The Financial Reporting Council (FRC) has issued amendments to FRS 101 Reduced Disclosure Framework and FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, removing the requirement to notify shareholders before taking advantage of the disclosure exemptions available in those standards
The amendments to FRS 101 and FRS 102 remove the requirement for a qualifying entity to notify its shareholders in writing that it intends to take advantage of the disclosure exemptions in FRS 101 and FRS 102, and will take effect for accounting periods beginning on or after 1 January 2016.
The FRC says that when FRS 101 and FRS 102 were developed, the requirement now being removed was intended to protect minority shareholders by giving them the opportunity to object to the use of reduced disclosures.
As part of the 2015/16 annual review of FRS 101, respondents to raised concerns about the cost-effectiveness of this requirement, and also signalled there was insufficient guidance available on how to apply the requirement in practice, which was leading to uncertainty and diversity in practice. One area of uncertainty relates to the frequency with which notification is required.
After considering this feedback the FRC consulted on proposals to remove the requirement to notify shareholders. Overall, it found that complying with this requirement is no longer cost-effective in practice and that sufficient information will continue to exist for minority shareholders to understand the effects of the reduced disclosure framework.
The standards setter pointed out that the overall level of disclosure required by FRS 101 is not less than that required by previous UK accounting standards, taking into account exemptions that were available for subsidiaries. Indeed, disclosure may be greater in some areas. In addition, the overall level of disclosure may be greater than that required by FRS 102, which will also be an option available to qualifying entities applying FRS 101.
In addition, the shareholders in an ultimate parent entity will receive the consolidated financial statements of the group as well as the parent entity’s individual financial statements. These consolidated financial statements will include full disclosure in accordance with the relevant accounting framework (often EU-adopted IFRS).
Some consultation respondents suggested further consideration be given to retaining the right to object for shareholders holding a specified proportion of the voting rights. The FRC considered the information available to shareholders and their existing rights and decided that a specific right to object to the use of disclosure exemptions is not necessary.
