The amendments to FRS 102 that were made and issued as part of the FRC Triennial Review almost two years ago, in December 2017, must now be adopted and put into practice.
The changes could be early adopted as far back as 1 January 2018 and in the case of directors’ loans to a ‘small’ company, from 8 May 2017.
The more significant changes are outlined below and have to be applied for accounting periods commencing from 1 January 2019, for years ended 31 December 2019 – so the clock is ticking to catch up with the rules.
Summary of the key changes
Directors’ loans: For ‘small’ entities, loans from a director or from a director’s group of close family members may be measured at transaction price, provided that the group of persons contains at least one shareholder in the entity receiving the loan. Therefore, the amortisation of long-term Directors’ loans that were previously amortised, can now be reversed.
This simplification is wider than the interim relief that was issued on 8 May 2017 and was given after representations from various professional bodies. The 2017 relief only permitted the simpler treatment if the director was a shareholder. Note that loans from a ‘small’ company to a director do not come within this exemption.
Investment properties: The ‘undue cost or effort’ exemption is gone, meaning that investment properties must now be measured at fair value. For investment properties rented to other group entities, an accounting policy choice is introduced between measurement at cost or fair value. See the application of this choice in our Investment Property web seminar here.
Intangible assets acquired in business combinations: New criteria have been introduced for recognising intangible assets separately from goodwill. This means fewer intangibles are required to be recognised separately. However, recognition is permitted if it is felt to be providing useful information and provided it is done consistently for that class of intangible and for all business combinations.
Basic financial instruments: A principles-based description of a basic financial instrument has been introduced to support the detailed conditions currently specified. This will allow a small number of financial instruments to be considered as basic, even though they may breach the detailed criteria, allowing them to be measured at amortised cost.
For more practical advice and examples on FRS 102 and the Triennial Review Amendments see our webinar here called FRS 102 – the New Regime from 1 January 2019.
The webinar will look at:
- Directors’ loans – ‘small’ entities, relaxation of some of the amortisation requirements;
- Intangibles in a business combination;
- Investment property rented within a group;
- Classification of certain financial instruments;
- Definition of financial institution; and the
- Reconciliation of net debt in statement of cash flows.