First FRC review makes FRS 102 Investment Property Accounting Tougher

First FRC review makes FRS 102 Investment Property Accounting Tougher

by | Jul 25, 2017 | News

For more on FRS 102 (including the new Section 1A for ‘small’ entities) and the proposed changes in FRED 67 come to our next series of CPD courses in the Talbot Hotel, Stillorgan, County Dublin starting on Monday 27 November 2017. Other courses are also available at Ticket Tailor here.

In its first review since 2013 of the new Irish GAAP, the Financial Reporting Council (FRC) has proposed changes to reporting of investment property, the definition of financial instruments and the treatment of directors’ loans.

It seems hard to believe that FRS 102, the latest version of which is September 2015, was originally published in March 2013. Meanwhile four years later, in March 2017, the FRC published Financial Reporting Exposure Draft 67 (FRED 67), setting out changes to the standard as a result of its first triennial review. FRED 67 contains some significant changes which are expected to become effective from 1 January 2019.

In this first of a two-part blog, we look at one of the main areas most likely to affect our readers.

Investment property

At present, FRS 102 requires that investment property should be measured at fair value through profit or loss, unless obtaining a reliable fair value on an ongoing basis would amount to ‘undue cost or effort’ (interpreted as only rarely applying, where it is practically impossible to locate a valuer), in which case it can be measured at cost. However, this provision has not always been applied correctly in practice.

The exposure draft states that entities may be treating the ‘undue cost or effort’ option as a free accounting policy choice and states clearly that this is not the case. FRED 67 suggests removing the ‘undue cost or effort’ exception entirely, meaning that investment property will always, with one exception, need to be held at fair value. The exception is for property let out to another group member, where the FRED introduces an accounting policy choice between cost/fair value.

Where investment property is partly let out to a group member and partly let out to an external party, the property will need to be split between the two and the externally let portion must be shown at fair value.

The proposals mean that the requirements for investment property accounting will become tougher than they are at present, while there is some welcome relaxation of the requirements in group situations.

Other proposals relate to financial instruments, intangible assets and small entity directors’ loans. We will cover these in another a blog very soon.

It is expected that the updated version of FRS 102 will be published in late 2017 in time for use for accounting periods commencing on/after 1 January 2019, with early adoption expected to be allowed for accounting periods commencing on/after 1 January 2018.

Exposure draft FRED 67

For a copy of the 142-page exposure draft go to this link FRED 67, Draft amendments to FRS 102 Financial Reporting Standard applicable in the UK and Republic of Ireland, Triennial review 2017.

For more on FRS 102 (including the new Section 1A for ‘small’ entities) and the proposed changes in FRED 67 come to our next series of CPD courses in the Talbot Hotel, Stillorgan, County Dublin starting on Monday 27 November 2017. Other courses are also available at Ticket Tailor here.

 

Companies (Accounting) Act, 2017

Companies (Accounting) Act, 2017

by | May 22, 2017 | News

Commencement date

The Companies (Accounting) Act, 2017 was signed into law by the President on Wednesday 17 May 2017 as No 9 of 2017, but as of today Tuesday 23 May 2017, is not yet published as an Act on the Irish Statute Book website – operated by the Attorney General at http://www.irishstatutebook.ie/eli/acts.html. During the Dáil debates on the Bill it was mentioned that the commencement of certain sections of the legislation would be back-dated to periods commencing 1 January 2016 and 1 January 2015 in some cases.

Periods commencing 1 January 2015 is of little use to companies at this stage as most, if not all, have filed their financial statements for the year ended 31 December 2015. Hopefully it will be back-dated at least to 1 January 2016 to allow companies that qualify avail of the new audit exemption and ‘small’ company thresholds as well as the new Micro Entities regime (essentially operated by the use of the FRS 105 accounting standard).

Care is needed when availing of the Micro Entities regime as it cannot be used by:

  •    Charities;
  •    Regulated entities such as financial institutions and insurance intermediaries and
  •    Entities that prepare consolidated financial statements (see page 100 of FRS 105). 

Additional care is also required as financial statements prepared under FRS 105 are deemed to give a true and fair view. Therefore, adding any additional notes beyond what’s required in the standard may be a risky approach and could jeopardise the true and fair concept.

In recommending FRS 105 to clients, accountants should caution them that while directors’ salaries no longer need disclosed under the Micro Entities regime, the financial statements need few notes (except in certain limited circumstances)! It may take some convincing for third parties like lending institutions and suppliers, upon which the business depends for credit, that FRS 105 is a credible regime, if one is looking for credit.

FRS 102 (Section 1A) may be a more suitable standard to apply for ‘small’ entities as it comes with a ready-made suite of notes and accounting policies that explain the financial statements better and most critically of all, add significant credibility to the accounts.

Name of new legislation

Section 1 of the new Act states: ‘This Act may be cited as the Companies (Accounting) Act, 2017’. Presumably together with the earlier legislation that it partly amends, both pieces of company law may be cited as the ‘Companies Acts 2014 to 2017’. 

For more on this and other courses see our next company law event on 29 November 2017 here 

Other courses are available at Ticket Tailor here