- Key Management Personnel (KMP) – this new concept takes the related parties concept further in order to include key employees. Similar disclosures are required.
- Investments – investments in listed shares must now be measured by fair value in many cases
- Leases – leases have been reclassified into finance leases or operating leases, depending on who holds the risk – or reward – of ownership.
There are many other changes that apply now because of FRS 102 – this summary is a brief overview. How it will affect you will depend on your individual business circumstances.
What You Need To Do
The FRS 102 implementation is already in effect if your company has a December year end, so it will need to be reflected in your accounts for the year ended 31 December 2015. You can get more information on the new standards by contacting a member of our Audit Team directly or through our website www.gilroygannon.com. We can help with any query, including those specific to your business.