The changes include confirmation of the simplification of the measurement of directors’ loans to small entities, which was the subject of an interim relief granted earlier this year. This permits a loan from a person within a director’s group of close family members that includes at least one shareholder in the entity to be initially measured at transaction price, rather than present value.

Other principal amendments to FRS 102 include:

• Entities will be required to recognise fewer intangible assets acquired in a business combination separately from goodwill. The FRC says this will reduce the costs of compliance, whilst still providing users with useful information about the business combination.
• Entities may choose to separately recognise additional intangible assets acquired in a business combination if this provides useful information to the entity and the users of its financial statements. When an entity chooses to recognise such intangible assets separately from goodwill, it shall apply that policy consistently to the relevant class of intangible assets.
• The removal of undue cost or effort exemptions which, in some cases, are replaced by accounting policy options. In particular, in order to address implementation issues, an accounting policy choice is introduced for entities that rent investment property to another group entity, whereby they can choose to measure the investment property either at cost (less depreciation and impairment) or at fair value.
• The introduction of a description of a basic financial instrument to support the detailed conditions for classification as basic. Making this change will result in a relatively small number of financial instruments, which breach the detailed conditions for classification as basic, now being considered to be basic and measured at amortised cost. In these cases measurement at amortised cost will provide relevant information for users of the financial statements.
• The principle included in the financial institution definition has been amended to remove references to ‘generate wealth’ and ‘manage risk’. The FRC says this change should help to reduce the interpretational difficulties in relation to implementing these concepts, and should reduce the number of entities meeting the definition of a financial institution. Stockbrokers have also been removed from the definition of a financial institution.

Amendments also include those relating to gift aid payments by subsidiaries to their charitable parents. They allow the tax effects of such payments to be taken into account at the reporting date when it is probable the gift aid payment will be made in the following nine months.

The principal effective date for these amendments is accounting periods beginning on or after 1 January 2019, with early application permitted provided all amendments are applied at the same time. The only exceptions to this are the amendments relating to directors’ loans and the tax effects of gift aid payments, for which early application is permitted separately. Limited transitional provisions are also available.

Paul George, executive director, corporate governance & reporting, at FRC said: 'There are five significant changes and a number of editorial improvements to change wording to make the standard clearer. 

'On business combinations it has been made less onerous, simplifying the acquisition accounting. This is particuarly relevant for companies reporting under IFRS making an acquisition of a company using FRS 102 as companies had to allocate the purchase price, including value and and the order book, and so forth.

'This can cause companies to incur quite a lot of costs. It takes it back to where UK GAAP was a few years ago as now companies can recognise goodwill.

'We've increased the number of financial institutions that can be measured at amortised cost, and the definition of financial institution has been changed so less of them are caught by this and as a result fewer entities will be defined as financial institutions.'

George also confirmed that over the next few years the FRC will keep a close eye on the implementation of the major new IFRS standards, IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases, the latter due to come into effect from 2019.

He said: 'We have no plans to do a significant revision - we specifically consulted on how do we bring in IFRS 15, 16 and 9, and the conclusion was that we should wait to see how implementation of IFRS 15 and IFRS 9 goes.

'We are not going to get much experience of how it settles down much before 2019, so we will try to pick this up as part of the wholesale review in 2021-22. But we will do noarrowly focused amendments if necessary.' 

However, changes to the disclosure requirements for small entities in the Republic of Ireland and for micro-entities in the UK and the Republic of Ireland (as set out in FRS 105 Financial Reporting Standard for Micro-entities Regime) are applicable to accounting periods beginning on or after 1 January 2017; the legal requirements for micro-entities in the UK apply to accounting periods beginning on or after 1 January 2016.

The FRC says revised editions of all UK and Ireland accounting standards will be issued early in 2018 to reflect these amendments, and any others that have been made since the most recent edition was issued. Versions of the XBRL FRC taxonomies that reflect the amendments made to FRS 102 will be released shortly.

ICAEW welcome what it called the ‘common-sense and targeted changes’, but warned  preparers will need time to get to grips with the amendments, which are more complex than they initially appear.

Nigel Sleigh-Johnson, ICAEW head of financial reporting, said: ‘The changes made are generally common sense simplifications that balance efforts to reduce cost and complexity in financial reporting with the need to maintain the usefulness of the accounts.

‘For example, the simplified treatment for the measurement of directors’ loans by small companies will please many, especially as the simplification has been extended to include loans from the directors’ wider family.

‘The option to measure investment properties at cost or fair value will also be generally welcomed.  Similarly, changes in respect of intangible asset accounting are an attempt to reach a pragmatic solution to a difficult area where views on costs and benefits vary markedly.’

However, he warned that the options for early adoption will require careful consideration, as would the changes around payments by subsidiaries to their charitable parents that qualify for gift aid.

Amendments to FRS 102 Triennial review 2017 Incremental improvements and clarifications is here.