The two Exposure Drafts (EDs) set out limited amendments to two UK and Ireland accounting standards.

The first, FRED 63, is part of the annual review process for FRS 101, Reduced Disclosure Framework. which is meant to ensure that FRS 101 adds no additional costs for reporters using the standard when compared to using the equivalent International Financial Reporting Standard (IFRS). Changes to FRS 101 are required to align issues around reporting disclosure exemptions under FRS 101 in relation to IFRS 15, Revenue from Contracts with Customers. It also clarifies a legal requirement relating to the order in which the notes to the financial statements are presented.

The ED states that FRS 101 is an optional standard designed to enable cost-efficient financial reporting within groups, particularly those applying EU-adopted IFRS in their consolidated financial statements. Therefore it is only applied by those qualifying entities that consider it a cost-effective option for the preparation of their individual financial statements.

FRS 101 requires an entity to apply EU-adopted IFRS subject to specified disclosure exemptions. Therefore without intervention to amend FRS 101, an entity applying FRS 101 would need to provide all the disclosures required by IFRS 15 from the date that it applies that standard. the revised approach is expected to reduce the cost of compliance with FRS 101.

The FRC says that these proposals will ensure that FRS 101 continues to be effective in providing disclosure reductions when compared with EU-adopted IFRS and maintains consistency with company law.

The second, FRED 64, proposes amendments to FRS 103, Insurance Contracts, to reflect changes in the regulatory framework, with the introduction of Basel Solvency II, including updating some of the terminology used. FRS 103 is based on IFRS 4, Insurance Contracts. Despite the proposed review, FRC stresses that established accounting policies can continue to be applied if an entity prefers.

The ED states that FRS 103 makes a number of references to the PRA realistic capital regime, which will be replaced by Solvency II from 1 January 2016. In addition, it refers to the Prudential sourcebook for Insurers (INSPRU), which will be replaced from the same date. As these references will be out of date, amendments will be required to FRS 103.

Entities will be permitted to continue to apply established accounting practice in their financial statements. Under FRS 103 an insurer can change its accounting policies for insurance contracts if it judges certain criteria are met, and there is no need to introduce specific new accounting policies relating to Solvency II.

Melanie McLaren, FRC’s executive director of codes and standards said: ‘FRED 63 proposes additional disclosure exemptions for entities applying FRS 101, and should reduce the cost of compliance for entities choosing to use this standard. 

'We are also asking stakeholders to reflect on the principles for determining disclosure exemptions and whether there are opportunities to further increase the cost effectiveness of FRS 101.

‘The changes proposed in FRED 64 are necessary given the changes in the regulatory framework for insurance business, but do not require entities to change their accounting policies and therefore should not result in additional costs for entities.’

The proposals in FRED 64 are intended to be effective for accounting periods ending on or after 1 January 2016.

Changes as a result of FRED 63 are expected to be available when an entity applying FRS 101 first applies IFRS 15.

ED 63, relating to FRS 101 Reduced Disclosure Framework, is here

ED 64, relating to FRS 103 Insurance Contracts is here

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