Understanding Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102)
FRS 102 is a comprehensive accounting standard issued by the Financial Reporting Council (FRC) in 2013. It was introduced to replace the Financial Reporting Standards 1-30, effectively creating what is commonly referred to as the new UK GAAP.
This new standard covers various areas of financial accounting in 35 sections, positioning UK GAAP into alignment with International Financial Reporting Standards (IFRSs). The standard incorporates text from the International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs), with necessary modifications for its application in Britain and Ireland.
Key Areas Covered by FRS 102
- Goodwill: Updated treatment aligning closer to IFRS approaches.
- Fair Value Accounting: Wider acceptance in valuations.
- Terminological Changes: Adoption of terminology consistent with IFRS standards, such as changing “balance sheet” to “statement of financial position.”
FRS 102 became effective on January 1, 2015, and it is mandatory for all UK and Irish entities except those listed companies that must use IFRSs or entities that apply special rules for micro-entities.
Examples
- Goodwill Accounting: Under the old UK GAAP, goodwill was generally amortized over its useful life, whereas FRS 102 may require annual impairment tests in line with IFRS standards.
- Fair Value Accounting: FRS 102 adopts a broader use of fair value for asset valuations compared to the historic cost accounting traditionally used in UK GAAP.
Frequently Asked Questions (FAQs)
Q1: What is the purpose of FRS 102? A1: FRS 102 was developed to modernize UK GAAP by aligning it more closely with IFRSs and providing a simpler, more responsive financial reporting framework for UK and Irish entities.
Q2: Who must comply with FRS 102? A2: FRS 102 is mandatory for all UK and Irish entities that do not apply IFRSs or are not classified as micro-entities.
Q3: How does FRS 102 differ from previous UK GAAP? A3: FRS 102 includes changes in terminologies, recognizes a broader adoption of fair value accounting, and modifies how goodwill is treated.
Related Terms and Definitions
- Financial Reporting Council (FRC): The regulatory body in the UK responsible for overseeing the implementation of accounting and auditing standards.
- Generally Accepted Accounting Practice (GAAP): A common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements.
- International Financial Reporting Standards (IFRS): Global standards for financial reporting issued by the International Accounting Standards Board (IASB).
- Goodwill: An intangible asset that arises when a buyer acquires an existing business.
- Fair Value Accounting: An accounting method where assets and liabilities are listed at their current market value.
- General Purpose Financial Statements: Financial statements intended to meet the needs of users who are not able to demand reports tailored to meet their specific information needs.
Online References
Suggested Books for Further Studies
- “UK Financial Statements: FRS 102 Explained” by Steven Collings
- “Financial Accounting and Reporting” by Barry Elliott and Jamie Elliott
- “Intermediate Accounting: IFRS Edition” by Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Accounting Basics: “FRS 102” Fundamentals Quiz
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