Section 1A of FRS 102 Not Applicable – Suggested Solution
The unwary reader of the latest version of FRS 102 could be forgiven for not realising that Section 1A Small Entities inserted into FRS 102 in September 2015 to accommodate some exemptions for certain qualifying ‘small’ entities, does not yet apply in the Republic of Ireland (RoI). This is because the necessary amendment to Irish company law has not yet been published nor enacted. We understand the necessary law is in draft but may now be delayed by the forthcoming election.
Three other developments are also delayed because they depend on the same legislation in the RoI:
1. Paragraph 19.23 of FRS 102 regarding the useful life of goodwill was updated in September 2015. This allowed that ‘if in exceptional circumstances, an entity is unable to make a reliable estimate of the useful life of goodwill, the life shall not exceed 10 years.’ This change was made in the UK following their implementation of the EU Accounting Directive. However, the equivalent change has not taken place in the RoI for the same reasons mentioned above. Therefore, the previous version of paragraph 19.23 still applies for the time being in RoI. That stated that the maximum life of goodwill, in the absence of a reliable estimate, shall not exceed 5 years.
2. FRS 105 the Micro-entities Regime, does not yet apply in the Republic of Ireland. It is expected that this legislation, when enacted, will exempt certain private companies (within certain criteria) from the requirement to disclose directors’ remuneration. They may also show all below market interest rate inter-company and directors’ loans at cost instead of amortised cost under FRS 102. The relevant criteria are that turnover must be less than €700,000, Balance Sheet Gross Assets less than €350,000 and less than 10 employees, provided two out of three of the criteria are satisfied for two consecutive years.
3. Appendix VI of FRS 102 which, in previous editions of the standard, listed the relevant RoI company law references, was not included in the September 2015 FRS 102 as the FRC state they will update the legislative references once the EU Accounting Directive is implemented.
To comply with EU Directives, the company legislation is required to be effective for accounting periods beginning on or after 1 January 2016. It is not yet clear whether the legislation or its commencement provisions will allow for application to earlier accounting periods such as those beginning on/after 1 January 2015.
In the meantime, for client companies that qualify (i.e. not regulated insurance intermediaries) the 2015 version of the FRSSE (Financial Reporting Standard for Smaller Entities) is available for periods commencing on/after 1 January 2015 for one year only.
This standard is useful as it:
- Allows for an exemption from the cash flow statement, which FRS 102 does not currently do, unless the company qualifies under FRS 101;
- Allows for below market interest rate inter-company and directors’ loans to be stated at cost;
- Largely retains the old Irish GAAP accounting rules for one last year;
- Avoids the need to transition to FRS 102 for the time being.