Top Five Most Frightening Aspects of FRS 102

Our A&A lecturers are all out on the road and rarely seen in the office in the busy lecturing season. A key topic at the moment (of course!) is the impending New UK GAAP (including FRS 102).

We've been immersed in the standards and the FRC's plans for the future of the FRSSE for a long time, but we know that the news that FRS 102 will almost certainly apply to small FRSSE clients in a couple of years' time is still causing practitioners' jaws to drop in horror! This is definitely number one on our list of the top five most frightening aspects of FRS 102 for SMEs from recent courses.

1. It'll (probably) apply to FRSSE entities in 2016

The FRC consultation (which ends next month) makes it clear that their plan is to withdraw the FRSSE for periods commencing on or after 1 January 2016. Small entities will thereafter use FRS 102, albeit with reduced disclosures in line with the changes in the new Accounting Directive. Note that micro-entities are set to have their own separate standard. For more details, read here.

2. Deferred tax will strike without mercy

From transition date, deferred tax will apply to most revaluation gains on investment properties and non-depreciable trading assets. It will also apply to fair value adjustments on business combinations. And discounting (which could lessen some of the impact) has been removed as an option. The impact of deferred tax will (for some entities) be the single biggest change in FRS 102.

3. Your key managers may face more disclosure

The new standard requires disclosure of the compensation paid to key management personnel. While for many companies this will overlap with the directors' remuneration disclosures, in some cases there will be additional amounts to disclose. This could prove revealing for non-directors if their remuneration can be more easily deduced from the disclosure.

4. Group final salary pension schemes will impact individual entity accounts

At present, many entities within groups which share a defined benefit ('final salary') pension scheme account solely for their contributions, on the basis that they cannot determine an equitable share of the scheme's assets and liabilities. These will need to be shared among group members in future. If no sharing agreement exists, the company legally responsible for the scheme must take the entire burden in their individual accounts.

5. Short-term employment benefits could cause accounting headaches

For many entities, the new need to accrue for short-term benefits such as holiday and sickness pay will not be overly burdensome. However we've come across several cases where policy for such benefits is highly decentralised across branches of the organisation, meaning that collating data and calculating the accrual will be extremely painful. In addition, unless practitioners request their clients to retain records of benefits from the transition period, there could be many long hours spent in the archives to retrieve the information.

To read our series of FREE New UK GAAP downloads and see the solutions we offer, click here.