FRS102 – what does it mean to me and my business? Part Two

What are the changes?

You may think that these do not affect you. However the changes that are coming may substantially affect your reported profits, tax charges and distributable reserves. The language used is also different, so you will see reference to receivables and payables; not debtors and creditors. Property, plant and equipment, rather than fixed assets and a number of other terminology changes. There are a number of ways in which the your reported profit will be subject to change and, although we can’t list all 335 pages here, below are some of the key points:


Currently under Financial Reporting Standards (FRS’s) and the Financial Reporting Standard for Smaller Entities 2008 (FRSSE 2008) there is a default maximum amortisation period where a reliable estimate of useful life cannot be made. This is 20 currently years. Under the new standards this will likely be shortened to ten years. Where there are no reliable estimates of useful life the effect will be higher charges against profits than currently, which will lower profits available for distribution.

Property revaluations

Presently any revaluation gains and losses go into a separate revaluation reserve on the balance sheet. Nothing is charged to the profit and loss account unless the revaluation reserve has been fully extinguished. Under the new standard, revaluation gains and losses on investment properties will all go into the profit and loss account. This may have a dramatic effect on the accounting profit or loss for the period depending on the magnitude of the revaluation.

Deferred tax

A second change affecting revaluations is that of deferred tax, which is accounted for only as a provision and does not affect the actual tax payment. Presently deferred tax is not accounted for on revaluations. This changes under the new standards and deferred tax is accounted for in full on all revaluations. This may have an immediate effect on distributable reserves if the revaluation reserve has been utilised to offset higher depreciation charges or used to issue further shares.

Holiday pay accruals

Under the new standard there is a requirement to accrue for employee holiday entitlement not taken. For entities that have not accrued for this in the past there may be a significant liability to account for, especially where the holiday entitlement period is not in line with the accounting period.

Intercompany loan balances

Many groups enter into intra-group loans for a variety of reasons. Problems will emerge where loans, that are not repayable on demand, are charged at zero rates of interest, or interest rates which are below market rates. Under the new standard, such loans will need to be discounted to their present value. Not only is such a calculation potentially complex, but it will also impact upon profits and distributable reserves.

The small company regime

If that was not enough, companies at the smaller end of the scale are also set for some sweeping changes in the way that they will report financial information. Small companies currently applying the FRSSE will be required to adopt a new FRSSE from 1 January 2015. From 1 January 2016 the new FRSSE will cease to exist and small companies will either be required to follow an abbreviated form of FRS102 or the micro-entity regime. Micro-entities will be mandatorily required to apply the new legislation, known as FRS105, for accounting periods commencing on or after 1 January 2016. These new standards are based on the recognition and measurement requirements of FRS 102 which will mean that UK GAAP will all be based on a consistent framework.

There are a number of ways in which the your reported profit will be subject to change and, although we can’t list all 335 pages here, over this series of blogs we'll cover some of the key points and advise you on what you should be doing.

Alternatively, you can also download our fact sheet here. If you'd like a more detailed chat about FRS102 and its implications, taking into account your personal circumstances, get in touch.

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