There is less than six months until the effective implementation date for the new FRS 102, the Financial Reporting Standard for UK and Ireland, which will replace existing UK GAAP from 1 January 2015.

In a survey of accountancy practices across the UK, only 22% said they had communicated the basic choice of new accounting regimes to their clients, and only one in 10 were aware of the impact on bank covenants, derivative and fair value issues, all of which will change substantially under the new accounting framework.

Despite the requirement to produce comparable accounts by year end 2015, less than 5% of practices have considered the likely cost of transition while only a third of companies are planning specialist training for staff. 

By contrast, businesses are better prepared for the transition with nearly 40% having considered the most appropriate accounting framework to use and 20% stating that they have an understanding of the new rules.

Almost two thirds of business respondents (60%) have planned extra time to deal with the transition, or are moving towards this goal, while 30% have set up or have a plan to create new accounting formats.

Some of the main changes in FRS 102 relate to financial instruments, including loans, hedging and derivatives, so this will require a rethink in terms of accounting treatment.

‘It is important to start planning for the new UK GAAP – it may seem a long time away but the requirements to produce comparable accounts for the first year end mean that some figures, particularly any fair values of items such as derivatives, need to be established two years in advance of the first balance sheet date,’ warned Julia Penny, content manager, audit and accounting, at CCH.

Derivatives are not accounted for in current UK GAAP, so items such as forward currency hedging for exporters will have to be brought onto the balance sheet

‘Derivatives are not accounted for in current UK GAAP, so items such as forward currency hedging for exporters will have to be brought onto the balance sheet. This has the potential to create more volatility than before as reporters will have to value derivatives and shares, for example.

‘The maximum life of goodwill and intangibles is five years under FRS 102, not 20 years as before. These are just some of the changes which need to be taken into account when planning for FRS 102,’ added Penny.

The results are based on 200 responses from accounting firms and businesses to the New UK GAAP Action Planner from Wolters Kluwer UK.

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Essential reading on FRS 102

For comprehensive coverage of FRS 102, read our exclusive series of articles on the new UK GAAP starting with Ten things you need to know about FRS 102 by accounting expert Helen Lloyd FCA