CCH Preparing FRS 102 Company Accounts 2017 18 Anne Cowley ACA
Preface Welcome to the 2017 18 edition of Preparing FRS 102 Company Accounts, a practical guide to preparing company accounts under the UK fi nancial reporting standard FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. It is perhaps hard to believe that FRS 102 has now been in publication for four years, albeit that it only took effect in 2015 and has seen several updates some more signifi cant than others in that time. The most recent, and perhaps most signifi cant, extended the scope of the standard to small entities, following the removal of the FRSSE in 2016. Since then, though, we have enjoyed a relatively quiet period, giving companies the chance to get to grips with applying the standard. Indeed, the fi rst sets of FRS 102 accounts have now started to fl ow in, meaning that we can start to see how companies are tackling transition and the requirements of the standard in practice. Work on FRS 102 has not, however, stopped yet. In March 2017 the FRC published Financial Reporting Exposure Draft 67 (FRED 67), the fi rst exposure draft setting out changes to the standard as a result of the first triennial review of FRS 102. This fi rst exposure draft focuses on clarifi cations, simplifi cations and improvements to the standard. It does not implement any signifi cant changes arising from new and amended IFRSs but instead proposes solutions to some of the areas where FRS 102 has proven challenging to apply in practice thus far. The second stage of the triennial review will contain a more substantial set of amendments and is expected to bring in the impairment requirements (also known as the expected loss model) from IFRS 9 Financial Instruments, revenue guidance from IFRS 15 Revenue from Contracts with Customers and the new requirements for lease accounting set out by IFRS 16 Leases. The fi rst set of amendments have a proposed effective date of 1 January 2019 while the more complex amendments are not proposed to come into play until 1 January 2022. This might seem like a long way off, but IFRS preparers are already thinking hard about the implications of the new leasing standard, which affects them from 2019, and it is important to plan ahead and assess the impact of the changes to come. Preparing FRS 102 Company Accounts aims to be a practical companion rather than a comprehensive technical commentary in its own right a quick and, we hope, relatively straightforward guide, aimed at large and medium-sized companies and concentrating on the presentation and disclosure requirements of FRS 102 together with the statutory disclosures of the Companies Act 2006 and other Regulations. This year we also include additional insights gained from the fi rst published FRS 102 accounts, including some examples of better practice and some cautionary advice too! Now owned and updated by our senior in-house technical expert here at Wolters Kluwer, we hope you fi nd the guide useful and we extend our thanks to James Lole FCA and SWAT UK for their excellent work in updating the content of this product in previous years. Anne Cowley, Senior Technical Writer, Wolters Kluwer UK March 2017 v
Preface Page v 1 Purpose of this guide and overall framework 1 2 General statutory accounting provisions 3 2.1 Purpose and scope of UK company law 3 2.2 The Accounting Regulations for large and medium-sized companies 5 2.3 Annual accounts 6 2.4 True and fair concept 7 2.5 Adequate accounting records 9 2.6 Format of accounts 10 2.7 Statutory accounting principles 11 2.8 Notes to accounts disclosures 12 2.9 Narrative reports included with the accounts 13 2.10 Group accounts 13 2.11 Audit requirement 13 2.12 Approval and signature of accounts 16 2.13 Publication of statutory and non-statutory accounts 16 3 The UK financial reporting framework 17 3.1 Accounting standards 17 3.2 Generally accepted accounting practice (GAAP) 17 3.3 The UK fi nancial reporting framework 17 3.4 Statement of compliance 19 3.5 Consistency with company law 19 3.6 International Accounting Standards 19 3.7 Transitional arrangements 20 4 Scope and application of FRS 102 21 4.1 Scope of the standard 21 4.2 Basis of preparation of accounts 22 5 Disclosure exemptions for qualifying entities 23 5.1 Qualifying entities 23 5.2 Shareholder notifi cation 23 5.3 Financial institutions 24 5.4 Consolidated accounts 24 5.5 Equivalent disclosures 24 5.6 Specifi c disclosure exemptions 25 6 Concepts and pervasive principles 27 6.1 Objective of accounts 27 6.2 Qualitative characteristics of accounts information 27 6.3 Financial position 28 6.4 Performance 28 6.5 Recognition of assets, liabilities, income and expenses 29 6.6 Measurement of assets, liabilities, income and expenses 29 6.7 Offsetting 29 7 Accounts presentation 31 7.1 Fair presentation ( true and fair view ) 31 7.2 Contents of a complete set of accounts 31 7.3 Statement of compliance 32 vii
7.4 Going concern 33 7.5 Frequency of reporting and comparative information 33 7.6 Consistency of presentation 33 7.7 Materiality and aggregation 34 8 Format of accounts 35 8.1 Statement of fi nancial position 35 8.2 Statement of comprehensive income 40 8.3 Statement of changes in equity and statement of income and retained earnings 43 8.4 Statement of cash flows 45 8.5 Notes to the accounts 50 8.6 Example accounts 52 8.7 Small companies 53 9 Preparing consolidated and separate accounts 55 9.1 Defi nition of parent and subsidiary 55 9.2 Requirement to present consolidated accounts 55 9.3 Procedure for consolidation 59 9.4 Specifi c disclosures in consolidated accounts 59 9.5 Individual and separate accounts 60 9.6 Intermediate payment arrangements 60 10 Disclosure requirements of FRS 102 63 10.1 Accounting policies, estimates and errors (FRS 102 Section 10) 63 10.2 Financial instruments (FRS 102 Sections 11, 12 and 22) 64 10.3 Inventories (FRS 102 Section 13) 70 10.4 Investments in associates (FRS 102 Section 14) 71 10.5 Investments in joint ventures (FRS 102 Section 15) 71 10.6 Investment property (FRS 102 Section 16) 72 10.7 Property, plant and equipment (FRS 102 Section 17) 75 10.8 Intangible assets other than goodwill (FRS 102 Section 18) 76 10.9 Business combinations and goodwill (FRS 102 Section 19) 79 10.10 Leases (FRS 102 Section 20) 80 10.11 Provisions and contingencies (FRS 102 Section 21) 82 10.12 Revenue (FRS 102 Section 23) 84 10.13 Government grants (FRS 102 Section 24) 85 10.14 Borrowing costs (FRS 102 Section 25) 86 10.15 Share-based payment (FRS 102 Section 26) 86 10.16 Impairment of assets (FRS 102 Section 27) 87 10.17 Employee benefi ts (FRS 102 Section 28) 88 10.18 Income tax (FRS 102 Section 29) 91 10.19 Foreign currency translation (FRS 102 Section 30) 92 10.20 Hyperinfl ation (FRS 102 Section 31) 92 10.21 Events after the end of the reporting period (FRS 102 Section 32) 93 10.22 Related party disclosures (FRS 102 Section 33) 93 10.23 Specialised activities (FRS 102 Section 34) 98 10.24 Transition to FRS 102 (FRS 102 Section 35) 99 11 Dormant companies 101 11.1 Relevance of dormant status 101 11.2 Defi nition of dormant company 101 11.3 Conditions for exemption from audit 101 11.4 Dormant subsidiary company exemption from preparing or fi ling accounts 101 11.5 Dormant companies and transition to FRS 102 102 viii
12 Narrative reporting 103 12.1 Strategic report 103 12.2 Directors report 105 12.3 Approval and signing of the narrative reports 108 13 Audit exemptions 109 13.1 The audit exemption framework 109 13.2 Small companies audit exemption 109 13.3 Subsidiaries of EEA companies audit exemption 111 13.4 Dormant companies audit exemption 112 13.5 Right to require an audit 112 13.6 Audit exemption directors statement 113 14 Auditor s report 115 14.1 Audit CA 2006, Pt. 16 115 14.2 ISA (UK) 700 (Revised June 2016) Forming an opinion and reporting on fi nancial statements 118 14.3 Example auditor s report of a medium-sized (or large) company 119 15 Filing company accounts 123 15.1 Introduction and electronic fi ling 123 15.2 Filing deadlines 123 15.3 Electronic tagging of accounts (ixbrl) 124 15.4 Filing accounts with the Registrar of Companies 124 15.5 Filing accounts in paper form 125 15.6 Common reasons for accounts rejections at Companies House 126 15.7 Revising defective accounts 127 15.8 HMRC 128 APPENDICES 129 Appendix A Example accounts 131 Appendix B FRS 102 Disclosure Checklist 163 Appendix C Abbreviations and glossary of terms 227 Appendix D Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410), as amended by SI 2015/980 249 Appendix E Selected reading and reference material 425 INDEX 427 ix