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Amendments to FRS 102 and IFRS Annual Improvements

17 January 2018

Original content provided by BDO United Kingdom

Amendments to FRS 102

In December 2017, the Financial Reporting Council (FRC) published Amendments to FRS 102 – Triennial review 2017 following the completion of their first triennial review (see Business Edge April 2017). The majority of amendments are for clarification purposes, however, there are some changes that could affect companies’ financial statements:

  • The removal of undue cost or effort exemptions which, in some cases, are replaced by accounting policy options.
  • An accounting policy choice for entities that let investment property to another group entity allowing them to measure the investment property either at cost (less depreciation and impairment) or at fair value through profit or loss in the individual financial statements of the lessor.
  • The introduction of a description of a basic financial instrument to support the detailed conditions for classification as basic. Making this change will result in a relatively small number of financial instruments, which breach the detailed conditions for classification as basic, now being considered to be basic and measured at amortised cost.
  • For small entities, a more proportionate accounting solution for a loan from a person within a director’s group of close family members that includes at least one shareholder in the entity. The new rule will permit the loan to be initially measured at transaction price rather than present value. This extends and replaces the May 2017 interim relief that was previously available where the director and shareholder were the same person.
  • Entities will be required to recognise fewer intangible assets acquired in a business combination separately from goodwill. This will reduce the costs of compliance, whilst still providing users with useful information about the business combination.

The amended FRS 102 requires intangible assets that have been acquired in a business combination to be recognised separately from goodwill when they:

  1. Meet the recognition criteria and
  2. Arise from contractual or other legal rights and
  3. Are separable.

Entities may still choose to separately recognise additional intangible assets acquired in a business combination where (a) and only one of (b) or (c) above are met if this provides useful information to the entity and the users of its financial statements. When an entity chooses to recognise such intangible assets separately from goodwill, it shall apply that policy consistently to the relevant class of intangible assets.

Unlike the other amendments, when the Triennial review 2017 amendments are adopted this amendment is not available for retrospective application.

  • The principle activity included in the financial institution definition has been amended to remove references to ‘generate wealth’ and ‘manage risk’. Stockbrokers have also been removed from the definition of a financial institution.

These amendments also include those relating to gift aid payments by subsidiaries to their charitable parents. They allow the tax effects of such payments to be taken into account at the reporting date when it is probable the gift aid payment will be made in the following nine months.

The principal effective date for these amendments is accounting periods beginning on or after 1 January 2019, with early application permitted provided all amendments are applied at the same time. The only exceptions to this are the amendments relating to directors’ loans and the tax effects of gift aid payments, for which early application is permitted separately. Limited transitional provisions are also available.


Annual improvements to IFRS standards 2015-2017 cycle

The International Accounting Standards Board (IASB) has issued Annual Improvements to IFRS Standards 2015–2017 Cycle, which makes narrow-scope amendments to four IFRS Standards. The amendments are effective from 1 January 2019 with early application permitted, but are yet to be endorsed for use in the EU.  The amendments are:

  • IFRS 3 Business combinations – clarifies that a company re-measures its previously held interest in a joint operation when it obtains control of the business.
  • IFRS 11 Joint Arrangements - clarifies that a company does not re-measure its previously held interest in a joint operation when it obtains joint control of the business.
  • IAS 12 Income Taxes - clarifies that a company accounts for all income tax consequences of dividend payments in the same way.
  • IAS 23 Borrowing Costs - clarifies that a company treats as part of general borrowings any borrowing originally made to develop an asset when the asset is ready for its intended use or sale.


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