FRS102 – top five points for first-time adoption

FRS102 is replacing current accounting standards. So what? This will mean your accounts will look different, profits could change, your remuneration packages and bonus schemes may also change as well as your tax position. Are you ready?

This is nothing that hasn’t been bandied around the financial world for the past few years, considering it is the biggest change in UK Financial Reporting for at least the last 10 years! It is likely that your existing accounting knowledge will no longer be good enough to get you through. FRS102 replaces the vast majority of all accounting standards for medium and large sized entities. The key accounting change will be an increased use of fair value accounting. Specific areas where change is most likely are lease incentives, deferred tax, employee benefits, intangibles (including goodwill), investment property and financial instruments (including long term inter-company balances).

How ready are you for this change and how well do you understand the impact it will have on your business? Here are my Top Five points for you on first time adoption:

1. Know when the change is taking place

The mandatory date to apply the new standard is for accounting periods beginning on or after 1 January 2015, i.e. years ending 31 December 2015. Early adoption is permitted for periods ending on or after 31 December 2012.

If you are a FRSSE company then you have the ability to prepare your financial statements in accordance with FRSSE2015 until the new standards come into force for accounting periods commencing on or after 1 January 2016. From this date you will need to consider micro-entity reporting, FRS102 (Section 1A) or FRS102.

2. Know your transition date

This is probably the most important point to consider and one which can be confusing. The transition date is the start date of the earliest period reported in the financial statements prepared under FRS102; the first day of the comparative period. The transition date for a company with a 31 December 2015 year end and one that has not adopted early will therefore be 1 January 2014.

3. Calculate your opening balance sheet

You will need to prepare a comparative balance sheet, a comparative income statement and a transitional balance sheet. There are specific options and exemptions available under FRS102 for which you will need to carefully review and assess the impact of first time adoption on your business.

The 4 main steps in preparing this balance sheet are:

  • Recognise all assets & liabilities required by FRS102
  • Omit assets & liabilities for which recognition is prohibited by FRS102
  • Reclassify any items which recognition is different under FRS102 to that of previous UK GAAP
  • Apply FRS102 in the measurement of all such assets & liabilities

4. Prepare reconciliations

In accordance with Section 35 of FRS102 you are required to include the following in your financial statements:

  • An explanation of the nature of all changes to accounting policies
  • A reconciliation of equity to that reported under the previous UK GAAP at both of the following dates:
  • transition date.
  • the end of the latest period presented in the entity’s most recent annual financial statements determined in accordance with its previous financial reporting framework.
  • A reconciliation of profit or loss determined in accordance with its previous financial reporting framework for the latest period in the entity’s most recent annual financial statements to its profit or loss determined in accordance with FRS 102 for the same period.

5. Understand the financial and taxation implications

FRS102 will have an impact on the distributable reserves of certain companies reporting under the new framework in comparison to the previous framework. As a result of changes to your accounting profit there is the potential that your taxable profits may be different under FRS102. This may have a knock on effect on your remuneration packages and dividend payments. We recommend that you review your position.

If you would like a free initial meeting to discuss and explore the impact of FRS102 on your business then please contact us on

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