Diversity

48
Financial Reporting
The FRC recognises that
additional guidance in FRS 102
is desirable on how to determine
whether an entity is acting as a
principal or an agent, and FRED 67
proposes to add such guidance based
on IAS 18 Revenue.
Recent IFRS standards
Perhaps equally important to the
proposals to change FRS 102 being
made by the FRC is the fact that
FRED 67 is not proposing to fasttrack
the more recent new IFRS
standards into FRS 102, such as IFRS
15 on revenue, IFRS 16 on leases and
the expected loss model of IFRS 9.
FRED 67 states that these will be the
subject of a later consultation by the
FRC and will not be effective before 1
January 2022.
The FRC also considered whether
to incorporate into FRS 102 the
updated rules of IFRS on how to
identify when one entity controls
another, as set out in IFRS 10
Consolidated Financial Statements.
The FRC decided not to propose
changing this aspect of FRS 102.
However, FRED 67 recognises that
this may result in certain structured
or special purpose entities not being
consolidated under FRS 102 and
proposes that additional disclosures
about such entities should be
included in the accounts.
Financial instruments: accounting
and disclosure
A major feature of FRS 102 is the
choice it offers on accounting for
financial instruments and the
financial institutions it requires
to give enhanced disclosures on
financial instruments.
Under FRS 102, preparers can
choose whether to apply Sections
11 and 12 of FRS 102, or IAS 39, or
IFRS 9 in accounting for financial
instruments. The FRC had to
consider how FRS 102 should deal
with these choices as the effective
date of IFRS 9, as the replacement
for IAS 39, draws nearer. FRED 67
proposes that the three options
should be retained in FRS 102 and
specifies which version of IAS
39 should be used where the IAS
39 option is chosen. As a futureproofing
measure, FRED 67 proposes
that the version of IAS 39 to be
used is the version that is effective
at the preparer’s year-end date,
The Financial Reporting Council recognises
that additional guidance in FRS 102 is desirable on how
to determine whether an entity is acting as a principal
or an agent, and FRED 67 proposes to add such
guidance based on IAS 18 Revenue.
and proposes that, when IAS 39 is
superseded by IFRS 9, the relevant
version of IAS 39 will be the one
that was effective at the date it was
superseded by IFRS 9.
As well as proposing an
amendment to the definition of a
financial institution under FRS 102,
which will reduce the number of
such institutions required to provide
enhanced disclosures, FRED 67 notes
that any entity with risks arising
from financial instruments that are
“particularly significant” may need
to provide additional disclosures
to enable users to evaluate the
significance of financial instruments
to its financial position and
performance.
FRED 67 also proposes to remove
retirement benefit plans from the
list of entities defined as financial
institutions; retirement benefit
plans will still provide the specific
disclosures specified for them by FRS
102 Section 34.
To make FRS 102 clearer and easier
to use, FRED 67 proposes to add a
number of examples illustrating
which types of financial instruments
should be accounted for at amortised
cost and which types at fair value.
Conclusion
Given the very wide variety of
companies that use FRS 102, from
the largest private companies to
much smaller entities, it is not
surprising that a mix of views was
expressed by stakeholders on the
future of FRS 102, from those who
asked for a significant relaxation
of its requirements to those who
considered it should move more
quickly to keep pace with changes
in IFRS. The FRC considered
that requests for amendment in
some areas may reflect incorrect
application of FRS 102, rather than
a lack of clarity in FRS 102. It may
provide additional informal guidance
on such issues.
In finalising the 140 pages of
proposals in FRED 67, the FRC has
had to consider very carefully which
aspects of FRS 102 should be relaxed
and which aspects should be retained
or improved, while identifying the
aspects of accounting that should
now be introduced into FRS 102.
In accordance with its usual
practice, the FRC has invited
comments on its proposals with
those comments due by 30 June 2017.
As many of the proposals represent
an easing of FRS 102, it is important
to note that they will not be effective
until the final revised FRS 102 is
issued. While many commentators
can be expected to agree with the
FRC’s proposals, others may not be as
supportive. Now that we have seen
how open the FRC is to considering
the views expressed by stakeholders,
if you have views one way or the
other on the proposals of FRED 67 to
change our GAAP, why not accept the
FRC’s invitation to comment?
FIONA HACKETT
Fiona Hackett FCA is a Director with PwC and
a member of the Accounting Committee of
Chartered Accountants Ireland.
TERRY O’ROURKE
Terry O’Rourke FCA is a Consultant with
PwC and chairs the Accounting Committee
of Chartered Accountants Ireland.
ACCOUNTANCY IRELAND
APRIL 2017