Appendices A and B to Section 1A provide details on how the formats may be adapted. (9) Modification and replacement of distress debt. Its aimed at the opening adjustments to the cashflow hedge element of shareholders equity reserves. However as part of the amendments made to FRS 102 in July 2014 the criteria was changed making hedge accounting more readily available to entities where its consistent with their risk management processes. The accountancy and tax treatment of hedging relationships is discussed above (see chapter 4.6). Where any tax advantage is already negated by the connected companies then the transfer pricing rules are unlikely to apply. opt for FRS 102 Section 1A Small Entities of that standard to avail of reduced disclosures or even adopt the full version of FRS 102. As such, the Regulations are applicable to transitions to FRS 101 and FRS 102 in the same way as they applied to transitions to IAS or FRS 26. the FRS 102 compliant SORP (FRS 102 SORP), our interpretation of the practical effects of implementation, together with suggested actions. Companies have the option of electing into computational provisions in the Disregard Regulations. The disposal of the investment properties will typically give rise to a chargeable gain. Companies applying Old UK GAAP fall into 2 main camps those applying FRS 26 and those that dont. As a result, its possible that certain items will be described differently compared with previously and from one entity to another. Consolidated accounts/seperate financial statements, investments in associates and joint ventures, Accounting policies, estimates and errors, Check benefits and financial support you can get, Find out about the Energy Bills Support Scheme, Accounting standards: the UK tax implications of new UK GAAP, Summary of the changes to the accounting standards, PART A Comparison between Old UK GAAP and FRS 102, PART B - Transitional adjustments (Old UK GAAP to FRS 102), nationalarchives.gov.uk/doc/open-government-licence/version/3, Corporation Tax: Disregard Regulations for derivative contracts, Statement of total recognised gains and losses, Statement of comprehensive income (sometimes referred to a statement of other comprehensive income), Reconciliation of movements in shareholders funds, Part A of this paper provides a comparison of the accounting and tax differences that arise between Old UK, Part B of this paper provides a summary of the key accounting and tax considerations that arise on transition from Old UK, additional commentary in relation to non-interest bearing loans, updated commentary on the application of the Disregard Regulations and Change of Accounting Practice Regulations, reflecting the changes made to these statutory instruments in December 2014, accounting commentary updated to reflect the amendments to, where applicable it has been updated for any commentary specific to section 1A of, proposed changes to the tax rules, for example changes to the loan relationship and derivative contract rules and changes to the intangibles legislation included in Finance (No.2) Act 2015, Micro-entities: companies that meet the eligibility criteria may prepare and file abridged accounts, with effect for periods commencing on or after 1 January 2016 these requirements are contained in, assets and liabilities at the accounting transition date will be identified, recognised and measured in line with the requirements of the new standards, thereafter profits and losses will be recognised in accordance with the new standards - these may differ from those profits and losses that would have been reported had Old UK, UK Generally accepted accountancy practice generally accepted accountancy practice in relation to accounts of UK companies (other than, a single statement of comprehensive income, in which case the statement presents all items of income and expense recognised in the period, 2 statements; an income statement and a separate statement of comprehensive income, application of Section 11 and Section 12 of, application of the recognition and measurement criteria of, all derivatives (including interest rate swaps, a forward commitment to purchase a commodity that is capable of being cash-settled, and options and forward contracts), loans that arent plain vanilla debt where, for example, the amount repayable can vary or where non-standard interest rates are used, investments in convertible debt where the return to the holder can vary with the price of the issuers equity shares rather than just with market interest rates, assets and liabilities held for trading purposes or speculatively, assets and liabilities designated at the outset by the company as at fair value through profit and loss, the tax treatment of derivatives is explained at, as noted above, financial instruments are required to be fair valued under Section 12 for all but basic instruments - loans previously recognised on an amortised cost basis may therefore be measured at fair value in accordance with Section 12, as noted above, Sections 11 and 12 dont permit the bifurcation of embedded derivatives (although the issuer of compound instruments will still separate out the equity component under Section 22) - for example the holder of a hybrid financial instrument is required under, Section 17 requires that residual values are based on current prices rather than historic prices, because of the difference in the definition of an intangible asset an acquisition under, there is a change in the measurement of the consideration given where that consideration is contingent, the look back period in which provisional fair values can be amended is different (, a change in step acquisitions in some circumstances, a grant that doesnt impose specified future performance-related conditions on the recipient is recognised in income when the grant proceeds are received or receivable, a grant that imposes specified future performance-related conditions on the recipient is recognised in income only when the performance-related conditions are met, grants received before the revenue recognition criteria are satisfied are recognised as a liability, it removes the multi employer exemption on defined benefit schemes such that the scheme position is reported in the solus accounts of the entity contractually or legally responsible for the plan, the calculation of the net interest on defined benefit schemes is different. no need to restate the comparative year ). As noted above there is no equivalent to Renewals accounting (FRS 15 paragraph 97-99) under Section 17 of FRS 102 so there may be an adjustment for tax purposes made under the change of basis legislation see part B of this paper. See CFM35190 for further details of the rules for taxing loan between connected companies. For further details of the treatment of transitional adjustments for loan relationships and derivative contracts see CFM76000 onwards. It is most likely to be applied by small, medium-sized and large private companies. The mechanics of hedge accounting, whether applying Section 12 of FRS 102 or under the IAS 39 option are thereafter comparable. ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm accesscan discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat. Although not required under Company Law, Section 1A encourages certain disclosures in order for the financial statements to show a true and fair view including: For further detail and analysis on Section 1A see our link to our FRS 102 Section 1A quick guide. Shares issued during the period. Section 13 of FRS 102 differs from SSAP 9 insofar as it specifically excludes from its scope WIP in the course of construction contracts (covered in section 23 of FRS 102), agricultural produce and biological assets (covered in section 34 of FRS 102) and financial instruments (section 11 and 12 of FRS 102). in which Co. holds participating interest or more; and, Directors of the company or of a holding company of that company, Movement in revaluation reserve and fair value reserve to be shown in tabular form, movements in and out of revaluation reserve including tax effect, state NBV if it was carried at historical cost (not required for investment property, Significant assumptions underlying valuation models and techniques where fair value, determined otherwise than by the market price in an active market, The fair value movement recognised in the financial statements, The amount credit or debited to a fair value reserve, For derivative financial instruments (e.g. The main section of this paper is split into 2 parts: The paper concentrates on the Corporation Tax position. Transitional adjustments may arise where the debt was not previously retranslated at the year end, although the amendment to the Disregard Regulations may also apply to this transitional amount. Transitional adjustments may also arise - see Part B of this paper for commentary on this. Where the useful life of the intangible asset can be reliably estimated this life is used as the UEL. Chapter 15 also contains different rules to deal with a change of policy involving disaggregation or where the asset is subject to a fixed-rate writing down election under section 730. providing disclosures of adjustments made on transition if applicable; providing a statement of comprehensive income if items go through other comprehensive income previously called the STRGL under old GAAP. The contract would typically represent a derivative financial instrument which would then be separately recognised and measured at fair value in the accounts. Debt may be restructured or have its terms modified such that, in accordance with FRS 5 and Old UK GAAP (where FRS 26 isnt adopted), no gain or loss would be recognised in the accounts. Therefore the PPA is in this example ignored. Specific tax rules apply in this scenario - see CFM 33150 for further details. In contrast, FRS 102 requires that where modification is considered substantial the original debt instrument will be derecognised and the new instrument recognised at its fair value. However, the issuer of such an instrument will need to consider the measurement requirements of Section 11 and 12 (or IAS 39) in respect of subsequent measurement of the debt component. See CFM38500 for further details. What is new if moving from full FRS 102 to Section 1A? Include movement on profit and loss reserve including details of dividend if not disclosed in the SOCE or in the notes. Any impairment from written up cost will be deductible. They will also have the option of presenting an abridged balance sheet and profit and loss account. News stories, speeches, letters and notices, Reports, analysis and official statistics, Data, Freedom of Information releases and corporate reports. A fixed asset is accounted for under Section 17 when the asset is held for use in the production or supply of goods or services; for rental to others; or for administrative purposes and is expected to be used for more than one accounting period. Furthermore, the reduced disclosure requirements permitted by Section 1A of FRS 102 would not typically have any effect on the companys tax position. These are measured at amortised cost. 98% of the best global brands rely on ICAEW chartered accountants. However, section 322 CTA 2009 will typically exempt gains arising where a debt is released in consideration of ordinary shares. On review of Company Register it was noted a Form B5 was submitted to CRO with an error, what are the options to fix this? Since the accounting is followed where the incentive isnt capital (for example, a rent free period) the difference may alter the timing of income recognition for tax purposes. All intangibles and goodwill are presumed to have a finite life and the period over which they are subject to amortisation should reflect this. In addition, where the respective recognition criteria are met, Section 23 also requires that revenue is recognised at the fair value of the consideration received or receivable. if transactions with equity holders present a statement of changes in equity or a statement of income and retained earnings; providing going concern uncertainties disclosures; disclosure of dividends declared and paid/payable; disclose of the fact that the entity is a public benefit entity if applicable. Old UK GAAP, where FRS 26 has not been adopted, permits an accounting policy choice as regards the recognition of a gain or loss. Tax deductions in respect of share based payments are governed by specific legislation in Part 12 CTA 2009. It is not intended to be a definitive statement covering all aspects but is a brief comment on a specific point. Deloitte Guidance UK Accounting Standards. Need help? Exchange differences arising from the retranslation of the net investment arent typically brought into account for Corporation Tax purposes. The overall effect in either case is to ensure that no amount should fall out of account as a result of a change in accounting policy. Therefore, the company law requirement for use of a consistent accounting framework will still be met, even if adoption of the new standards is staggered. Where the change is from an invalid basis (such as may occur when a material error is identified in the accounts), UK tax law requires the invalid basis to be corrected for tax purposes in the period it first occurred with subsequent periods also corrected for tax purposes. For companies that applied SSAP 20 many wont encounter differences but when they do they may be significant. In September 2015, FRS 102 was amended to include a new Section 1A (S1A). 5 main areas of difference are set out below. The rules are also likely to be relevant for companies which adopt FRS 101, FRS 102 or Section 1A of FRS 102 where they face similar issues to those encountered by companies adopting IAS. a holding company of a small group even where the group meets the thresholds where any of the entities in the group come within points 1, 2 and 3 above (this only effects the holding company and not the other companies within the group (other than a company that comes within the remit of points 1-3 above)). Under the performance model Section 24 of FRS 102 states: Whether the accruals model or the performance model is adopted in overall terms the differences, if there are any, are limited to timing differences on recognition. For the period ending 31 March 2020 the company was entitled to . For tax purposes the treatment of employee benefit contributions is dealt with at Part 20 Chapter 1 CTA 2010. Acquisition or disposal of own shares disclosures (Section 328 CA 2014) . disclose: No however would be considered necessary to show true and fair view as required under, Directors remuneration including connected parties/shadow/defacto directors (Section 305,305A & 306 CA 2014), Loans/quasi loans/ given to directors (inc. de facto & shadow) and any guarantees/credit. However, no exclusions apply where the derecognition occurs after the accounting transition date for example, after the start of the prior period comparatives. In particular, the financial statements of a small entity: The balance sheet and profit and loss account may be prepared in accordance with the Regulations (including the option to prepare abridged accounts) or the formats may be adapted to suit the circumstances of the small entity. The format of the P&L and balance sheet are determined by company law, whilst the format of the STRGL is set by FRS 3. Instead such entities which applied Old UK GAAP will need to transition from Old UK GAAP to one of the alternatives. Where a reliable estimate of the UEL cannot be made, FRS 102 states that the UEL must not exceed 5 years (note however, that effective periods commencing on or after 1 January 2016 this is changed to 10 years). The derivative contract regime has equivalent rules in sections 597 and 613 to 615 CTA 2009. Where debt is extinguished through the issue of an entitys own equity the accounting applied in accordance with Old UK GAAP may differ from that required by FRS 102. There are no significant differences between Section 21 of FRS 102 and FRS 12. Where regulation 9 of the Disregard Regulations applies, any adjustment to the derivative contract is effectively ignored see (3) above. (a) A person or a close member of that person's family is related to a reporting entity if that person: (i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. For Corporation Tax purposes, adjustments are treated as receipts or deductions in computing the trade profits. Small companies applying FRS 102 can take advantage of generous disclosure exemptions in ; and, Companies etc. section 1A 'Small Entities', which was first introduced into the September 2015 edition of FRS 102. financial instruments in existence which are required to be fair valued under the rules of Section 11 and 12 of FRS 102 (e.g. These days I am really useless re the what must/must not be done re accounts, bring back SSAPs and the CA, even the FRSSE I beg, rather than FRS102. Auditors report as previously except reference to cash flow statement to be deleted and, Profit and loss account/Income statement laid out in accordance with Schedule 3A (similar to existing Sch 3 CA 2014 however the words ordinary activities is removed and word charges changed to expenses), Other comprehensive income Statement of Comprehensive income, Balance sheet laid out in accordance with Schedule 3A (similar to existing Sch 3 CA 2014). how the financial statements of a small entity reporting under FRS 102, Section 1A should look. What constitutes cost will depend on the particular facts in question. Tax would typically follow the accounting in this case. However in contrast to SSAP 19, FRS 102 section 16 requires those fair value movements to be recognised in the P&L. While FRS 102 differs from Old UK GAAP in this regard it should be noted that for companies adopting FRS 102 the format requirements of the Companies Act still apply. foreign exchange contracts, interest swaps), extent and nature of the instruments including significant terms and conditions. What remains the same where an entity previously applied FRSSE or full FRS 102? Subject to certain restrictions detailed in the respective standards themselves, companies may choose or may be required to prepare their accounts under one of the following: Hereafter New UK GAAP for the purposes of this paper: For periods commencing on or after 1 January 2015 UK medium and large companies wont be permitted to prepare their accounts in accordance with Old UK GAAP. Nevertheless the emphasis on the transfer of risk and rewards is such that in most cases the classification of leases will be consistent between Old UK GAAP and FRS 102. The FRS 102 Section 1A compliance pack contains the mandatory primary statements and disclosures, and the encouraged primary statements and disclosures by default. If either of these methods are used no ongoing adjustment is required for tax purposes. Section 1A will be updated for the new legislation once enacted. The proposed effective date of the amendments set out in the FRED is 1 January 2025. For companies not applying FRS 26 there is no specific, comprehensive standard for financial instruments in Old UK GAAP. Furthermore, the reduced disclosure requirements permitted by section 1A of FRS 102 wouldn't typically have any effect on the business's tax position. However differences, even where the classification is the same, do exist and the interaction with tax is noted below. FRS 102 Section 24 states that the grant wont be recognised until the entity has reasonable assurance that it will or has complied with the grant conditions and that the grants will be received. As before provide details of the arrangements, the names of the directors, terms of the arrangements etc. FRS 102 differs from Old UK GAAP in respect of UEL. If the prescribed disclosures of Section 1A are not considered to be sufficient in this regard, the broader disclosure requirements of other sections of FRS 102 may merit consideration. Indeed, as mentioned above, disclosures over and above those required by Section 1A will often need to be made in order that the financial statements give a true and fair view. The disclosure requirements of section 1A of FRS 102 have been applied other than where additional disclosure is required to show a true and fair view. UITF 28 requires that operating lease incentives in the lessee are spread over the period ending on the date from which its expected that the prevailing market rent will be payable (if this period is shorter than the lease term, otherwise over the lease term). Directors are still required to consider if additional disclosures are required in order to show a true and fair view (Section 289 CA 2014). The legislation ensures that most items taken to reserves are brought into account. In many cases, the effect of these rules is to provide tax treatment which is broadly equivalent to companies that continued to use the previous UK GAAP. Section 19 of FRS 102 is broadly comparable to FRS 6 and FRS 7. In certain situations it may be appropriate to adopt a no gain/no loss policy, so that the value of the equity issued is treated as being equal to the carrying value of the debt given up. Section 20 of FRS 102 requires that lease incentives are spread over the term of the lease unless another way would better reflect the reality. (1) Convertible loans and asset-linked instruments (pre-2005). Required by Sch 3A(58) of CA 2014. Alternatively, its possible that the permanent as equity loan is retranslated at the year end, but with exchange movements recognised through reserves. (4) Currency, commodity and debt contracts in a hedging relationship (Regs 7 or 8 contracts). Without special rules, hedge relationships would not typically be effective for tax purposes, whether or not they were designated as a hedge for accounting purposes. For periods commencing on or after 1 January 2016 small companies wont be permitted to prepare their accounts in accordance with the FRSSE. Section 5 of FRS 102 provides preparers with a policy choice of presenting its total comprehensive income for a period as either: The single statement approach is akin to a combined P&L and STRGL while the 2 statement approach keeps them separate. The new legislation will usher in the most comprehensive overhaul of Irish company law in over 50 years and we will provide you with a detailed synopsis of the highlights and notable changes that are to be introduced. (5) Designated cashflow hedges (Reg 9A contracts). ICAEW members have permission to use and reproduce this helpsheet on the following conditions: For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. GAAP (FRS 102) and IFRS with reduced disclosures (FRS 101) are all within the Companies Act 2006 framework. Guidance on many of these issues is in HMRCs CIRD Manual (in particular see CIRD12300 which address changes in accounting policies for intangible assets within Part 8 CTA 2009). Where a fundamental error is identified FRS 3 requires that this is accounted for by restating the prior period comparative figures. Consequently either on transition (where the exemption to retain previous GAAP figures isnt used) or on subsequent business combinations, more intangible assets may be recognised under FRS 102 than would have been recognised under Old UK GAAP. Its also likely that transitional issues could arise in such cases. Accounting carrying value is defined to mean the carrying value of the asset or liability as shown in the balance sheet of the company subject to adjustments for specific tax provisions which have the effect of changing the carrying value for tax purposes (for example, s349 CTA 2009 for connect party debt). by Des O'Neill | Feb 23, 2017 | FRS102.com Blog. A reference in statute to the income statement, for example, will take its normal accounting meaning. Statement of changes in equity not specifically required however Sch 3A requires: Disclosure of accounting policies (section 321) as before. The paper is equally relevant to small companies who elect to apply Section 1A of FRS 102. Note that its not envisaged that s.53 FA11 will apply to entities on transition to Section 20 of FRS 102 by virtue of subsection 3 of s.53 FA11. This gain or loss should reverse over the remaining life of the instrument. Firstly FRS 102 doesnt permit an indefinite life. Going forwards under FRS 102 (with the IAS 39 option) embedded derivatives in a contract are typically required to be bifurcated in the accounts. As such, the profit or loss on derecognition / rerecognition will typically be brought into account. The main exclusions are for transitional adjustments in respect of: A company has a designated a financial instrument as AFS with maturity in 6 months. Note that this paper deals with borrowing costs in chapter 14, foreign currency translation in chapter 17 and liabilities and equity in chapter 18. This paper reflects the current thinking of HM Revenue and Customs (HMRC) and its based on the law as it stands as the date of publication. Adjustments on loan relationships as a result of changes in accounting policy can arise under 2 separate parts of the regime. Note that the government has included within Finance (No.2) Act 2015 an exemption to cover distressed debt, which would apply in certain cases where the loan is modified or replaced. movement on revaluation reserve to be disclosed including details of transfers etc. Where mark to market is used there is no tax law that requires the profits or losses disclosed by the accounts to be adjusted for tax purposes.
