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Transcript of Welcome FRS 102 CIMA Webinar December 2014 CIMA FRS 102 slides... · Welcome FRS 102 CIMA Webinar...
1
Making your practice compliant, efficient and profitable
0845 450 5555
www.swat.co.uk
Welcome
FRS 102 CIMA Webinar
December 2014
Presented by:
Adrian Gibbons BSc ACA
2
The Reporting Framework 2015 & 2016
FRS 102 Overview
FRS 102 Section 3 Financial
Statements
FRS 102 Section 5 Statement of
Comprehensive Income
FRS 102 Section 6 Changes to Equity
FRS 102 Section 7 Cash Flows
Contents
3
FRS 102 Section 35 Transition
FRS 102 Section 12 Other Financial
Instruments
FRS 102 Section 29 Income Tax
FRS 102 Section 19 Goodwill
Contents
2
4
The Reporting Framework 2015 & 2016
FRS 102 Overview
FRS 102 Section 3 Financial
Statements
FRS 102 Section 5 Statement of
Comprehensive Income
FRS 102 Section 6 Changes to Equity
FRS 102 Section 7 Cash Flows
Contents
5
Accounting Framework NOW
Small Co
FRSSE
Micro
SSAPs & FRSs
Med & Large Co
Page 3
6
Accounting Framework NOW
Small Co
FRSSE
Micro
SSAPs & FRSs
Med & Large Co
Page 3
Small Company Limits
Turnover < £6.5M
Gross Assets< £3.26M
EEs < 50
Micro Entity Limits
Turnover < £632K
Gross Assets < £316K
EEs < 10
3
7
Accounting Framework
1/1/ 2015
Small Co
FRSSE 2015
Micro entity bits
Micro
FRS 102 FRSSE 2015
Medium & Large Co
Page 4
8
Accounting Framework
1/1/2016
Small Co
FRSME
Based on FRS 102
Micro
FRS 102 Reduced disclosure
Medium & Large Co
Page 4
9
Accounting Framework
1/1/2016
Small Co
FRSME
Micro
FRS 102 Reduced disclosure
Medium & Large Co
Page 4
Small Company Limits
Turnover < £10.2M
Gross Assets < £5.1M
EEs < 50
4
10
A Basic Balance Sheet
Slide Only
Property Plant & Equipment
Stock & WIP
Trade Receivables
Trade Payables
Ordinary Loans
11
The Reporting Framework 2015 & 2016
FRS 102 Overview
FRS 102 Section 3 Financial
Statements
FRS 102 Section 5 Statement of
Comprehensive Income
FRS 102 Section 6 Changes to Equity
FRS 102 Section 7 Cash Flows
Contents
12
FRS 102
Page 6
The Financial Reporting Standard
Applicable in the UK & Republic of
Ireland
Issued March 2013 - Updated August
2014 (Further Update 2015?)
AP beginning on or after
1 January 2015
5
13
FRS 102 - Formats
Page 6
Topic – by sections
Public benefit entities
Prefix PBE
Some sections have implementation
guidance
14
FRS 102 – Transition Rules
Page 6
UK GAAP FRS 102 FRS 102
Section 35
15
The Reporting Framework 2015 & 2016
FRS 102 Overview
FRS 102 Section 3 Financial
Statements
FRS 102 Section 5 Statement of
Comprehensive Income
FRS 102 Section 6 Changes to Equity
FRS 102 Section 7 Cash Flows
Contents
6
16
Section 3:
Financial statement presentation
An entity may use titles for the
financial statements other than those
used in this FRS as long as they are
not misleading
CA 06 Headings
Page 7
17
Section 3:
Financial statement presentation
Accounts must say that they comply
with FRS 102
Explicit & Unreserved
This would be Note 1 after the primary
statements
Page 7
18
Section 3:
Complete set of Financial Accounts
Either
Single statement of comprehensive
income
Or
Income statement & statement of other
comprehensive income
A statement of financial position at the
reporting date
Page 9
7
19
Section 3:
Complete set of Financial Accounts
Cash flow
Notes
Compliance with FRS 102
Significant accounting policies
Other information
Each statement must have equal
prominence
Page 10
20
The Reporting Framework 2015 & 2016
FRS 102 Overview
FRS 102 Section 3 Financial
Statements
FRS 102 Section 5 Statement of
Comprehensive Income
FRS 102 Section 6 Changes to Equity
FRS 102 Section 7 Cash Flows
Contents
21
Section 5: Example AB Limited
Single Statement
Page 12
8
22
Section 5: Example AB Limited
Single Statement
Page 12
23
Section 5: Example AB Limited
Two statements
Page 13
24
Section 5: Example AB Limited
Two Statements
Page 13
9
25
Section 5: Exceptional Items
Page 15
Exceptional not used
No explicit requirement to disclose on
the face of the statement of
comprehensive income
FRS 102 Requirement to disclose
material items
26
The Reporting Framework 2015 & 2016
FRS 102 Overview
FRS 102 Section 3 Financial
Statements
FRS 102 Section 5 Statement of
Comprehensive Income
FRS 102 Section 6 Changes to Equity
FRS 102 Section 7 Cash Flows
Contents
27
Section 6: Changes in equity & statement
of income & retained earnings
Statement of changes in equity
presents: Profit or loss for the period
Other comprehensive income for the period
Changes in accounting policies
Material errors
Investments by and dividends & other
distributions to shareholders
Page 16
10
28
Section 6:Example
Page 17
29
Section 6:Example
Page 17
30
Section 6: Statement of income &
retained earning
Page 17/18
Simplified statement to replace full
statement of changes in equity
Used if the only changes are:
Profit or loss for the period
Payment of dividends
PYA
Combines the statement of income
with the retained earnings statement
11
31
Section 6: Statement of income &
retained earning Example
Page 18
32
Section 6: Statement of income &
retained earning Example
Page 19
33
The Reporting Framework 2015 & 2016
FRS 102 Overview
FRS 102 Section 3 Financial
Statements
FRS 102 Section 5 Statement of
Comprehensive Income
FRS 102 Section 6 Changes to Equity
FRS 102 Section 7 Cash Flows
Contents
12
34
FRS 102 FRS 1
Operating activities Net cash inflow from operating activities
Taxation
Investing activities Capital expenditure & financial investment
Acquisitions and disposals
Financing activities Financing
7. Statement of cash flows
Page 19/20
Equity dividends paid
Equity dividends paid
Ret. on investments & servicing of finance
Ret. on investments & servicing of finance
35
7. Statement of cash flows
Page 20
Cash and cash equivalents
36
7. Statement of cash flows
Page 20/21
Direct or indirect methods allowed
Need to convert cash flow statement
for prior year on conversion
Other key points:
Disclosure of cash unavailable for use
with management commentary
No reconciliation of movement in cash to
movement in net debt
13
37
FRS 102 Section 35 Transition
FRS 102 Section 12 Other Financial
Instruments
FRS 102 Section 29 Income Tax
FRS 102 Section 19 Goodwill
Contents
38
UK GAAP
FRS 102 FRS 102
Sec 35
Transitional Arrangements
Page 22
39
First time adoption of FRS 102
Page 22
Mandatory for Accounting Periods
starting on or after 1 January 2015
Section 35
Applies to the first accounts on which the
entity makes an explicit and unreserved
statement of compliance with FRS 102
14
40
First time adoption of FRS 102
Page 23
Transition date
Start of the previous period for the
comparatives
41
Example Entity X Limited
Page 23
UKGAAP to FRS 102
Y/E 31 December 2015
Transition date
1 January 2014
42
Para 7 Section 35 FRS 102
Page 23
Opening statement of position
Measures all assets & liabilities in
accordance with FRS 102
15
43
Para 7 Section 35 FRS 102
Page 23
Some assets and liabilities may have
different values under FRS 102 when
compared to the old accounting
treatment
44
Para 7 Section 35 FRS 102
Page 23
Example
Investments at cost may need to be
valued at fair value
Deferred tax will be needed for any asset
that has been revalued
45
Entity X Limited
Deferred Tax Adjustment
Page 23
Property revalued under FRS 15
Has a revaluation reserve
Deferred tax now needs to be
recognised on the revaluation gain
16
46
Entity X Limited
Deferred Tax Adjustment
Page 23/24
Must account for the deferred tax at
the transition date
1 January 2014
Dr Revaluation Reserve
Cr Deferred Tax Provision
47
Entity X Limited
Fair Value Adjustment
Page 24
Forward Foreign Exchange contract
12 November 2013
Purchase 220K euros at 1.1
Dated 12 February 2014
Not recognised under UKGAAP
48
Entity X Limited
Fair Value Adjustment
Page 24
Under FRS 102 this needs to be valued
at the transitional date at fair value
Bank Fair Value 1 January 2014
= £20K
Transitional TB will need to recognise
the new asset at 1 January 2014
What is the tax impact of this?
17
49
Change of Accounting Policy
Page 24
Practical Issues
Accounting software may not cope with
the PYA
The preparation of the accounts for the
first FRS 102 period may take longer and
cost more
Directors need to plan in advance for the
impact of FRS 102
50
Disclosures
Page 25
An entity must explain how the
transition from current UKGAAP to
FRS 102 has affected its reported
financial position
Three reconciliations are required
51
Disclosures
Page 25
An equity reconciliation
At the transitional date and
At the end of the last period to be
prepared under the old UKGAAP
18
52
Disclosures
Page 25
A profit & Loss account reconciliation
for the last period completed under the
old UKGAAP
Examples of this disclosure are given
later
53
Disclosures – X Limited
Page 25
Y/E 31 December 2015
Equity reconciliation’s as at
I January 2014 & 31 December 2014
P&L account reconciliation
Y/E 31 December 2014
54
Prohibition on Retrospective
Restatement
Page 26
Section 35 has 5 areas where
retrospective adjustment to previous
transactions are not permitted on
transition
19
55
Prohibition on Retrospective
Restatement
Page 27
Accounting Estimates
Any changes to accounting estimates
should not trigger any PYA
56
Accounting Estimates Example
Page 27
31 December 2013 – X Limited
Large debtor = £100K
Provision made for £50K
Summer 2014 the debtor goes bust
57
Accounting Estimates Example
Page 27
At the transitional date of 1 January
2014
Should a full provision be made as the
entity now knows that £50K is not
adequate?
No – no retrospective adjustment to an
estimate is permitted
20
58
Exemptions from – recognition or re-
measurement of assets and liabilities
Page 28
17 exemptions
Entities may choose not to re-measure
some assets or liabilities
At the transitional date
Transactions after this date may need
to be re-stated
59
Exemptions from – recognition or re-
measurement of assets and liabilities
Page 28
Dormant companies
May elect to retain its accounting policies
for reported assets, liabilities and equity
at the date of transition
Only adopt FRS 102 when those balances
change or no longer dormant
60
Exemptions from – recognition or re-
measurement of assets and liabilities
Page 29
Associates, Joint Ventures, Business
Combinations
Can elect not to apply Section 19 to
business combinations effected before
the date of transition
Particularly relevant to fair values and
goodwill A
B
D E
C
F
21
61
Example X Limited
Page 29
X Limited made an acquisition during
2013
Y/E 31 December 2013
Fair value based on old UKGAAP
Goodwill has a life of 10 years
A
B
D E
C
F
New
Business
62
Example X Limited
Page 29
Y/E 31 December 2015
No need to restate fair values as at 1
January 2014 as section 19 does not
need to be applied
Must consider if 10 years is a reliable
estimate for goodwill
If not must use 5 years from the
transitional date
63
Example X Limited
Page 30
If the acquisition had been made after
1 Jan 2014
Need to consider the fair values under
FRS 102
Adjust both the 2014 and 2015 year
end results
Goodwill could be over 10 years if
reliable estimate if not then 5 years
But may become 10 years in 2015
22
64
Example X Limited
Page 30/31
This exemption only applies to
goodwill
Other intangibles are dealt with under
Sec 19 – no exemption here
65
Exemptions from – recognition or re-
measurement of assets and liabilities
Page 31
Fixed Assets – Deemed Cost
Property, plant & equipment
Investment properties
Some intangible assets – active market
fair value
66
Exemptions from – recognition or re-
measurement of assets and liabilities
Page 31
Deemed cost
Fair value
Old UKGAAP revaluation
Before or on the date of transition
Deferred tax will be needed as well
23
67
X Limited - Example
Page 32
31 December 2000
Adopted a policy of revaluation of
property
At this stage they have one property
Cost = £50K
2000 value = £1.2M
68
X Limited - Example
Page 32
During 2008 the directors decided that
the revaluation policy was onerous
and not worth the cost
But unable to change without going
back to historical cost
31 December 2013 value = £1.65M
69
X Limited - Example
Page 32
FRS 102 – gives directors the option to
go back to cost
£1.65M can be used as the deemed
cost at 1 Jan 2014
Revaluation reserve stays and is used
to reduce depreciation
Deferred tax issue
24
70
X Limited - Example
Page 32
Expensive machines
These can be revalued and this used
as deemed cost under FRS 102
transitional rules
Two options
Revalue the machines and then use
deemed cost
Fair value at 1 January 2014 when
adjusting to FRS 102
71
Exemptions from – recognition or re-
measurement of assets and liabilities
Page 34
Exemptions relating to Leases
Leases can be assessed according to the
terms and conditions existing at the
transitional date
72
Leases Example
Page 34
X Limited – 20 year lease 1 January
2012
Periodic reviews every 5 years for rent
Lease incentive is spread over 5 years
Under FRS 102 the lease incentive is
spread over 20 years
25
73
Leases Example
Page 34
The exemption allows X Limited to
choose
It can continue with the 5 year
incentive policy or apply FRS 102 and
move to 20 years
74
Exemptions from – recognition or re-
measurement of assets and liabilities
Page 35
Share-based payment transactions
Some exemptions from section 26 if the
equity instruments are granted before the
transition date
Not relevant to UKGAAP but would be
useful for companies that are going from
the FRSSE to FRS 102
May be highly relevant under FRS 102
Lite
75
DISCLOSURE OF TRANSITIONAL ISSUES
AND
ADJUSTMENTS
26
76
Reconciliation disclosure under
FRS 102
Page 35
No examples or guidance on layout in
FRS 102
The notes give an example
reconciliation for X Limited using the
information presented on X Limited so
far
Transition date = 1 January 2014
77 Page 36
78 Page 21
27
79
Notes
Page 37/38
The example solution also presents
the notes to the reconciliations that
explains the change in accounting
policy
Tax impact of this on the corporation
tax computation?
80
Format 2
Page 38
81
Format 2
Page 39
28
82
FRS 102 Section 35 Transition
FRS 102 Section 12 Other Financial
Instruments
FRS 102 Section 29 Income Tax
FRS 102 Section 19 Goodwill
Contents
83
Sale of a non-financial items such as a
commodity, inventory or property
plant and equipment are excluded
from Section 12
Thus a contract to buy a property at a
date in the future (off plan sale) is not a
treated as a financial instrument under
this section
Other Contracts Excluded
Page 41
84
Example – Farming Client
Sells his wheat forward under a
commodity contract – not a financial
instrument
Grants an option to a purchaser to buy
wheat at some date in the future – the
option could be traded for cash under the
options market – is a financial instrument
Other Contracts Excluded
Slide Only
29
85
Section 11 & 12 should be considered
together
All clients should be reviewed and
their financial instruments classified
as either basic or other
Some financial instruments are
currently not recognised under UK
GAAP so care is needed
Financial Instruments
Page 41
86
The entity must become a party to the
contractual provisions of a financial
instrument
It then recognises a financial asset or
a financial liability
Recognition & Measurement
Page 42/43
87
Recognised at Fair Value
Fair Value = transaction price
Initial Recognition
Page 43
30
88
Subsequent measurement
Page 43
Section 12 Financial Instruments
Fair Value – through profit or loss
89
Subsequent measurement
Page 43
Exceptions
Equity instruments that are not publically
traded and fair value cannot otherwise be
reliably measured
Cost less impairment
Hedging instruments which are in a
designated hedging relationship
90
What is Fair Value?
Page 44
A quoted price for an identical asset in
an active market
Price of a recent transaction for an
identical asset provided no significant
change to economic circumstances
A valuation method
31
91
Example
Forward Foreign Currency
Page 47/48
92
Example
Forward Foreign Currency
Page 48
Accounting for the financial instrument at initial
recognition and at the year end
93
Example
Forward Foreign Currency
Page 48
The order is placed for the asset so the liability to
pay is recognised
32
94
Example
Forward Foreign Currency
Page 48
Settlement of the creditor and realisation of the
forward foreign exchange contract
95
Example
Forward Foreign Currency
Page 48
Realisation of the forward foreign exchange
contract gain on the transaction
96
Example
Forward Foreign Currency
Slide Only
Under old UK GAAP how would the
transaction have been dealt with?
The purchase of the asset would have
been at the rate in the forward foreign
exchange contract
33
97
Example
Forward Foreign Currency
Slide only
This transaction would have been at Euro 1.5 to £1
Thus the value of the asset would have been £333.
Under FRS 102 this shows an uplift in the asset
value of £17
98
Example
Forward Foreign Currency
Slide only
Under FRS 102 the same movement is
recognised through the profit and loss
account:
Fair value gain to year end = £3
Fair value gain at payment = £34
Total value of FI = £37
Loss on payment for asset = (£20)
Net gain over the transaction = £17
99
Directors personal guarantees
Page 49
Are these a financial instrument?
No
The company is not a party to this
agreement
The agreement is a related party
transaction and should be disclosed
34
100
FRS 102 Section 35 Transition
FRS 102 Section 12 Other Financial
Instruments
FRS 102 Section 29 Income Tax
FRS 102 Section 19 Goodwill
Contents
101
FRS 102 Deferred Tax
Page 50
The changes to Deferred Tax will have
a significant impact on most clients
under FRS 102
FRS 102 – adopts the deferred tax plus
approach
102
Deferred Tax – Basic Principle
Page 51
The recognition of future tax
consequences of transactions and
events reported in the current years
financial statements
Timing differences
Tax equalisation account
Matching concept
35
103
FRS 102 Section 29: Income Tax
Page 51
Covers
Current tax charge
Deferred tax charge
VAT (was SSAP 5)
Adopts the same basic principle as
FRS 19 regarding deferred tax
104
FRS 19 Fixed Assets Exemption
Page 53
No deferred tax on a valuation unless
Binding agreement to sell &
Recognised gains or losses are expected
to arise on sale
105
FRS 19 Fixed Assets Exemption
Page 53
No deferred tax on a valuation unless
Binding agreement to sell &
Recognised gains or losses are expected
to arise on sale
Para 29.15 Sec 29
Outlaws this exception
Deferred tax calculated using tax rates &
allowances that apply to the sale of the
asset
36
106
Investment Property Example
Page 54
Year end 31 December 2015
Investment property valued at:
December 2015 = £110K
December 2014 = £100K
1 Jan 2014 = £95K
The property was purchased
December 2000 for £50K
The companies tax rate is 20%
107
Transitional Date Adjustment
Page 54
Tax on the gain at the transitional date
Cost = £50,000
Indexation = £23,600
(indexation allow .472)
Adjusted base cost = £73,600
Gain = £21,400
Tax @ 20% = £4280
108
Transitional Date Adjustment
Page 54
Deferred tax at transitional date would
be = £4280
Adjustment 31 December 2014
£95K to £100K = £5K x 20%
Deferred tax = £1K
37
109
Year ended 31 December 2014
Page 54
Balance at 31/12/2014 = £5280
Profit & Loss Account to 31/12/2014
Gain on investment property = £5K
Deferred tax on gain = (£1k)
110
Year ended 31 December 2015
Page 54
Balance Deferred tax 31/12/15 = £7280
Profit & Loss Account
Gain on investment property = £10K
Deferred tax on gain = (£2K)
111
Permanent & Temporary Differences
Page 55
Deferred tax is not provided on
permanent timing differences
Temporary differences
Accelerated capital allowances
Accrued pension liabilities
Intra-group profits
38
112
FRS 102 Section 35 Transition
FRS 102 Section 12 Other Financial
Instruments
FRS 102 Section 29 Income Tax
FRS 102 Section 19 Goodwill
Contents
113
Section 19 Business Combinations &
Goodwill
Page 60
Accounting treatment for all business
combinations except:
Joint Ventures – Section 15
Acquisitions of a group of assets that are
not a business
Public Benefit Entities – Section 34
114
Accounting Treatment for Goodwill
Page 61
Goodwill Cost Value of assets,
liabilities and contingent
liabilities as valued
under this section
39
115
Accounting Treatment for Goodwill
Page 61
Subsequent Accounting Treatment
Goodwill has a finite useful life
Amortised on a systematic basis
If the entity cannot make a reliable
estimate of the UEL then goodwill shall
be written off over not more than 5 years
Making your practice compliant, efficient and profitable
0845 450 5555
www.swat.co.uk
This course was:
FRS 102 CIMA Webinar
December 2014
Presented by:
Adrian Gibbons BSc ACA