The Financial Reporting Council (FRC) is consulting on its proposed approach to updating new UK GAAP - FRS 102 Financial Reporting Standard - to reflect changes in International Financial Reporting Standards (IFRS), including the impact of revenue recognition under IFRS 15, as part of its first review of the standard
The FRC is looking at whether FRS 102 needs to be updated to take into account changes in IFRS and the effective date for a number of new standards in the next two years. The consultation proposes that incremental improvements and clarifications, including some arising from changes in IFRS, be made to FRS 102, effective from 1 January 2019.
The regulator says these amendments would incorporate relevant improvements from the 2015 Amendments to the IFRS for SMEs; incorporate the control model of IFRS 10 Consolidated Financial Statements; update definitions and the fair value hierarchy for greater consistency with IFRS 13 Fair Value Measurement; and improve the separation of contracts for the purposes of recognising and measuring revenue, so that it is similar in this regard to IFRS 15 Revenue from Contracts with Customers which comes into effect for 1 January 2018.
The FRC will consider whether more extensive amendments should be made to FRS 102 to more closely reflect the model of revenue recognition in IFRS 15 as part of the next triennial review. Subject to the responses to the consultation, detailed proposals for these amendments will be included in the first FRED Triennial review 2017 Phase 1 – Incremental improvements and clarifications to be issued towards the end of the first quarter of 2017.
In addition, the consultation proposes that more significant amendments be made to FRS 102 that will be effective from 1 January 2022, which the FRC says gives entities more time to prepare and learn from the implementation experience of others.
These amendments would incorporate the expected loss model for impairment of financial assets, based on IFRS 9 Financial Instruments; and update lease accounting by lessees for consistency with IFRS 16 Leases.
Subject to the responses to the consultation, the detailed proposals for these amendments will be set out in the second FRED Triennial review 2017 Phase 2 – Expected loss model and leases to be issued towards the end of the third quarter of 2017.
The regulator says there are changes in IFRS that the FRC does not propose to update FRS 102 for, such as IFRS 3 Business Combinations (as revised in 2008). Whilst some incremental changes are proposed in response to IFRS 15 Revenue from Contracts with Customers, the standard will be considered more fully as part of a future review.
Paul George, FRC’s executive director, corporate governance and reporting, said: ‘The FRC is keen to hear stakeholders’ views on how FRS 102 should be updated. In this consultation we are setting out our initial views on keeping FRS 102 up-to-date as financial reporting develops. In doing so we have sought to balance improvement with stability. As a result we are proposing changes to FRS 102 when this is expected to improve financial reporting, and are giving entities plenty of time to prepare for the more significant changes.’
The closing date for comment is 31 December 2016.
Consultation: Triennial review of UK and Ireland accounting standards - Approach to changes in IFRS is here.
