Member Article

Grant Thornton advises on FRS 102

Last week Sheffield-based business advisers Grant Thornton welcomed more than 100 local business leaders to a seminar aimed at helping them to prepare for the introduction of FRS 102 which will affect all businesses currently preparing accounts under UK GAAP and has been described as the most significant change to accounting since a Franciscan Friar published a treatise on book keeping!

The Financial Reporting Council (FRC) has replaced current UK GAAP with FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland with effect from periods beginning on or after 1 January 2015, with earlier adoption permitted. FRS 102 is based on the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs), amended for use in the UK.

The changes will affect every unlisted business with a turnover above £6.5m that does not come under IFRS accounting – this is estimated to be over 1,000 non-small companies in the Sheffield City region. The key message from Grant Thornton is that businesses must start to plan early to ensure a seamless transition between the two systems.

Mike Redfern, assurance partner at Grant Thornton in Sheffield, highlights some of the changes which will. “The adoption of FRS 102 will lead to some changes to the format of the financial statements and the disclosures required, but most importantly for many businesses there will be changes to the numbers as well. FRS 102 will change the recognition criteria for various assets and liabilities, the basis on which some items are measured and the treatment of certain gains and losses compared to current UK GAAP.

“Changes in the numbers may have implications beyond just the accounts. For example, where loan covenants are calculated based on profit or balance sheet measures, transition to FRS 102 could affect the headroom on those covenants.

“The starting point for applying FRS 102 will be to restate the opening balance sheet at the start of the comparative period for the first accounts prepared under FRS 102. This is known as the date of transition. If a company prepares its first accounts under FRS 102 for the year ending 31 December 2015, its date of transition will be 1 January 2014. FRS 102 includes provisions to ease the transition.”

Donna Steel, assurance associate director at Grant Thornton in Sheffield, adds: “The impact of these changes will vary from entity to entity, with some seeing a greater impact than others. It is important to remember the amount of time needed to make the transition between systems. Implementing FRS 102 may also require staff training and system changes, and although 1 January 2014 seems a long time away, our experience shows that starting to think about these issues early on can save time and reduce problems at a later date.”

This was posted in Bdaily's Members' News section by Grant Thornton .