The UK Financial Reporting Council (FRC) completed a fundamental modernisation of UK and Irish accounting standards for unlisted entities Thursday with the issuance of FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland.
FRS 102 was designed to provide succinct accounting and reporting requirements for unlisted entities. Along with FRS 100 and FRS 101, published in November, FRS 102 completes a series of standards designed to give the UK and the Republic of Ireland a proportionate, fit-for-purpose framework for organisations other than listed groups.
FRS 100, Application of Financial Reporting Requirements, and FRS 101, Reduced Disclosure Framework, also applied to all companies and entities in the UK other than listed groups. FRS 100 set out overall financial reporting requirements and gave many organisations options in their detailed accounting requirements.
FRS 101 applies to individual financial statements of subsidiaries and ultimate parents, allowing them to apply the same accounting as in their listed group accounts, but with fewer disclosures. The standard was designed in part to reduce the reporting burden on listed groups.
Simplicity also is an objective of FRS 102, which measures fewer than 350 pages and replaces close to 3,000 pages of UK GAAP. The reduction in volume is designed to make it easier for preparers, auditors, advisers and users to understand all the requirements, according to the FRC.
“FRS 102 modernises and simplifies financial reporting for unlisted companies and subsidiaries of listed companies as well as public benefit entities such as charities,” Roger Marshall, an FRC board member who chairs the FRC’s Accounting Council, said in a statement. “The standard updates UK accounting to take account of evolving business practices. It is succinct, [and] easy to digest and use.”
The FRSs are based on IFRS in order to allow better comparison between entities. According to the FRC, this may lead to a reduction in the cost of borrowing because financial statement users will have access to understandable, comparable information on organisations.
There will be transition costs for organisations that need to change aspects of their accounting and reporting processes. But the FRC said the reduced disclosure requirements will result in cost savings for some entities.
Education and training costs will be reduced, the FRC said, because the International Accounting Standards Board (IASB) intends to update IFRS for SMEs on a three-year cycle, and the FRC will subsequently consider whether to make corresponding changes to FRS 102. The periods of stability between potential revisions is expected to diminish the costs of educating and training finance professionals to apply them.
“It has been some time coming, but we now have the final piece in the jigsaw representing accounting requirements for unlisted entities, and we welcome it,” said Nick Topazio, ACMA, CGMA, head of corporate reporting policy for the Chartered Institute of Management Accountants. “Unlisted companies now have the information to decide which accounting basis is right for their business and can plan with some certainty.”
The FRSs will take effect January 1st 2015, but may be adopted early for accounting periods ending on or after December 31st 2012.
—Ken Tysiac (firstname.lastname@example.org) is a CGMA Magazine senior editor.