Mind the GAAP - New UK GAAP reminders

Mind the gap

5 September 2016

With many firms in the midst of preparing and auditing 2015 year end accounts – the first under the new UK GAAP regime, ICAS summarises some of the key areas where there may be significant differences under old and new GAAP.

Early adoption of the provisions of FRS 102 section 1A and The Companies, Partnerships and Groups (accounts and reports) regulations 2015 (Statutory Instrument 2015/980)

Both of these have an application date of accounting periods beginning on or after 1 January 2016, but can be adopted early for accounting periods beginning on or after 1 January 2015. It’s important to remember that the two must be adopted in tandem i.e. if FRS 102 section 1A is used, then abbreviated accounts can no longer be filed, and if the FRSSE is used, then the new small company thresholds cannot be adopted.

Early adoption is likely to be most useful for companies that are currently medium-sized, but will become small under the new thresholds (£10.2 million turnover and £5.1 million balance sheet). This means that they can move straight to FRS 102 section 1A rather than having to use full FRS 102 for one year. Remember that the revised audit threshold can’t be early adopted.

Accounting for financial instruments

Accounting for financial instruments is one of the key areas of difference between old UK GAAP and FRS 102, and includes items such as cash, equity instruments of other entities, trade debtors, trade creditors, loans, options, warrants, future contracts, forward contracts and interest rate swaps etc.

FRS 102 classifies financial instruments as ‘basic’ which are generally accounted for at amortised cost, or ‘other’ which are generally measured at fair value. This means that the accounting for many such instruments will change and some items, such as interest rate swaps and foreign exchange forward contracts, which have not previously been separately recognised, will come onto the balance sheet.

All entities will need to go through the process of identifying and classifying all of their financial instruments, and ensuring that appropriate valuations are obtained.

Accounting for directors’ loans and other related party loans

Loans to and from directors or other group companies are a common feature of small company accounts and are often made at zero or a below market rate of interest. Such loans will be treated as ‘financing transactions’ (unless they are repayable on demand), and measured at an amount based on the present value of the future cash flows, based on a market rate of interest for a similar loan, rather than at face value.

This is likely to leave a difference which may need to be treated as a distribution or capital contribution. Further guidance is available in Staff Education Note 16 – Financing Transactions, issued by the FRC. Consideration needs to be given about whether the transaction is a loan or rather a capital contribution i.e. a transfer of cash from one group entity to another which has no fixed repayment date and a zero rate of interest.


The micro-entity regulations have been available since 2013. For entities which qualify as such and decide to take advantage of the concession offered by this regime, there is the choice of applying either the FRSSE (2015) including the micro-entity amendments, or the new FRS 105.

The micro-entity rules have recently been extended to LLPs and Qualifying Partnerships, and HMRC has confirmed that it will accept for tax purposes, profits of unincorporated entities calculated in accordance with FRS 105, for entities meeting the relevant size criteria.

Entities which qualify as a micro-entity may opt to use a more comprehensive accounting standard and should carefully consider whether the micro-entity regime is appropriate, taking into account factors such as: who are the users of their accounts, the nature and complexity of their transactions, and whether they have plans to expand.

Further guidance

ICAS technical staff will be hosting a surgery, between 12.30pm and 1.30pm on Friday 30 September 2016, at CA House, on New UK GAAP. The aim of this event, which is free to ICAS members, is to highlight and discuss the issues and difficulties members are experiencing when implementing the new standards.

If you would like to attend, please email:  accountingandauditing@icas.com


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