New UK GAAP –

Insights and

solutions

Julia Penny and Paul Brace

Julia Penny – Content Manager (Audit and

Accounting)

Paul Brace -Head of Business Development –

Audit and Accounts

Agenda

—New UK GAAP Insight

—Information solutions

—Technology solutions

Introduction

What will new UK GAAP mean for you?

—Listed companies

—Small companies

—Micro companies

Impact of the new Company Regulations

implementing the EU directive

—Early adoption

—Impacts on audit

—What about LLPs?

New UK GAAP Insight - Contents

Micro Small Non-

small

Listed/AIM

2015 regime Micro-

regime

within

FRSSE 2015

FRSSE 2015 FRS 102 IFRS (FRS 101

or FRS 102

option for

parent/subs )

2016

onwards

regime

FRS 105 FRS 102 with

section 1A for

presentation

FRS 102 IFRS (FRS 101

or FRS 102

option for

parent/subs )

Available for

LLPs

No Yes – but not for

early adoption of

new limits

Yes Yes

Available for

charities

No Yes, but currently

no SORP for FRS

102 1A

Yes No

What will new UK GAAP mean for you?

Micro-entity Small Company

Turnover £632,000 £10.2m (was £6.5m)

Balance sheet total £316,000 £5.1m (was £3.26m)

Average number of

employees

10 50

A plc in the group no longer makes

the whole group ineligible but a

traded company does.

Limits from 2016 (does not exceed)

The new small company limits can be adopted early, for

periods beginning on or after 1 January 2015, but this is not

available as an option for LLPs.

At present audit exemption is available to companies that qualify as small (with the exception of charities which have different rules)

The small company limits are rising in 2016, but are available for early adoption in 2015 – but only for accounting purposes

This means the audit exemption limit will not rise until at least 1 January 2016 and there is a possibility that it will be further postponed

Audit exemption

New UK GAAP therefore consists of:

—The new draft FRS 105 for micro-entities

—The current (August 2014) version of FRS 102

—The draft (expected to be July 2015) version of FRS

102 including section 1A containing reduced

disclosure requirements for small entities

—There are also reduced disclosure frameworks for

those applying either FRS 102 or FRS 101.

FRS 101 the reduced disclosure framework (based on IFRS)

FRS 102 section 1.12

So what is new UK GAAP?

FRS 102 MAJOR IMPACTS

Financial instruments, on balance sheet and often at fair value through profit and loss (FVTPL)

Loans need to be recognised at amortised cost, so if interest rate less than market rate then notional interest must be recognised

More fair values in business combinations to recognise separate intangibles

Presumed maximum life of goodwill and intangibles, where life cannot be determined will be 10 years (rather than 20)

Major Impacts in accounts

Options to fair value biological assets, PPE (property, plant and equipment) and associates/JVs

Requirement to fair value investment property with changes through profit and loss

Options to capitalise interest/development costs as in current UK GAAP but originally proposed to be removed

Transition exemptions and disclosure requirements

Major impacts in accounts

There are no specific rules relating just to the move to FRS 102 but there may be important impacts in the following areas:

—Trading profits

—Loan relationships

—Intangible assets

When accounting policies are changed there are already rules to ensure that tax is still charged/relief given once and only once. These will apply to changes to FRS 102 as well.

Tax impacts

Overall the timing for payment to HMRC might

be impacted due to the change to either IFRS

or FRS 102

HMRC have issued guidance regarding tax

impact on FRS 101 and FRS 102

https://www.accountancylive.com/hmrc-

releases-guidance-frs-102-tax-implications

Tax impact

12

Financial instruments

—Any financial instruments, such as derivatives and

certain equities, that need to be fair valued in the

balance sheet, require a value as at the date of

transition

—For entities with a December year-end this was as

at 1 January 2014 (as long as there aren’t short

accounting periods)

—This means that fair values will have to established

retrospectively.

Possible problem areas

Bank covenants

These might be based on audited accounts or annual financial statements, for example and so a change in GAAP could impact whether they are breached or not;

If GAAP used is changed a covenant may either:

a) be based on “frozen GAAP” or

b) be breached, as the rules have changed

Possible problem areas

Loans between group companies at zero or

below market rates of interest are common

Under FRS 102 they will need to be recognised

at fair value with notional interest being

created.

The amortised cost method then calculates

the interest to be charged each year in the

profit and loss

Intra-group or director loans

Care will be needed where remuneration or

payment for another company based on figures

calculated under old UK GAAP

If contract isn’t clear it might mean that

bonuses get paid on unrealised earnings or on

figures not anticipated as being included

Review all profit related contracts and amend

as appropriate.

Profit related pay/bonuses/earnouts

Acquisitions that take place over the next couple of years

—There are exemptions from retrospectively restating business combinations occurring before the date of transition to FRS 102

—This means, for example, that business combinations after 31/12/13 will need to be recognised and measured in accordance with FRS 102, but also potentially under current GAAP

—This might require valuation of separable intangibles, certain financial assets etc. at the acquisition date.

Possible problem areas

SMALL ENTITIES

The new regime for small entities is contained in an amended draft of FRS 102

Recognition and measurement exactly the same as for larger companies

Section 1A of this contains the required disclosures for small entities, which are limited, but…

These accounts still need to give a true and fair view, so consideration will be needed of all FRS 102 or other relevant disclosures

FRS 102 – section 1A for small entities

Abbreviated accounts are not available under the

new regime

Abridged accounts are available (not for charities)

– these can be prepared for members and are

shortened versions of full accounts with only main

headings and starting with gross profit but

Shareholder approval needed each year

Accounts still need to show a true and fair view,

so might need to include turnover?

Abbreviated vs abridged

If company with members’ permission choose

to prepare abridged accounts then these are

used for filing, but

No requirement for small entity to file the

profit and loss account

So only need balance sheet and notes and

information regarding members consent for

abridgement and whether audit report

qualified or not, if accounts audited.

Filing requirements

MICRO ENTITIES – FRS 105

FRS 105 is available for micro-entities (less

than £632,000 turnover…)

It has simpler requirements for recognition

and measurement

It has very limited disclosure requirements

Micro-entity accounts are deemed to give a

true and fair view

Overview

No fair values/revaluations

No capitalisation of borrowing or development costs

No accounting for equity settled share-based payments

No deferred tax

Grants to be recognised using performance method

Contracted/forward rate must be used for forex

No related party disclosures

Key simplifications for micros

INFORMATION SOLUTIONS

Requirement Solution

Learn about the basics of new UK GAAP

and when it applies

Our free website

www.newukgaap.co.uk

Understand in detail the requirements

of FRS 102

Applying new UK GAAP

Get to grips with the financial

instruments requirements when I have

no prior knowledge

Financial instruments

guide

Deal with transition to FRS 102 in a

step by step way including seeing an

illustrated case study

The Transition Guide

Model accounts to follow Model accounts online

Guidance and tools to help

Requirement Solution

Understand the differences between

FRS 102; old UK GAAP and IFRS.

New UK GAAP: an at a

glance comparison

Understand how to prepare accounts

under FRSSE 2015

Preparing company

accounts: FRSSE and

Micro 2015

Understand the presentation and

disclosure requirements of FRS 102

and FRS 102 Section 1A

Preparing FRS 102

accounts

Understand how to prepare charity

accounts under the new SORPs

Preparing Charity

Accounts

Guidance and tools to help

Requirement Solution

Understand the impact of legal and

regulatory changes on charities,

including tax, audit and accounting

Charity IAAG

Understand pension schemes, tax and

accounting and auditing under new UK

GAAP

Pensions IAAG

Big 4 guidance on applying new UK

GAAP

Deloitte GAAP manuals on

FRS 102 and FRS 102

model accounts

Explain to clients what is required and

what the impact of new UK GAAP is

New Accounting Regime –

SME guide

Guidance and tools to help

TECHNOLOGY SOLUTIONS

Technology Solutions from Wolters Kluwer

Requirement Solution

Financial Statement

Production CCH Accounts Production

Financial Statement Review Interactive Accounts

Disclosure Checklist

iXBRL tagging of Word and

Excel Accounts CCH iXBRL Review & Tag

Audit and Assurance Services CCH Audit Automation

Flexible easy to use system

Forms part of our integrated solution and is also used

as best of breed.

Standard formats covering:

CCH Accounts Production

Incorporated entities

Micro entities

Unincorporated entities

Farms

Charities

Academies

Pension funds

Trusts

Medical Practices

Caters for full and reduced disclosure

Options to select IFRS or Companies Act

terminology

Guidance when entering details to the

statutory database

Straightforward input of information for the

first year transition disclosures

New UK GAAP Master Formats

IFRS or Companies Act Terminology

Reduced Disclosure Framework

Guidance notes

2 easy steps. First enter restatement journals

Transition disclosures

Then analyse the restatements and describe

Transition disclosures

Transition disclosures

Quick and efficient check of compliance

Checklists cover both existing and New UK GAAP:

—Private and Public Companies

—Small Companies

—FRSSE

—LLPs

—Groups

—Listed Companies

—Charities and Scottish charities

—Community interest companies.

Interactive Accounts Disclosure Checklist

New iXBRL taxonomies for:

—IFRS

—FRS 101

—FRS 102

Use of new iXBRL taxonomies mandatory from

1 April 2015

Automated tagging for accounts converted

from Word or Excel

CCH iXBRL Review & Tag

Paperless environment covering the entire

audit or assurance engagement

Methodology enhanced to cover FRS 102

Integrated disclosure checklists extended to

cover FRS 102

CCH Audit Automation

Whether you need guidance or software to help

you implement UK GAAP, Wolters Kluwer have

the information and technology solutions you

need to achieve a smooth transition to the new

standards.

Wolters Kluwer