UK amendments will change measurement of some financial instruments

Amendments to UK GAAP issued Wednesday are designed to result in more financial instruments being measured by reference to cost instead of fair value.

The UK Financial Reporting Council (FRC) made the changes to improve the accounting for certain financial transactions, make standards easier to use, and reduce the cost of compliance. The FRC amended Financial Reporting Standard (FRS) 101 and FRS 102.

The amendments to FRS 102, which were made before its effective date, are related to financial instruments. The FRS 102 amendments:

  • Update the requirements on hedge accounting, making hedge accounting more readily available to entities where it is consistent with their risk-management processes.
  • Relax the conditions for regarding financial instruments as “basic”, causing more financial instruments to be measured by reference to cost rather than fair value.
  • Make transition to FRS 102 less costly.
  • Take effect on January 1st 2015, the same date as FRS 102.

FRS 101 allows entities to apply IFRS with exemptions from some disclosures. The amendments to FRS 101 resulted from an annual review of the standard designed to ensure that those disclosure exemptions are updated on a timely basis as IFRS develops.

Roger Marshall, an FRC board member and chairman of the FRC’s Accounting Council, said in a news release that the amendments were made to improve hedge accounting requirements, in line with international developments.

“The changes will better reflect entities’ risk-management strategies, and respond to entities’ concerns that FRS 102 required too many financial instruments to be measured at fair value where a cost-based measurement would be appropriate,” Marshall said.

Ken Tysiac ( is a CGMA Magazine editorial director.