Five proposed changes to FRS 102

By Carol Hislop, Head of Corporate & Financial Reporting, Policy Leadership

24 April 2017

Carol Hislop outlines five proposed changes to FRS 102.

The Financial Reporting Council (FRC) has issued Financial Reporting Exposure Draft (FRED) 67 which proposes incremental improvements and clarifications to FRS 102.

The proposed effective date for these amendments is accounting periods beginning on or after 1 January 2019, with early application permitted provided all amendments are applied at the same time.

A more detailed review of the proposed changes is available. 

The five principal amendments proposed are:

1. Simplifying accounting for directors’ loans

The accounting for directors’ loans by small entities has been simplified and there is no longer a requirement for a market rate of interest to be estimated.  

FRED 67 proposes that a loan from a director who is a shareholder in the small entity can be accounted for at transaction price rather than present value.  

2. Revised requirements for separating intangible assets

There are revised requirements for separating intangible assets from goodwill acquired in a business combination.  

FRED 67 has introduced conditions which require the recognition of some, but not all assets acquired in a business combination separately from goodwill and this will result in fewer intangible assets being recognised separately and valued.  

In addition, an entity may choose to recognise other intangible assets acquired in a business combination.  

Picture of calculator

3. Accounting policy choice for investment properties

FRED 67 permits the measurement at cost, rather than fair value, of investment property rented to another group entity.  

The FRC is proposing that an accounting policy choice should be introduced for entities which rent investment property to another group entity allowing them to choose between measuring those properties at cost or at fair value.

4. Classification of financial instruments

A new principle-based description has been introduced for the classification of financial instruments which will allow more of them to be measured based on cost, rather than fair value.

5. Definition of a financial institution

Changes have been made to the definition of a financial institution with the result that fewer entities will be classified as such.  

FRED 67 has amended the definition of a financial institution by removing references to “generate wealth” and “manage risk”.

Ready to learn more?

Pension scheme accounting has been subject to significant change following the introduction of FRS 102 and the revised Statement of Recommended Practice (SORP) for financial periods commencing on or after 1 January 2015.

The course will consider the impact of the changes in pension scheme accounting and the experience gained to date on issues arising in complying with FRS 102 and the revised SORP.

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