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UK GAAP Changes Ahead

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UK GAAP Changes Ahead

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From 1 January 2015, a complete overhaul of UK accounting standards will change how and when companies account for certain assets and liabilities - with potential implications on both profitability and net assets.

This is the first major change to UK Generally Accepted Accounting Principles (GAAP) for many years and may prove both costly and challenging.

The extent of the impact will depend on a company’s activities, assets and liabilities. While some may find it fairly straightforward, others will be required to make significant changes to how they report their financial performance and position. The changes may also impact on commercial arrangements such as bank covenants, remuneration plans and earn-out agreements.

Companies need to start planning for the change now.

Key things you need to know

  • Existing UK accounting standards will be replaced with a single new standard: Financial Reporting Standard 102 (FRS 102). The new regime condenses existing UK GAAP, completely replacing existing FRSs, SAPs and UITFs.
  • FRS 102 is based on the International Financial Reporting Standards (IFRS) for SMEs and has been amended to ensure compliance with the Companies Act.
  • Companies will be required to restate their comparative figures the first time they adopt the new framework, with a potential change to retained profit.
  • The new regime will apply to any company that is not eligible to use the FRSSE regime (and is not required, or does not choose, to apply the European Union adopted IFRS).
  • The changes will affect accounting periods beginning on or after 1 January 2015, although earlier adoption is permitted for accounting periods ending on or after 31 December 2012.

Major differences between 'old' UK GAAP & FRS 102

  • Leases
  • Investment properties
  • Deferred tax
  • Staff benefits (such as annual leave and pension)
  • Goodwill & intangibles
  • Intangibles on acquisition

What to do

  • Establish your “transition date”. This is the start of the comparative period to the one in which you first apply the new rules. For those adopting from 1 January 2015 it is 1 January 2014.
  • Identify transactions and balances, which will be accounted for differently under FRS 102. The extent of differences will depend on the nature and complexity of your existing operations.
  • Consider the commercial and strategic implications of changes to reported profit and net assets. There will be opportunities to review existing policies and determine new accounting policies where existing policies are no longer applicable.

Calculate the financial impact of the changes as at your “transition date” – these will be reported as a prior year adjustment, with reconciliations of the effect on equity and profit required.

Key questions to consider

  • How sensitive to the changes are your bank covenants?
  • Will the new regime affect how much corporation tax the company pays and when?
  • What will your stakeholders (shareholders, creditors etc.) need to know about the changes?

How can we help?

We can assist with both the commercial and technical aspects of the conversion process by:

  • Assessing the impact of FRS 102 on your existing financial statements
  • Advising on strategic and commercial solutions
  • Reviewing policy alternatives
  • Providing support with calculations
  • Assisting in explaining the changes to stakeholders
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