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Section 1: Scope

Section 1 deals with the scope of FRS 102 and the exemptions which can be claimed.

What are the key points to note?

FRS 102 is available for use by unlisted groups and listed or unlisted individual entities preparing financial statements that are intended to give a true and fair view.

Qualifying entities[1] can take advantage of certain disclosure exemptions which are set out in this section.  These exemptions are available if certain requirements are met as detailed in Section 1.11; the requirements include shareholder approval for the availing of these exemptions and are provided on the condition that the entities results are included in publicly available consolidated financial statements that give a true and fair view.

The key exemptions are as follows:

  • Preparation of a cash-flow statement and related notes (Section 7);
  • Certain financial instruments-related disclosures (Sections 11 & 12) – provided there are equivalent notes in the parent entity financial statements;
  • Certain share-based payment disclosures (Section 26) – provided there are equivalent notes in the parent entity financial statements;
  • Key management personnel compensation disclosure (Section 28); and
  • Presentation of a reconciliation of shares outstanding in the period (Section 4)

Financial institutions cannot take advantage of exemptions regarding financial instruments.

FRS 102 shall apply for periods beginning on or after 1 January 2015 with the comparative figures restated to conform to FRS 102 and opening balance sheet for the comparative restated.

Section 1A details the exemptions that are available for companies who will meet the small entity regime. A qualifying small entity is that which is defined as a small company in Company Law. Qualifying small entities must apply the recognition and measurement of FRS 102 but are subject to less presentation and disclosure requirements.

The minimum that is required under FRS 102 under the small entity regime is :

  • A statement of financial position;
  • An income statement;
  • Provide sufficient information in the notes to the financial statement in order to show a true and fair view. Appendix C and Appendix D of Section 1A detail what would be considered necessary to show a true and fair view;
  • Any other disclosures not covered above which are required by the Companies Act.

However, as the financial statements must show a true and fair view of the assets, liabilities, financial position and profit or loss of the entity for the reporting period if it is felt that further disclosures are required then they should be provided where material.

As can be seen a cash flow statement is not required for these small entities.

Section 1A encourages small entities:

  • where gains or losses are included in other comprehensive income to present a statement of total comprehensive income; and
  • when there are transactions with equity holders to present a statement of changes in equity, or a statement of income and retained earnings.

A small entity that is a parent entity is not required to prepare consolidated financial statements but it can choose to do so.

The FRS 102 Small Entity Provisions will apply to accounting periods beginning on or after 1 January 2016 with early adoption allowed if formats of Accounts as set out in the UK Statutory Instrument SI 2015/980 or the Irish equivalent legislation. While UK entities can avail of the Small Entity Provisions as set out in S1A, at the time of creating this guide Irish Entities can not avail of the Small Entity Provisions until the EU Directive 2013/34 is implemented in Ireland. It is anticipated that this will be enacted in the form of the Companies (Accounting) Act 2016.

Other standards affecting Section 1 where differences arise:

Section 35 – Transition to FRS 102 – Section 35 allows small entities to elect not to restate previous year comparative financial statement to comply with Section 11 and 12; financial instruments where they have not been fair valued under old GAAP. Instead Section 11 and Section 12 can be applied from the last day of the comparative period with an adjustment posted through equity and explanation as to the policies applied in the comparative year.

In relation to financing transactions involving related parties treated under Section 11 i.e. intercompany loans at non market rates, a small entity can determine the present value at the first reporting date as opposed to the facts and circumstances at the time the liability or asset was first recognised.

What do accountants need to do?

Advise clients of the fundamental change required as soon as possible and meet with client to identify the applicable reporting framework to be applied from the date of transition.

Irish Accountants need to advise clients of the possibility of a small entity regime being implemented once the EU Accounting Directive 2013/34 is adopted in Ireland which will reduce the work required on financial statements.

What do companies need to do?

Arrange for training of staff on FRS 102 and assess what reporting framework will be applicable and what impact this may have on the profit for the entity going forward.

Reference Commentary

Throughout this document all references to “GAAP” are replaced by the reference “Old GAAP”

[1] A qualifying entity is a member of a group where the parent prepares publicly available consolidated financial statements which are intended to give a true and fair view and that member is included in the consolidation.

A qualifying entity, other than a subsidiary, preparing separate financial statements may also be eligible for the disclosure exemptions in respect of those separate financial statements