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FRS 100: Application of Financial Reporting Requirements (September 2015)

FRS 100 Application of Financial Reporting Requirements is an accounting standard. It is issued by the Financial Reporting Council in respect of its application in the United Kingdom and promulgated by the Institute of Chartered Accountants in Ireland in respect of its application in the Republic of Ireland.

The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries, and oversee the regulatory activities of the accountancy and actuarial professional bodies.

The FRC does not accept any liability to any party for any loss, damage or costs howsoever arising, whether directly or indirectly, whether in contract, tort or otherwise from any action or decision taken (or not taken) as a result of any person relying on or otherwise using this document or arising from any omission from it.

The Financial Reporting Council Limited 2015 The Financial Reporting Council Limited is a company limited by guarantee. Registered in England number 2486368. Registered Office: 8th Floor, 125 London Wall, London EC2Y 5AS

Summary

(i)With effect from 1 January 2015 the Financial Reporting Council (FRC) revised financial reporting standards for the United Kingdom and Republic of Ireland. The revision fundamentally reformed financial reporting, replacing the extant standards with five Financial Reporting Standards:

FRS 100 Application of Financial Reporting Requirements;
FRS 101 Reduced Disclosure Framework;
FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland;
FRS 103 Insurance Contracts; and
FRS 104 Interim Financial Reporting.

The FRC has also issued FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime to support the implementation of the new micro-entities regime.

(ii)The FRC's overriding objective in setting accounting standards is to enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users' information needs.

(iii)In meeting this objective, the FRC aims to provide succinct financial reporting standards that:

have consistency with international accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective;
reflect up-to-date thinking and developments in the way entities operate and the transactions they undertake;
balance consistent principles for accounting by all UK and Republic of Ireland entities with practical solutions, based on size, complexity, public interest and users' information needs;
promote efficiency within groups; and
are cost-effective to apply.

(iv)The requirements in this Financial Reporting Standard (FRS) take into consideration the findings from all relevant consultations.

(v)This FRS sets out the financial reporting requirements for UK and Republic of Ireland entities. Financial statements (whether consolidated financial statements or individual financial statements) that are within the scope of this FRS must be prepared in accordance with the following requirements:

If the financial statements are those of an entity that is eligible to apply FRS 105, they may be prepared in accordance with that standard.
If the financial statements are those of an entity that is not eligible to apply FRS 105, or of an entity that is eligible to apply FRS 105 but chooses not to do so, they must be prepared in accordance with FRS 102, EU-adopted IFRS or, if the financial statements are the individual financial statements of a qualifying entity, FRS 101 [^1].

(vi)FRS 101 sets out a reduced disclosure framework which addresses the financial reporting requirements and disclosure exemptions for the individual financial statements of subsidiaries and ultimate parents that otherwise apply the recognition, measurement and disclosure requirements of EU-adopted IFRS.

(vii)FRS 102 is a single financial reporting standard that applies to the financial statements of entities that are not applying EU-adopted IFRS, FRS 101 or the FRSSE.

(viii)FRS 105 sets out the financial reporting requirements for micro-entities, as defined by company law, choosing to apply the micro-entities regime.

(ix)This edition of FRS 100 issued in September 2015 updates the edition of FRS 100 issued in November 2012 for the following:

the withdrawal of FRS 27 Life Assurance (as set out in FRS 103 Insurance Contracts issued in March 2014);
consequential amendments to FRS 102 included in FRS 104 Interim Financial Reporting issued in March 2015;
Amendments to FRS 100 issued in July 2015;
an editorial amendment to paragraph A2.19 to include a reference to the Strategic Report; and
some minor typographical or presentational corrections.

FRS 100 Application of Financial Reporting Requirements

Objective

1The objective of this Financial Reporting Standard (FRS) is to set out the applicable financial reporting framework for entities preparing financial statements in accordance with legislation, regulations or accounting standards applicable in the United Kingdom and Republic of Ireland.

Scope

2This FRS applies to financial statements that are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss for a period.

Abbreviations and definitions

3The terms Accounting Directive, Act, date of transition, EU-adopted IFRS, financial institution, FRS 100, FRS 101, FRS 102, FRS 105, IAS Regulation, IFRS, individual financial statements, public benefit entity, qualifying entity, small entity and SORP are defined in the glossary included as Appendix I to this FRS.

Basis of preparation of financial statements

4Financial statements (whether consolidated financial statements or individual financial statements) that are within the scope of this FRS, and that are not required by the IAS Regulation or other legislation or regulation to be prepared in accordance with EU-adopted IFRS, must be prepared in accordance with the following requirements:

If the financial statements are those of an entity that is eligible to apply FRS 105 [^2], they may be prepared in accordance with that standard;
If the financial statements are those of an entity that is not eligible to apply FRS 105, or of an entity that is eligible to apply FRS 105 but chooses not to do so, they must [^3] be prepared in accordance with FRS 102, EU-adopted IFRS [^4] or, if the financial statements are the individual financial statements of a qualifying entity, FRS 101 [^5].

Application of statements of recommended practice (SORPs)

5If an entity's financial statements are prepared in accordance with FRS 102 SORPs will apply in the circumstances set out in that FRS.

6When a SORP applies, an entity, other than a small entity applying the small entities regime in FRS 102, shall state in its financial statements the title of the SORP and whether its financial statements have been prepared in accordance with the SORP's provisions that are currently in effect [^6]. In the event of a departure from those provisions, the entity shall give a brief description of how the financial statements depart from the recommended practice set out in the SORP, which shall include:

for any treatment that is not in accordance with the SORP, the reasons why the treatment adopted is judged more appropriate to the entity's particular circumstances; and
brief details of any disclosures recommended by the SORP that have not been provided, and the reasons why they have not been provided.

A small entity applying the small entities regime in FRS 102 is encouraged to provide these disclosures.

7SORPs recommend particular accounting treatments and disclosures with the aim of narrowing areas of difference and variety between comparable entities. Compliance with a SORP that has been generally accepted by an industry or sector leads to enhanced comparability between the financial statements of entities in that industry or sector. Comparability is further enhanced if users are made aware of the extent to which an entity complies with a SORP, and the reasons for any departures. The effect of a departure from a SORP need not be quantified, except in those rare cases where such quantification is necessary for the entity's financial statements to give a true and fair view.

8Entities whose financial statements do not fall within the scope of a SORP may, if the SORP is otherwise relevant to them, nevertheless choose to comply with the SORP's recommendations when preparing financial statements, provided that the SORP does not conflict with the requirements of the framework adopted. Where this is the case, entities are encouraged to disclose that fact.

Statement of compliance

9Where an entity prepares its financial statements in accordance with FRS 101 or FRS 102, it shall include a statement of compliance in the notes to the financial statements in accordance with the requirements set out in the relevant standard unless it is a small entity applying the small entities regime in FRS 102, in which case it is encouraged to include a statement of compliance in the notes to the financial statements.

Date from which effective and transitional arrangements

10An entity shall apply this FRS for accounting periods beginning on or after 1 January 2016. Early application of this FRS is permitted, providing an entity also applies the edition of FRS 101, FRS 102 and FRS 105 effective for accounting periods beginning on or after 1 January 2016 and is subject to the early application provisions set out in those standards. An entity choosing not to apply these amendments to accounting periods beginning before 1 January 2016 shall not adopt the associated amendments made to FRS 101, FRS 102 nor FRS 105 to accounting periods beginning before 1 January 2016. If an entity applies this FRS before 1 January 2016 it shall disclose that fact, unless the entity is a micro-entity or a small entity. A small entity is encouraged to provide this disclosure.

11On first-time application of this FRS, or when an entity changes the basis of preparation of its financial statements within the requirements of this FRS, it shall apply the transitional arrangements relevant to its circumstances as follows:

An entity transitioning to EU-adopted IFRS shall apply the transitional arrangements set out in IFRS 1 First-time Adoption of International Financial Reporting Standards as adopted by the EU.
A qualifying entity transitioning to FRS 101 shall, unless it is applying EU-adopted IFRS prior to the date of transition (see paragraph 12), apply the requirements of paragraphs 6 to 33 of IFRS 1 as adopted by the EU including the relevant appendices except for the requirement of paragraphs 6 and 21 to present an opening statement of financial position at the date of transition; references to IFRSs in IFRS 1 are interpreted to mean EU-adopted IFRS as amended in accordance with paragraph 5(b) of FRS 101.
An entity transitioning to FRS 102 shall apply the transitional arrangements set out in that standard.
An entity transitioning to FRS 105 shall apply the transitional arrangements set out in FRS 105.

12A qualifying entity applying EU-adopted IFRS prior to the date of transition to FRS 101 will then be preparing Companies Act individual accounts in accordance with section 395(1)(a) of the Act and thus will no longer be preparing IAS individual accounts in accordance with section 395(1)(b) of the Act. It shall consider whether amendments are required to comply with paragraph 5(b) of FRS 101, but it does not reapply the provisions of IFRS 1. Where amendments to the recognition, measurement and disclosure requirements of EU-adopted IFRS in accordance with paragraph 5(b) of FRS 101 are required, the entity shall determine whether the amendments have a material effect on the first financial statements presented. Where there is:

no material effect, the qualifying entity shall disclose that it has undergone transition to FRS 101 and a brief narrative of the disclosure exemptions adopted, for all periods presented; or
a material effect, the qualifying entity's first financial statements shall include:
1. a description of the nature of each material change in accounting policy;
2. reconciliations of its equity determined in accordance with EU-adopted IFRS to its equity determined in accordance with FRS 101 for both the date of transition to FRS 101 and for the end of the latest period presented in the entity's most recent annual financial statements prepared in accordance with EU-adopted IFRS; and
3. a reconciliation of the profit or loss determined in accordance with EU-adopted IFRS to its profit or loss determined in accordance with FRS 101 for the latest period presented in the entity's most recent annual financial statements prepared in accordance with EU-adopted IFRS.

13Where paragraph 12(b) applies but it is impracticable to apply the amendments retrospectively, a qualifying entity shall apply the amendments to the earliest period for which it is practicable to do so, and it shall identify the data presented for prior periods that are not comparable with data for the period in which it prepares its first financial statements that conform with the reduced disclosure framework set out in FRS 101 [^7].

Withdrawal of current accounting standards

14The following SSAPs, FRSs and UITF Abstracts are superseded on the early application of this FRS. These SSAPs, FRSs and UITF Abstracts will be withdrawn for accounting periods beginning on or after 1 January 2015.


SSAP 4	Accounting for government grants;
SSAP 5	Accounting for value added tax;
SSAP 9	Stocks and long-term contracts;
SSAP 13	Accounting for research and development;
SSAP 19	Accounting for investment properties;
SSAP 20	Foreign currency translation;
SSAP 21	Accounting for leases and hire purchase contracts; including the Guidance Notes on SSAP 21;
SSAP 25	Segmental reporting;
FRS 1	Cash flow statements (revised 1996);
FRS 2	Accounting for subsidiary undertakings;
FRS 3	Reporting financial performance;
FRS 4	Capital instruments;
FRS 5	Reporting the substance of transactions;
FRS 6	Acquisitions and mergers;
FRS 7	Fair values in acquisition accounting;
FRS 8	Related party disclosures;
FRS 9	Associates and joint ventures;
FRS 10	Goodwill and intangible assets;
FRS 11	Impairment of fixed assets and goodwill;
FRS 12	Provisions, contingent liabilities and contingent assets;
FRS 13	Derivatives and other financial instruments: disclosures;
FRS 15	Tangible fixed assets;
FRS 16	Current tax;
FRS 17	Retirement benefits;
FRS 18	Accounting policies;
FRS 19	Deferred tax;
FRS 20 (IFRS 2)	Share-based payment;
FRS 21 (IAS 10)	Events after the balance sheet date;
FRS 22 (IAS 33)	Earnings per share;
FRS 23 (IAS 21)	The effects of changes in foreign exchange rates;
FRS 24 (IAS 29)	Financial reporting in hyperinflationary economies;
FRS 25 (IAS 32)	Financial instruments: Presentation;
FRS 26 (IAS 39)	Financial instruments: Recognition and Measurement;
FRS 27	Life Assurance;
FRS 28	Corresponding amounts;
FRS 29 (IFRS 7)	Financial instruments: Disclosures;
FRS 30	Heritage assets;
UITF Abstract 4:	Presentation of long-term debtors in current assets;
UITF Abstract 5:	Transfers from current assets to fixed assets;
UITF Abstract 9:	Accounting for operations in hyper-inflationary economies;
UITF Abstract 11:	Capital instruments: Issuer call options;
UITF Abstract 15:	Disclosure of substantial acquisitions (Revised 1999);
UITF Abstract 19:	Tax on gains and losses on foreign currency borrowings that hedge an investment in a foreign enterprise;
UITF Abstract 21:	Accounting issues arising from the proposed introduction of the euro;
UITF Abstract 22:	The acquisition of a Lloyd's business;
UITF Abstract 23:	Application of the transitional rules in FRS 15;
UITF Abstract 24:	Accounting for start-up costs;
UITF Abstract 25:	National Insurance contributions on share option gains;
UITF Abstract 26:	Barter transactions for advertising;
UITF Abstract 27:	Revision to estimates of the useful economic life of goodwill and intangible assets;
UITF Abstract 28:	Operating lease incentives;
UITF Abstract 29:	Website development costs;
UITF Abstract 31:	Exchanges of businesses or other non-monetary assets for an interest in a subsidiary, joint venture or associate;
UITF Abstract 32:	Employee benefit trusts and other intermediate payment arrangements;
UITF Abstract 34:	Pre-contract costs;
UITF Abstract 35:	Death-in-service and incapacity benefits;
UITF Abstract 36:	Contracts for sales of capacity;
UITF Abstract 38:	Accounting for ESOP trusts;
UITF Abstract 39:	(IFRIC Interpretation 2) Members' shares in co-operative entities and similar instruments;
UITF Abstract 40:	Revenue recognition and service contracts;
UITF Abstract 41:	(IFRIC Interpretation 8) Scope of FRS 20 (IFRS 2);
UITF Abstract 42:	(IFRIC Interpretation 9) Reassessment of embedded derivatives;
UITF Abstract 43:	The interpretation of equivalence for the purposes of section 228A of the Companies Act 1985;
UITF Abstract 44:	(IFRIC Interpretation 11) FRS 20 (IFRS 2) Group and Treasury Share Transactions;
UITF Abstract 45:	(IFRIC Interpretation 6) Liabilities arising from participating in a specific market – Waste electrical and electronic equipment;
UITF Abstract 46:	(IFRIC Interpretation 16) Hedges of a net investment in a foreign operation;
UITF Abstract 47:	(IFRIC Interpretation 19) Extinguishing financial liabilities with equity instruments; and
UITF Abstract 48:	Accounting implications of the replacement of the retail prices index with the consumer prices index for retirement benefits.

15The following statements are also withdrawn:

Statement of Principles for Financial Reporting;
Statement of Principles for Financial Reporting – Interpretation for public benefit entities;
Reporting Statement: Retirement Benefits – Disclosures;
Reporting Statement: Preliminary announcements; and
Reporting Statement: Half-yearly financial reports.

15AThe Financial Reporting Standard for Smaller Entities (effective January 2015) (FRSSE) is superseded on the early application of the amendments set out in Amendments to FRS 100 (and the related amendments to other accounting standards, particularly FRS 102 and FRS 105) issued in July 2015 and the early application of The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (SI 2015/980) and is withdrawn for accounting periods beginning on or after 1 January 2016.

Application Guidance: The Interpretation of Equivalence

Introduction

AG1Section 401 of the Act exempts, subject to certain conditions, an intermediate parent from the requirement to prepare consolidated financial statements where its parent is not established under the law of an EEA state. The exemption is conditional on the company and all of its subsidiaries being included in consolidated financial statements for a larger group drawn up to the same date, or an earlier date in the same financial year, and those financial statements must be drawn up:

in accordance with, or in a manner that is equivalent to, the Accounting Directive (Section 401(2)(b)(i) and (ii));
in accordance with EU-adopted IFRS (Section 401(2)(b)(iii)); or
in accordance with accounting standards which are equivalent to EU-adopted IFRS, as determined in accordance with the EU mechanism (see paragraph AG7) (Section 401(2)(b)(iv)).

AG2FRS 101 and FRS 102 permit certain exemptions from disclosures, but those exemptions are in some cases subject to equivalent disclosures being included in the consolidated financial statements of the group in which the entity is consolidated.

AG3This Application Guidance provides guidance on interpreting the meaning of equivalence in the two circumstances set out above.

Section 401 of the Companies Act 2006

AG4Use of the exemption in section 401(2)(b)(ii) requires an analysis of a particular set of consolidated financial statements to determine whether they are drawn up in a manner equivalent to consolidated financial statements that are drawn up in accordance with the Accounting Directive. This Application Guidance aims to assist entities in adopting a consistent approach to this issue. In the absence of this guidance, companies and their auditors might feel obliged to take an overly cautious approach in response to uncertainty about whether the exemptions can be used.

AG5It is generally accepted that the reference to equivalence in section 401(2)(b)(ii) of the Act does not mean compliance with every detail of the Accounting Directive. When assessing whether consolidated financial statements of a higher non-EEA parent are drawn up in a manner equivalent to consolidated financial statements drawn up in accordance with the Accounting Directive, it is necessary to consider whether they meet the basic requirements of the Accounting Directive; in particular the requirement to give a true and fair view, without implying strict conformity with each and every provision. A qualitative approach is more in keeping with the deregulatory nature of the exemption than a requirement to consider the detailed requirements on a checklist basis.

AG6The consequences of the exemptions in section 401(2)(b) and adopting the principle in paragraph AG5 in relation to section 401(2)(b)(ii) are that consolidated financial statements of the higher parent will meet the exemption or the test of equivalence in the Accounting Directive if they are intended to give a true and fair view and:

are prepared in accordance with FRS 102;
are prepared in accordance with EU-adopted IFRS;
are prepared in accordance with IFRS, subject to the consideration of the reasons for any failure by the European Commission to adopt a standard or interpretation; or
are prepared using other GAAPs which are closely related to IFRS, subject to consideration of the effect of any differences from EU-adopted IFRS.

Consolidated financial statements of the higher parent prepared using other GAAPs or the IFRS for SMEs should be assessed for equivalence with the Accounting Directive based on the particular facts, including the similarities to and differences from the Accounting Directive.

AG7A mechanism to determine the equivalence of the Generally Accepted Accounting Principles (GAAP) from third countries was established in 2007. Subsequently, the European Commission has identified as equivalent to IFRS the following:

GAAP	Applicable from
GAAP of Japan	1 January 2009
GAAP of the United States of America	1 January 2009
GAAP of the People's Republic of China	1 January 2012
GAAP of Canada	1 January 2012
GAAP of the Republic of Korea	1 January 2012

Further, third country issuers shall be permitted to prepare their annual consolidated financial statements and half-yearly consolidated financial statements in accordance with the Generally Accepted Accounting Principles of the Republic of India for financial years starting before 1 January 2015. For reporting periods beginning on or after 1 January 2015, in relation to GAAP of the Republic of India, equivalence should be assessed on the basis of the particular facts.

Equivalent disclosures are included in the consolidated financial statements of the group

AG8In deciding whether the consolidated financial statements of the parent provide disclosures which are equivalent to the requirements of EU-adopted IFRS or FRS 102, from which relief is provided in paragraphs 8 to 9 of FRS 101 and paragraphs 1.12 to 1.13 of FRS 102 respectively, it is necessary to consider whether the consolidated financial statements of the parent provide disclosures that meet the basic disclosure requirements of the relevant standard or interpretation issued (or adopted) by the relevant standard setter, without requiring strict conformity with each and every disclosure. This assessment should be based on the particular facts, including the similarities to and differences from the requirements of the relevant standard from which relief is provided.

AG9The concept of 'equivalence' described in paragraph AG8 is intended to be aligned to that described for section 401 of the Act.

AG10Disclosure exemptions for subsidiaries are permitted where the relevant disclosure requirements are met in the consolidated financial statements, even where the disclosures are made in aggregate or in an abbreviated form, or in relation to intra-group balances, those intra-group balances have been eliminated on consolidation. If, however, no disclosure is made in the consolidated financial statements on the grounds of materiality, the relevant disclosures should be made at the subsidiary level if material in those financial statements.

Approval by the FRC

Financial Reporting Standard 100 Application of Financial Reporting Requirements was approved for issue by the Board of the Financial Reporting Council on 1 November 2012, following its consideration of the Accounting Council's advice for this FRS.

Amendments to FRS 100 Application of Financial Reporting Requirements was approved for issue by the Board of the Financial Reporting Council on 1 July 2015, following its consideration of the Accounting Council's Advice.

The Accounting Council's Advice to the FRC to issue FRS 100

Introduction

1This report provides an overview of the main issues which have been considered by the Accounting Council in advising the Financial Reporting Council (FRC) to issue FRS 100 Application of Financial Reporting Requirements. The FRC, in accordance with the Statutory Instrument Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc) Order 2012 (SI 2012/1741), is the prescribed body for issuing accounting standards in the UK. The Foreword to Accounting Standards sets out the application of accounting standards in the Republic of Ireland.

2In accordance with FRC Codes and Standards: procedures, any proposal to issue, amend or withdraw a code or standard is put to the FRC with the full advice of the relevant Councils and/or the Codes & Standards Committee. Ordinarily, the FRC will only reject the advice put to it where:

it is apparent that a significant group of stakeholders has not been adequately consulted;
the necessary assessment of the impact of the proposal has not been completed, including an analysis of costs and benefits;
insufficient consideration has been given to the timing or cost of implementation; or
the cumulative impact of a number of proposals would make the adoption of an otherwise satisfactory proposal inappropriate.

3The FRC has established the Accounting Council as the relevant Council to assist it in the setting of accounting standards.

Advice

4The Accounting Council is advising the FRC to issue:

FRS 100 Application of Financial Reporting Requirements; and
FRS 101 Reduced Disclosure Framework.

5FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of Ireland completes the new suite of financial reporting standards. The Accounting Council will provide its advice to the FRC on FRS 102 in that standard.

Background

6Accounting standards were formerly developed by the Accounting Standards Board (ASB). The ASB commenced its project to update accounting standards in 2002; Appendix III provides a history of the previous consultations and a summary of how the overall proposals have developed [^8].

7The ASB (and subsequently the Accounting Council) gave careful consideration to the project's objective and intended effects during its consultations on updating accounting standards. In developing the requirements in this FRS, FRS 101 and FRS 102, the overriding objective is:

To enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users' information needs.

8In achieving this objective, the ASB decided (and the Accounting Council subsequently agreed) that it should provide succinct financial reporting standards that:

have consistency with global accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective;
reflect up-to-date thinking and developments in the way businesses operate and the transactions they undertake;
balance consistent principles for accounting by all UK and Republic of Ireland entities with practical solutions, based on size, complexity, public interest and users' information needs;
promote efficiency within groups; and
are cost-effective to apply.

9The requirements in this FRS were principally consulted on in two exposure drafts; FRED 43 Application of Financial Reporting Requirements issued in October 2010, and FRED 46 Application of Financial Reporting Requirements (revised) issued in January 2012.

A differential financial reporting system and the elimination of 'public accountability'

10In the early stages of developing this FRS, the ASB consulted on whether to introduce a differential financial reporting system. A differential system requires an entity to apply specified accounting standards as prescribed based on the size, nature or other differentiating feature of the entity. FRED 43 set out proposals for a differential financial reporting system based on three tiers of entities using public accountability and size as differentiators. The proposals in FRED 43 would have extended the application of EU-adopted IFRS to those entities with public accountability. Whilst there was some support for a differential financial reporting system, entities that would be required to apply EU-adopted IFRS did not support the proposal, principally on the basis of costs and benefits [^9].

11The ASB gave careful consideration to the concerns raised and concluded that public accountability (and therefore the differential financial reporting system) could be eliminated if it were to extend the proposals by including additional requirements in FRED 44 Financial Reporting Standard for Medium-sized Entities for entities with publicly traded debt or equity, and for financial institutions, so that the proposals in that FRED applied to a broader group of entities. FRED 44 proposed to replace the majority of extant financial reporting standards with a single standard based on the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). As a consequence, FRED 44 was revised and FRED 48 issued, which addressed a broader group of entities including those previously considered to have public accountability, single entities listed on a regulated market, entities listed on a non-regulated market and additional disclosure requirements for financial instruments held by financial institutions.

12Respondents to FRED 46 supported the removal of the public accountability criteria and the Accounting Council agreed to advise the FRC not to extend the application of EU-adopted IFRS beyond that already required by company law or other legislation or regulation.

13Once this FRS becomes effective, there will be five FRSs applicable in the UK and Republic of Ireland:

FRS 100 Application of Financial Reporting Requirements;
FRS 101 Reduced Disclosure Framework;
FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland;
Financial Reporting Standard for Smaller Entities (effective January 2015) (the FRSSE); and
FRS 27 Life assurance [^10].

FRS 101 Reduced disclosure framework

14FRS 101 was developed in response to concerns that arose from earlier consultations (see Appendix III). Respondents to those consultations (and particularly the 2009 Policy Proposal) noted that a move to the IFRS for SMEs for subsidiaries of entities that apply EU-adopted IFRS would require recognition and measurement differences to be monitored and maintained at group level, and yet the alternative of a move to EU-adopted IFRS would increase disclosure in comparison to current accounting standards. The ASB therefore developed a reduced disclosure framework to address these concerns.

15Further details regarding the development of FRS 101 are located in the Accounting Council's Advice to the FRC accompanying that FRS.

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland

16FRS 102 will replace the majority of current accounting standards applicable in the UK and Republic of Ireland with a single FRS based on the IFRS for SMEs. Details of the development of FRS 102 will be set out in the Accounting Council's Advice to the FRC accompanying that FRS. One member of the Accounting Council considers that the level of input from users does not constitute adequate consultation, despite extensive efforts at outreach, and holds an alternative view on aspects of the Accounting Council's expected advice on FRS 102.

The Financial Reporting Standard for Smaller Entities (FRSSE)

17The Accounting Council advises the FRC (consistent with FREDs 43 and 46) to retain the FRSSE for a period following the application of FRS 102, with a view to consulting again on the FRSSE's future in the short to medium term.

18The eligibility criteria for applying the FRSSE are set out in paragraph 8 of the FRSSE. One of the criteria is that the entity must be 'small' as defined in company law. Turnover and balance sheet total should be measured in accordance with the FRSSE for the purposes of establishing whether the entity is 'small'; the measurement of turnover and balance sheet total in accordance with FRS 101 or FRS 102 need not be considered.

19The Accounting Council also advises the FRC to undertake further consultation to address the implications for the FRSSE of:

the European Commission proposals arising from its review of the EU Accounting Directives (an initial proposed Directive was issued in October 2011); and
the Directive on annual accounts of micro-entities that was approved by the European Council in February 2012.

20The amendments to the FRSSE set out in this FRS arise as a consequence of withdrawing current accounting standards.

Statements of Recommended Practice (SORPs)

21In its 2009 Policy Proposal, the ASB's recommendation was to remove almost all of the SORPs. Respondents to the Policy Proposal questioned this and many noted that SORPs contribute to improving the quality of financial reporting in the UK. Instead FRED 43 proposed to streamline the number of SORPs in existence. Respondents to FRED 43 were supportive of this revised proposal. The decision, however, to eliminate the definition of public accountability and thereby broaden the scope of entities eligible to apply FRS 102 had a consequential impact on the SORPs (for example, pension funds would no longer be required to apply EU-adopted IFRS), so the ASB amended its proposals again in FRED 48.

22The proposals in FRED 48 received support and the Accounting Council is now advising the FRC that they be taken forward, as follows:

SORP	Accounting Council Advice
Accounting for insurance business	A separate consultation will be undertaken on accounting for insurance
Accounting for oil & gas	The SORP-making body has indicated that they do not believe that it would make sense to update the 2001 SORP
Authorised funds	Update to be based on FRS 102
Banking segments	Withdraw
Charities	Update to be based on FRS 102
Financial reports of pension funds	Update for consistency with FRS 102 to supplement Section 34 of FRS 102
Further and higher education	Update to be based on FRS 102
Investment companies	Update to be based on FRS 102
Leasing	Withdraw
Limited liability partnerships	Update to be based on FRS 102
Registered social housing providers	Update to be based on FRS 102

23In response to a request for clarification as to the role of the SORPs, the Accounting Council is advising the FRC that a reference to the application of SORPs be included in this FRS and in Section 10 Accounting policies, estimates and errors of FRS 102, to note that they are a source of guidance on accounting policies.

Clarification of equivalence

24FRS 101 and FRS 102 permit certain exemptions from disclosures, which are in some cases subject to equivalent disclosures being included in the consolidated financial statements of the group in which the entity is consolidated. Clarification on interpreting the meaning of the term equivalence is included in Application Guidance I of this FRS.

Withdrawn publications

25Paragraph 14 of this FRS sets out the withdrawal of current accounting standards. For the avoidance of doubt, the Accounting Council (and FRC) will also not proceed with developing the following superseded Financial Reporting Exposure Drafts (FREDs):

Leases: Implementation of a new approach
IASB Exposure draft of a proposed IFRS for small and medium-sized entities (Issued April 2007)
FRED 22 Revision of FRS 3 Reporting financial performance
FRED 28 Inventories: Construction and service contracts
FRED 29 Property, plant and equipment: Borrowing costs
FRED 32 Disposal of non-current assets and presentation of discontinued operations
FRED 36 Business combinations
FRED 37 Intangible assets (IAS 38) and FRED 38 Impairment of assets (IAS 36)
FRED 39 Amendments to FRS 12 Provisions, contingent liabilities and contingent assets and FRS 17 Retirement benefits
FRED 43 Application of Financial Reporting Requirements
FRED 44 The Financial Reporting Standards for Medium-sized Entities
FRED 45 The Financial Reporting Standard for Public Benefit Entities

Effective date and early application

26In reassessing the effective date as proposed in FREDs 46 to 48, the Accounting Council supports the previous view of the ASB that application should be deferred to January 2015 for the following reasons:

although the revisions to the ASB's original proposals should ease the transition, an 18 month period between the publication of the final standard and effective date should be retained as there are significant changes to the accounting requirements for financial instruments; and
the effective date should take into consideration the process of updating the SORPs.

27This decision was reassessed by the Accounting Council when it considered the responses to FREDs 46 to 48. It decided that it was not necessary to have the same early application provisions for FRS 101, FRS 102 and the FRSSE (effective January 2015) and that specific requirements relating to early application should be set out separately in each standard.

Approval of this advice

28This advice to the FRC was approved by the nine members of the Accounting Council on 25 October 2012. The Accounting Council is comprised of the following members:

Roger Marshall (Chair of the Accounting Council)
Nick Anderson
Dr Richard Barker
Edward Beale
Peter Elwin
Ken Lever
Robert Overend
Andy Simmonds
Pauline Wallace

The Accounting Council's Advice to the FRC to issue Amendments to FRS 100

Introduction

1This report provides an overview of the main issues that have been considered by the Accounting Council in advising the Financial Reporting Council (FRC) to issue Amendments to FRS 100 Application of Financial Reporting Requirements incorporating the Council's advice following the Consultation Document Accounting standards for small entities – Implementation of the EU Accounting Directive and FRED 60 Draft amendments to FRS 100 and FRS 101.

2The FRC, in accordance with the Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc) Order 2012 (SI 2012/1741), is a prescribed body for issuing accounting standards in the UK. The Foreword to Accounting Standards sets out the application of accounting standards in the Republic of Ireland.

3In accordance with the FRC Codes and Standards: procedures, any proposal to issue, amend or withdraw a code or standard is put to the FRC Board with the full advice of the relevant Councils and/or the Codes & Standards Committee. Ordinarily, the FRC Board will only reject the advice put to it where:

it is apparent that a significant group of stakeholders has not been adequately consulted;
the necessary assessment of the impact of the proposal has not been completed, including an analysis of costs and benefits;
insufficient consideration has been given to the timing or cost of implementation; or
the cumulative impact of a number of proposals would make the adoption of an otherwise satisfactory proposal inappropriate.

4The FRC has established the Accounting Council as the relevant Council to assist it in the setting of accounting standards.

Advice

5The Accounting Council is advising the FRC to issue Amendments to FRS 100 Application of Financial Reporting Requirements.

6The Accounting Council advises that these proposals will update the framework of accounting standards and maintain consistency of accounting standards with company law.

7The Accounting Council's Advice to the FRC to issue FRS 100 Application of Financial Reporting Requirements was set out in the standard. The Accounting Council's Advice to the FRC in respect of these amendments will be included in the revised FRS 100.

Background

8The new EU Accounting Directive (Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013) is being implemented in the UK and Republic of Ireland. In doing so there are changes to company law to reflect new requirements and, where considered appropriate, to take advantage of new options that are available. Accounting standards are developed within the context of company law and amendments are also required to accounting standards.

9In September 2014, the FRC issued a Consultation Document Accounting standards for small entities – Implementation of the EU Accounting Directive [^11] (the Consultation Document), outlining its proposal that the Financial Reporting Standard for Smaller Entities (FRSSE) would be withdrawn. A small number of amendments to FRS 100 would also be necessary to maintain consistency with company law. The Accounting Council considered the responses to the Consultation Document in developing FRED 60 Draft amendments to FRS 100 and FRS 101. It has also considered the responses to FRED 60, which was issued in February 2015, in developing its advice on these amendments.

Objective

10In developing its advice to the FRC, the Accounting Council was guided by the overriding objective to enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users' information needs.

11In meeting this objective, the FRC aims to provide succinct financial reporting standards that:

have consistency with international accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective;
reflect up-to-date thinking and developments in the way entities operate and the transactions they undertake;
balance consistent principles for accounting by all UK and Republic of Ireland entities with practical solutions, based on size, complexity, public interest and users' information needs;
promote efficiency within groups; and
are cost-effective to apply.

Small entities regime

12In the Consultation Document and FRED 60 the FRC proposed that the FRSSE should be withdrawn and that it should be replaced with:

a new standard for micro-entities, FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime; and
for small entities ineligible for or choosing not to apply the micro-entities regime, it should be replaced with a new Section 1A Small Entities within FRS 102.

This proposal was supported by respondents and the Accounting Council advises that the FRSSE is withdrawn, with consequential amendments made to FRS 100 Application of Financial Reporting Requirements to set out the revised framework.

Other minor amendments

13The Accounting Council advises that other minor amendments are made to FRS 100 for compliance with company law. This principally relates to the Application Guidance: The Interpretation of Equivalence.

14One respondent to FRED 60 requested clarification relating to the meaning of equivalent disclosures included in the consolidated financial statements in relation to intra-group balances eliminated on consolidation. The Accounting Council agreed that this could usefully be clarified whilst amendments were being made to the Application Guidance: The Interpretation of Equivalence and advises that it is made clear that, provided relevant disclosures have been made in the consolidated financial statements, the exemption is permitted when intra-group balances have been eliminated on consolidation. This is, of course, subject to any disclosures that are required by law.

Effective date

15The Accounting Council advises that the amendments to FRS 100 arising from the implementation of the new Accounting Directive are effective for accounting periods beginning on or after 1 January 2016, with early application available providing an entity also applies the edition of FRS 101, FRS 102 or FRS 105 effective for accounting periods beginning on or after 1 January 2016 and subject to the early application provisions set out in those standards.

Approval of this Advice

16This advice to the FRC was approved by the Accounting Council on 4 June 2015.

Appendix I: Glossary

Accounting Directive	Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013
Introduction

This document sets out the Financial Reporting Council’s (FRC) revised financial reporting standards for the United Kingdom and Republic of Ireland that became effective on 1 January 2015. This revision fundamentally reformed financial reporting, replacing the extant standards with five new Financial Reporting Standards (FRSs):

FRS 100 Application of Financial Reporting Requirements
FRS 101 Reduced Disclosure Framework
FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland
FRS 103 Insurance Contracts
FRS 104 Interim Financial Reporting

The FRC also issued FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime to support the implementation of the new micro-entities regime.

The FRC’s overriding objective in setting accounting standards is to enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users’ information needs. In meeting this objective, the FRC aims to provide succinct financial reporting standards that:

have consistency with international accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective;
reflect up-to-date thinking and developments in the way entities operate and the transactions they undertake;
balance consistent principles for accounting by all UK and Republic of Ireland entities with practical solutions, based on size, complexity, public interest and users’ information needs;
promote efficiency within groups; and
are cost-effective to apply.

This FRS takes into consideration the findings from all relevant consultations.

1. Financial Reporting Framework

This FRS sets out the financial reporting requirements for UK and Republic of Ireland entities. Financial statements (whether consolidated financial statements or individual financial statements) that are within the scope of this FRS must be prepared in accordance with the following requirements:

If the financial statements are those of an entity that is eligible to apply FRS 105, they may be prepared in accordance with that standard.
If the financial statements are those of an entity that is not eligible to apply FRS 105, or of an entity that is eligible to apply FRS 105 but chooses not to do so, they must be prepared in accordance with FRS 102, EU-adopted IFRS or, if the financial statements are the individual financial statements of a qualifying entity, FRS 101 [^1].

FRS 101 sets out a reduced disclosure framework which addresses the financial reporting requirements and disclosure exemptions for the individual financial statements of subsidiaries and ultimate parents that otherwise apply the recognition, measurement and disclosure requirements of EU-adopted IFRS.

FRS 102 is a single financial reporting standard that applies to the financial statements of entities that are not applying EU-adopted IFRS, FRS 101 or the FRSSE.

FRS 105 sets out the financial reporting requirements for micro-entities, as defined by company law, choosing to apply the micro-entities regime.

This edition of FRS 100 issued in September 2015 updates the edition of FRS 100 issued in November 2012 for the following:

the withdrawal of FRS 27 Life Assurance (as set out in FRS 103 Insurance Contracts issued in March 2014);
consequential amendments to FRS 102 included in FRS 104 Interim Financial Reporting issued in March 2015;
Amendments to FRS 100 issued in July 2015;
an editorial amendment to paragraph A2.19 to include a reference to the Strategic Report; and
some minor typographical or presentational corrections.

2. Objective

The objective of this Financial Reporting Standard (FRS) is to set out the applicable financial reporting framework for entities preparing financial statements in accordance with legislation, regulations or accounting standards applicable in the United Kingdom and Republic of Ireland.

3. Scope

This FRS applies to financial statements that are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss for a period.

4. Abbreviations and definitions

The terms Accounting Directive, Act, date of transition, EU-adopted IFRS, financial institution, FRS 100, FRS 101, FRS 102, FRS 105, IAS Regulation, IFRS, individual financial statements, public benefit entity, qualifying entity, small entity and SORP are defined in the glossary included as Appendix I to this FRS.

5. Basis of preparation of financial statements

Financial statements (whether consolidated financial statements or individual financial statements) that are within the scope of this FRS, and that are not required by the IAS Regulation or other legislation or regulation to be prepared in accordance with EU-adopted IFRS, must be prepared in accordance with the following requirements:

If the financial statements are those of an entity that is eligible to apply FRS 105 [^2], they may be prepared in accordance with that standard;
If the financial statements are those of an entity that is not eligible to apply FRS 105, or of an entity that is eligible to apply FRS 105 but chooses not to do so, they must [^3] be prepared in accordance with FRS 102, EU-adopted IFRS [^4] or, if the financial statements are the individual financial statements of a qualifying entity, FRS 101 [^5].

6. Application of statements of recommended practice (SORPs)

If an entity's financial statements are prepared in accordance with FRS 102 SORPs will apply in the circumstances set out in that FRS.

When a SORP applies, an entity, other than a small entity applying the small entities regime in FRS 102, shall state in its financial statements the title of the SORP and whether its financial statements have been prepared in accordance with the SORP's provisions that are currently in effect [^6]. In the event of a departure from those provisions, the entity shall give a brief description of how the financial statements depart from the recommended practice set out in the SORP, which shall include:

for any treatment that is not in accordance with the SORP, the reasons why the treatment adopted is judged more appropriate to the entity's particular circumstances; and
brief details of any disclosures recommended by the SORP that have not been provided, and the reasons why they have not been provided.

A small entity applying the small entities regime in FRS 102 is encouraged to provide these disclosures.

SORPs recommend particular accounting treatments and disclosures with the aim of narrowing areas of difference and variety between comparable entities. Compliance with a SORP that has been generally accepted by an industry or sector leads to enhanced comparability between the financial statements of entities in that industry or sector. Comparability is further enhanced if users are made aware of the extent to which an entity complies with a SORP, and the reasons for any departures. The effect of a departure from a SORP need not be quantified, except in those rare cases where such quantification is necessary for the entity's financial statements to give a true and fair view.

Entities whose financial statements do not fall within the scope of a SORP may, if the SORP is otherwise relevant to them, nevertheless choose to comply with the SORP's recommendations when preparing financial statements, provided that the SORP does not conflict with the requirements of the framework adopted. Where this is the case, entities are encouraged to disclose that fact.

7. Statement of compliance

Where an entity prepares its financial statements in accordance with FRS 101 or FRS 102, it shall include a statement of compliance in the notes to the financial statements in accordance with the requirements set out in the relevant standard unless it is a small entity applying the small entities regime in FRS 102, in which case it is encouraged to include a statement of compliance in the notes to the financial statements.

8. Date from which effective and transitional arrangements

An entity shall apply this FRS for accounting periods beginning on or after 1 January 2016. Early application of this FRS is permitted, providing an entity also applies the edition of FRS 101, FRS 102 and FRS 105 effective for accounting periods beginning on or after 1 January 2016 and is subject to the early application provisions set out in those standards. An entity choosing not to apply these amendments to accounting periods beginning before 1 January 2016 shall not adopt the associated amendments made to FRS 101, FRS 102 nor FRS 105 to accounting periods beginning before 1 January 2016. If an entity applies this FRS before 1 January 2016 it shall disclose that fact, unless the entity is a micro-entity or a small entity. A small entity is encouraged to provide this disclosure.

On first-time application of this FRS, or when an entity changes the basis of preparation of its financial statements within the requirements of this FRS, it shall apply the transitional arrangements relevant to its circumstances as follows:

An entity transitioning to EU-adopted IFRS shall apply the transitional arrangements set out in IFRS 1 First-time Adoption of International Financial Reporting Standards as adopted by the EU.
A qualifying entity transitioning to FRS 101 shall, unless it is applying EU-adopted IFRS prior to the date of transition (see paragraph 12), apply the requirements of paragraphs 6 to 33 of IFRS 1 as adopted by the EU including the relevant appendices except for the requirement of paragraphs 6 and 21 to present an opening statement of financial position at the date of transition; references to IFRSs in IFRS 1 are interpreted to mean EU-adopted IFRS as amended in accordance with paragraph 5(b) of FRS 101.
An entity transitioning to FRS 102 shall apply the transitional arrangements set out in that standard.
An entity transitioning to FRS 105 shall apply the transitional arrangements set out in FRS 105.

A qualifying entity applying EU-adopted IFRS prior to the date of transition to FRS 101 will then be preparing Companies Act individual accounts in accordance with section 395(1)(a) of the Act and thus will no longer be preparing IAS individual accounts in accordance with section 395(1)(b) of the Act. It shall consider whether amendments are required to comply with paragraph 5(b) of FRS 101, but it does not reapply the provisions of IFRS 1. Where amendments to the recognition, measurement and disclosure requirements of EU-adopted IFRS in accordance with paragraph 5(b) of FRS 101 are required, the entity shall determine whether the amendments have a material effect on the first financial statements presented. Where there is:

no material effect, the qualifying entity shall disclose that it has undergone transition to FRS 101 and a brief narrative of the disclosure exemptions adopted, for all periods presented; or
a material effect, the qualifying entity's first financial statements shall include:
1. a description of the nature of each material change in accounting policy;
2. reconciliations of its equity determined in accordance with EU-adopted IFRS to its equity determined in accordance with FRS 101 for both the date of transition to FRS 101 and for the end of the latest period presented in the entity's most recent annual financial statements prepared in accordance with EU-adopted IFRS; and
3. a reconciliation of the profit or loss determined in accordance with EU-adopted IFRS to its profit or loss determined in accordance with FRS 101 for the latest period presented in the entity's most recent annual financial statements prepared in accordance with EU-adopted IFRS.

Where paragraph 12(b) applies but it is impracticable to apply the amendments retrospectively, a qualifying entity shall apply the amendments to the earliest period for which it is practicable to do so, and it shall identify the data presented for prior periods that are not comparable with data for the period in which it prepares its first financial statements that conform with the reduced disclosure framework set out in FRS 101 [^7].

9. Withdrawal of current accounting standards

The following SSAPs, FRSs and UITF Abstracts are superseded on the early application of this FRS. These SSAPs, FRSs and UITF Abstracts will be withdrawn for accounting periods beginning on or after 1 January 2015.


SSAP 4	Accounting for government grants;
SSAP 5	Accounting for value added tax;
SSAP 9	Stocks and long-term contracts;
SSAP 13	Accounting for research and development;
SSAP 19	Accounting for investment properties;
SSAP 20	Foreign currency translation;
SSAP 21	Accounting for leases and hire purchase contracts; including the Guidance Notes on SSAP 21;
SSAP 25	Segmental reporting;
FRS 1	Cash flow statements (revised 1996);
FRS 2	Accounting for subsidiary undertakings;
FRS 3	Reporting financial performance;
FRS 4	Capital instruments;
FRS 5	Reporting the substance of transactions;
FRS 6	Acquisitions and mergers;
FRS 7	Fair values in acquisition accounting;
FRS 8	Related party disclosures;
FRS 9	Associates and joint ventures;
FRS 10	Goodwill and intangible assets;
FRS 11	Impairment of fixed assets and goodwill;
FRS 12	Provisions, contingent liabilities and contingent assets;
FRS 13	Derivatives and other financial instruments: disclosures;
FRS 15	Tangible fixed assets;
FRS 16	Current tax;
FRS 17	Retirement benefits;
FRS 18	Accounting policies;
FRS 19	Deferred tax;
FRS 20 (IFRS 2)	Share-based payment;
FRS 21 (IAS 10)	Events after the balance sheet date;
FRS 22 (IAS 33)	Earnings per share;
FRS 23 (IAS 21)	The effects of changes in foreign exchange rates;
FRS 24 (IAS 29)	Financial reporting in hyperinflationary economies;
FRS 25 (IAS 32)	Financial instruments: Presentation;
FRS 26 (IAS 39)	Financial instruments: Recognition and Measurement;
FRS 27	Life Assurance;
FRS 28	Corresponding amounts;
FRS 29 (IFRS 7)	Financial instruments: Disclosures;
FRS 30	Heritage assets;
UITF Abstract 4:	Presentation of long-term debtors in current assets;
UITF Abstract 5:	Transfers from current assets to fixed assets;
UITF Abstract 9:	Accounting for operations in hyper-inflationary economies;
UITF Abstract 11:	Capital instruments: Issuer call options;
UITF Abstract 15:	Disclosure of substantial acquisitions (Revised 1999);
UITF Abstract 19:	Tax on gains and losses on foreign currency borrowings that hedge an investment in a foreign enterprise;
UITF Abstract 21:	Accounting issues arising from the proposed introduction of the euro;
UITF Abstract 22:	The acquisition of a Lloyd's business;
UITF Abstract 23:	Application of the transitional rules in FRS 15;
UITF Abstract 24:	Accounting for start-up costs;
UITF Abstract 25:	National Insurance contributions on share option gains;
UITF Abstract 26:	Barter transactions for advertising;
UITF Abstract 27:	Revision to estimates of the useful economic life of goodwill and intangible assets;
UITF Abstract 28:	Operating lease incentives;
UITF Abstract 29:	Website development costs;
UITF Abstract 31:	Exchanges of businesses or other non-monetary assets for an interest in a subsidiary, joint venture or associate;
UITF Abstract 32:	Employee benefit trusts and other intermediate payment arrangements;
UITF Abstract 34:	Pre-contract costs;
UITF Abstract 35:	Death-in-service and incapacity benefits;
UITF Abstract 36:	Contracts for sales of capacity;
UITF Abstract 38:	Accounting for ESOP trusts;
UITF Abstract 39:	(IFRIC Interpretation 2) Members' shares in co-operative entities and similar instruments;
UITF Abstract 40:	Revenue recognition and service contracts;
UITF Abstract 41:	(IFRIC Interpretation 8) Scope of FRS 20 (IFRS 2);
UITF Abstract 42:	(IFRIC Interpretation 9) Reassessment of embedded derivatives;
UITF Abstract 43:	The interpretation of equivalence for the purposes of section 228A of the Companies Act 1985;
UITF Abstract 44:	(IFRIC Interpretation 11) FRS 20 (IFRS 2) Group and Treasury Share Transactions;
UITF Abstract 45:	(IFRIC Interpretation 6) Liabilities arising from participating in a specific market – Waste electrical and electronic equipment;
UITF Abstract 46:	(IFRIC Interpretation 16) Hedges of a net investment in a foreign operation;
UITF Abstract 47:	(IFRIC Interpretation 19) Extinguishing financial liabilities with equity instruments; and
UITF Abstract 48:	Accounting implications of the replacement of the retail prices index with the consumer prices index for retirement benefits.

The following statements are also withdrawn:

Statement of Principles for Financial Reporting;
Statement of Principles for Financial Reporting – Interpretation for public benefit entities;
Reporting Statement: Retirement Benefits – Disclosures;
Reporting Statement: Preliminary announcements; and
Reporting Statement: Half-yearly financial reports.

The Financial Reporting Standard for Smaller Entities (effective January 2015) (FRSSE) is superseded on the early application of the amendments set out in Amendments to FRS 100 (and the related amendments to other accounting standards, particularly FRS 102 and FRS 105) issued in July 2015 and the early application of The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (SI 2015/980) and is withdrawn for accounting periods beginning on or after 1 January 2016.

10. Application Guidance: The Interpretation of Equivalence

This application guidance forms an integral part of FRS 100

Introduction

AG1Section 401 of the Act exempts, subject to certain conditions, an intermediate parent from the requirement to prepare consolidated financial statements where its parent is not established under the law of an EEA state. The exemption is conditional on the company and all of its subsidiaries being included in consolidated financial statements for a larger group drawn up to the same date, or an earlier date in the same financial year, and those financial statements must be drawn up:

in accordance with, or in a manner that is equivalent to, the Accounting Directive (Section 401(2)(b)(i) and (ii));
in accordance with EU-adopted IFRS (Section 401(2)(b)(iii)); or
in accordance with accounting standards which are equivalent to EU-adopted IFRS, as determined in accordance with the EU mechanism (see paragraph AG7) (Section 401(2)(b)(iv)).

AG2FRS 101 and FRS 102 permit certain exemptions from disclosures, but those exemptions are in some cases subject to equivalent disclosures being included in the consolidated financial statements of the group in which the entity is consolidated.

AG3This Application Guidance provides guidance on interpreting the meaning of equivalence in the two circumstances set out above.

Section 401 of the Companies Act 2006

AG4Use of the exemption in section 401(2)(b)(ii) requires an analysis of a particular set of consolidated financial statements to determine whether they are drawn up in a manner equivalent to consolidated financial statements that are drawn up in accordance with the Accounting Directive. This Application Guidance aims to assist entities in adopting a consistent approach to this issue. In the absence of this guidance, companies and their auditors might feel obliged to take an overly cautious approach in response to uncertainty about whether the exemptions can be used.

AG5It is generally accepted that the reference to equivalence in section 401(2)(b)(ii) of the Act does not mean compliance with every detail of the Accounting Directive. When assessing whether consolidated financial statements of a higher non-EEA parent are drawn up in a manner equivalent to consolidated financial statements drawn up in accordance with the Accounting Directive, it is necessary to consider whether they meet the basic requirements of the Accounting Directive; in particular the requirement to give a true and fair view, without implying strict conformity with each and every provision. A qualitative approach is more in keeping with the deregulatory nature of the exemption than a requirement to consider the detailed requirements on a checklist basis.

AG6The consequences of the exemptions in section 401(2)(b) and adopting the principle in paragraph AG5 in relation to section 401(2)(b)(ii) are that consolidated financial statements of the higher parent will meet the exemption or the test of equivalence in the Accounting Directive if they are intended to give a true and fair view and:

are prepared in accordance with FRS 102;
are prepared in accordance with EU-adopted IFRS;
are prepared in accordance with IFRS, subject to the consideration of the reasons for any failure by the European Commission to adopt a standard or interpretation; or
are prepared using other GAAPs which are closely related to IFRS, subject to consideration of the effect of any differences from EU-adopted IFRS.

Consolidated financial statements of the higher parent prepared using other GAAPs or the IFRS for SMEs should be assessed for equivalence with the Accounting Directive based on the particular facts, including the similarities to and differences from the Accounting Directive.

AG7A mechanism to determine the equivalence of the Generally Accepted Accounting Principles (GAAP) from third countries was established in 2007. Subsequently, the European Commission has identified as equivalent to IFRS the following:

GAAP	Applicable from
GAAP of Japan	1 January 2009
GAAP of the United States of America	1 January 2009
GAAP of the People's Republic of China	1 January 2012
GAAP of Canada	1 January 2012
GAAP of the Republic of Korea	1 January 2012

Further, third country issuers shall be permitted to prepare their annual consolidated financial statements and half-yearly consolidated financial statements in accordance with the Generally Accepted Accounting Principles of the Republic of India for financial years starting before 1 January 2015. For reporting periods beginning on or after 1 January 2015, in relation to GAAP of the Republic of India, equivalence should be assessed on the basis of the particular facts.

Equivalent disclosures are included in the consolidated financial statements of the group

AG8In deciding whether the consolidated financial statements of the parent provide disclosures which are equivalent to the requirements of EU-adopted IFRS or FRS 102, from which relief is provided in paragraphs 8 to 9 of FRS 101 and paragraphs 1.12 to 1.13 of FRS 102 respectively, it is necessary to consider whether the consolidated financial statements of the parent provide disclosures that meet the basic disclosure requirements of the relevant standard or interpretation issued (or adopted) by the relevant standard setter, without requiring strict conformity with each and every disclosure. This assessment should be based on the particular facts, including the similarities to and differences from the requirements of the relevant standard from which relief is provided.

AG9The concept of 'equivalence' described in paragraph AG8 is intended to be aligned to that described for section 401 of the Act.

AG10Disclosure exemptions for subsidiaries are permitted where the relevant disclosure requirements are met in the consolidated financial statements, even where the disclosures are made in aggregate or in an abbreviated form, or in relation to intra-group balances, those intra-group balances have been eliminated on consolidation. If, however, no disclosure is made in the consolidated financial statements on the grounds of materiality, the relevant disclosures should be made at the subsidiary level if material in those financial statements.

11. Approval by the FRC

Financial Reporting Standard 100 Application of Financial Reporting Requirements was approved for issue by the Board of the Financial Reporting Council on 1 November 2012, following its consideration of the Accounting Council's advice for this FRS.

Amendments to FRS 100 Application of Financial Reporting Requirements was approved for issue by the Board of the Financial Reporting Council on 1 July 2015, following its consideration of the Accounting Council's Advice.

12. The Accounting Council's Advice to the FRC to issue FRS 100

Introduction

1This report provides an overview of the main issues which have been considered by the Accounting Council in advising the Financial Reporting Council (FRC) to issue FRS 100 Application of Financial Reporting Requirements. The FRC, in accordance with the Statutory Instrument Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc) Order 2012 (SI 2012/1741), is the prescribed body for issuing accounting standards in the UK. The Foreword to Accounting Standards sets out the application of accounting standards in the Republic of Ireland.

2In accordance with FRC Codes and Standards: procedures, any proposal to issue, amend or withdraw a code or standard is put to the FRC with the full advice of the relevant Councils and/or the Codes & Standards Committee. Ordinarily, the FRC will only reject the advice put to it where:

it is apparent that a significant group of stakeholders has not been adequately consulted;
the necessary assessment of the impact of the proposal has not been completed, including an analysis of costs and benefits;
insufficient consideration has been given to the timing or cost of implementation; or
the cumulative impact of a number of proposals would make the adoption of an otherwise satisfactory proposal inappropriate.

3The FRC has established the Accounting Council as the relevant Council to assist it in the setting of accounting standards.

Advice

4The Accounting Council is advising the FRC to issue:

FRS 100 Application of Financial Reporting Requirements; and
FRS 101 Reduced Disclosure Framework.

5FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of Ireland completes the new suite of financial reporting standards. The Accounting Council will provide its advice to the FRC on FRS 102 in that standard.

Background

6Accounting standards were formerly developed by the Accounting Standards Board (ASB). The ASB commenced its project to update accounting standards in 2002; Appendix III provides a history of the previous consultations and a summary of how the overall proposals have developed [^8].

7The ASB (and subsequently the Accounting Council) gave careful consideration to the project's objective and intended effects during its consultations on updating accounting standards. In developing the requirements in this FRS, FRS 101 and FRS 102, the overriding objective is:

To enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users' information needs.

8In achieving this objective, the ASB decided (and the Accounting Council subsequently agreed) that it should provide succinct financial reporting standards that:

have consistency with global accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective;
reflect up-to-date thinking and developments in the way businesses operate and the transactions they undertake;
balance consistent principles for accounting by all UK and Republic of Ireland entities with practical solutions, based on size, complexity, public interest and users' information needs;
promote efficiency within groups; and
are cost-effective to apply.

9The requirements in this FRS were principally consulted on in two exposure drafts; FRED 43 Application of Financial Reporting Requirements issued in October 2010, and FRED 46 Application of Financial Reporting Requirements (revised) issued in January 2012.

A differential financial reporting system and the elimination of 'public accountability'

10In the early stages of developing this FRS, the ASB consulted on whether to introduce a differential financial reporting system. A differential system requires an entity to apply specified accounting standards as prescribed based on the size, nature or other differentiating feature of the entity. FRED 43 set out proposals for a differential financial reporting system based on three tiers of entities using public accountability and size as differentiators. The proposals in FRED 43 would have extended the application of EU-adopted IFRS to those entities with public accountability. Whilst there was some support for a differential financial reporting system, entities that would be required to apply EU-adopted IFRS did not support the proposal, principally on the basis of costs and benefits [^9].

11The ASB gave careful consideration to the concerns raised and concluded that public accountability (and therefore the differential financial reporting system) could be eliminated if it were to extend the proposals by including additional requirements in FRED 44 Financial Reporting Standard for Medium-sized Entities for entities with publicly traded debt or equity, and for financial institutions, so that the proposals in that FRED applied to a broader group of entities. FRED 44 proposed to replace the majority of extant financial reporting standards with a single standard based on the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). As a consequence, FRED 44 was revised and FRED 48 issued, which addressed a broader group of entities including those previously considered to have public accountability, single entities listed on a regulated market, entities listed on a non-regulated market and additional disclosure requirements for financial instruments held by financial institutions.

12Respondents to FRED 46 supported the removal of the public accountability criteria and the Accounting Council agreed to advise the FRC not to extend the application of EU-adopted IFRS beyond that already required by company law or other legislation or regulation.

13Once this FRS becomes effective, there will be five FRSs applicable in the UK and Republic of Ireland:

FRS 100 Application of Financial Reporting Requirements;
FRS 101 Reduced Disclosure Framework;
FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland;
Financial Reporting Standard for Smaller Entities (effective January 2015) (the FRSSE); and
FRS 27 Life assurance [^10].

FRS 101 Reduced disclosure framework

14FRS 101 was developed in response to concerns that arose from earlier consultations (see Appendix III). Respondents to those consultations (and particularly the 2009 Policy Proposal) noted that a move to the IFRS for SMEs for subsidiaries of entities that apply EU-adopted IFRS would require recognition and measurement differences to be monitored and maintained at group level, and yet the alternative of a move to EU-adopted IFRS would increase disclosure in comparison to current accounting standards. The ASB therefore developed a reduced disclosure framework to address these concerns.

15Further details regarding the development of FRS 101 are located in the Accounting Council's Advice to the FRC accompanying that FRS.

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland

16FRS 102 will replace the majority of current accounting standards applicable in the UK and Republic of Ireland with a single FRS based on the IFRS for SMEs. Details of the development of FRS 102 will be set out in the Accounting Council's Advice to the FRC accompanying that FRS. One member of the Accounting Council considers that the level of input from users does not constitute adequate consultation, despite extensive efforts at outreach, and holds an alternative view on aspects of the Accounting Council's expected advice on FRS 102.

The Financial Reporting Standard for Smaller Entities (FRSSE)

17The Accounting Council advises the FRC (consistent with FREDs 43 and 46) to retain the FRSSE for a period following the application of FRS 102, with a view to consulting again on the FRSSE's future in the short to medium term.

18The eligibility criteria for applying the FRSSE are set out in paragraph 8 of the FRSSE. One of the criteria is that the entity must be 'small' as defined in company law. Turnover and balance sheet total should be measured in accordance with the FRSSE for the purposes of establishing whether the entity is 'small'; the measurement of turnover and balance sheet total in accordance with FRS 101 or FRS 102 need not be considered.

19The Accounting Council also advises the FRC to undertake further consultation to address the implications for the FRSSE of:

the European Commission proposals arising from its review of the EU Accounting Directives (an initial proposed Directive was issued in October 2011); and
the Directive on annual accounts of micro-entities that was approved by the European Council in February 2012.

20The amendments to the FRSSE set out in this FRS arise as a consequence of withdrawing current accounting standards.

Statements of Recommended Practice (SORPs)

21In its 2009 Policy Proposal, the ASB's recommendation was to remove almost all of the SORPs. Respondents to the Policy Proposal questioned this and many noted that SORPs contribute to improving the quality of financial reporting in the UK. Instead FRED 43 proposed to streamline the number of SORPs in existence. Respondents to FRED 43 were supportive of this revised proposal. The decision, however, to eliminate the definition of public accountability and thereby broaden the scope of entities eligible to apply FRS 102 had a consequential impact on the SORPs (for example, pension funds would no longer be required to apply EU-adopted IFRS), so the ASB amended its proposals again in FRED 48.

22The proposals in FRED 48 received support and the Accounting Council is now advising the FRC that they be taken forward, as follows:

SORP	Accounting Council Advice
Accounting for insurance business	A separate consultation will be undertaken on accounting for insurance
Accounting for oil & gas	The SORP-making body has indicated that they do not believe that it would make sense to update the 2001 SORP
Authorised funds	Update to be based on FRS 102
Banking segments	Withdraw
Charities	Update to be based on FRS 102
Financial reports of pension funds	Update for consistency with FRS 102 to supplement Section 34 of FRS 102
Further and higher education	Update to be based on FRS 102
Investment companies	Update to be based on FRS 102

Leasing	Withdraw
Limited liability partnerships	Update to be based on FRS 102
Registered social housing providers	Update to be based on FRS 102

23In response to a request for clarification as to the role of the SORPs, the Accounting Council is advising the FRC that a reference to the application of SORPs be included in this FRS and in Section 10 Accounting policies, estimates and errors of FRS 102, to note that they are a source of guidance on accounting policies.

Clarification of equivalence

24FRS 101 and FRS 102 permit certain exemptions from disclosures, which are in some cases subject to equivalent disclosures being included in the consolidated financial statements of the group in which the entity is consolidated. Clarification on interpreting the meaning of the term equivalence is included in Application Guidance I of this FRS.

Withdrawn publications

25Paragraph 14 of this FRS sets out the withdrawal of current accounting standards. For the avoidance of doubt, the Accounting Council (and FRC) will also not proceed with developing the following superseded Financial Reporting Exposure Drafts (FREDs):

Leases: Implementation of a new approach
IASB Exposure draft of a proposed IFRS for small and medium-sized entities (Issued April 2007)
FRED 22 Revision of FRS 3 Reporting financial performance
FRED 28 Inventories: Construction and service contracts
FRED 29 Property, plant and equipment: Borrowing costs
FRED 32 Disposal of non-current assets and presentation of discontinued operations
FRED 36 Business combinations
FRED 37 Intangible assets (IAS 38) and FRED 38 Impairment of assets (IAS 36)
FRED 39 Amendments to FRS 12 Provisions, contingent liabilities and contingent assets and FRS 17 Retirement benefits
FRED 43 Application of Financial Reporting Requirements
FRED 44 The Financial Reporting Standards for Medium-sized Entities
FRED 45 The Financial Reporting Standard for Public Benefit Entities

Effective date and early application

26In reassessing the effective date as proposed in FREDs 46 to 48, the Accounting Council supports the previous view of the ASB that application should be deferred to January 2015 for the following reasons:

although the revisions to the ASB's original proposals should ease the transition, an 18 month period between the publication of the final standard and effective date should be retained as there are significant changes to the accounting requirements for financial instruments; and
the effective date should take into consideration the process of updating the SORPs.

27This decision was reassessed by the Accounting Council when it considered the responses to FREDs 46 to 48. It decided that it was not necessary to have the same early application provisions for FRS 101, FRS 102 and the FRSSE (effective January 2015) and that specific requirements relating to early application should be set out separately in each standard.

Approval of this advice

28This advice to the FRC was approved by the nine members of the Accounting Council on 25 October 2012. The Accounting Council is comprised of the following members:

Roger Marshall (Chair of the Accounting Council)
Nick Anderson
Dr Richard Barker
Edward Beale
Peter Elwin
Ken Lever
Robert Overend
Andy Simmonds
Pauline Wallace

The Accounting Council's Advice to the FRC to issue Amendments to FRS 100

Introduction

1This report provides an overview of the main issues that have been considered by the Accounting Council in advising the Financial Reporting Council (FRC) to issue Amendments to FRS 100 Application of Financial Reporting Requirements incorporating the Council's advice following the Consultation Document Accounting standards for small entities – Implementation of the EU Accounting Directive and FRED 60 Draft amendments to FRS 100 and FRS 101.

2The FRC, in accordance with the Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc) Order 2012 (SI 2012/1741), is a prescribed body for issuing accounting standards in the UK. The Foreword to Accounting Standards sets out the application of accounting standards in the Republic of Ireland.

3In accordance with the FRC Codes and Standards: procedures, any proposal to issue, amend or withdraw a code or standard is put to the FRC Board with the full advice of the relevant Councils and/or the Codes & Standards Committee. Ordinarily, the FRC Board will only reject the advice put to it where:

it is apparent that a significant group of stakeholders has not been adequately consulted;
the necessary assessment of the impact of the proposal has not been completed, including an analysis of costs and benefits;
insufficient consideration has been given to the timing or cost of implementation; or
the cumulative impact of a number of proposals would make the adoption of an otherwise satisfactory proposal inappropriate.

4The FRC has established the Accounting Council as the relevant Council to assist it in the setting of accounting standards.

Advice

5The Accounting Council is advising the FRC to issue Amendments to FRS 100 Application of Financial Reporting Requirements.

6The Accounting Council advises that these proposals will update the framework of accounting standards and maintain consistency of accounting standards with company law.

7The Accounting Council's Advice to the FRC to issue FRS 100 Application of Financial Reporting Requirements was set out in the standard. The Accounting Council's Advice to the FRC in respect of these amendments will be included in the revised FRS 100.

Background

8The new EU Accounting Directive (Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013) is being implemented in the UK and Republic of Ireland. In doing so there are changes to company law to reflect new requirements and, where considered appropriate, to take advantage of new options that are available. Accounting standards are developed within the context of company law and amendments are also required to accounting standards.

9In September 2014, the FRC issued a Consultation Document Accounting standards for small entities – Implementation of the EU Accounting Directive [^11] (the Consultation Document), outlining its proposal that the Financial Reporting Standard for Smaller Entities (FRSSE) would be withdrawn. A small number of amendments to FRS 100 would also be necessary to maintain consistency with company law. The Accounting Council considered the responses to the Consultation Document in developing FRED 60 Draft amendments to FRS 100 and FRS 101. It has also considered the responses to FRED 60, which was issued in February 2015, in developing its advice on these amendments.

Objective

10In developing its advice to the FRC, the Accounting Council was guided by the overriding objective to enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users' information needs.

11In meeting this objective, the FRC aims to provide succinct financial reporting standards that:

have consistency with international accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective;
reflect up-to-date thinking and developments in the way entities operate and the transactions they undertake;
balance consistent principles for accounting by all UK and Republic of Ireland entities with practical solutions, based on size, complexity, public interest and users' information needs;
promote efficiency within groups; and
are cost-effective to apply.

Small entities regime

12In the Consultation Document and FRED 60 the FRC proposed that the FRSSE should be withdrawn and that it should be replaced with:

a new standard for micro-entities, FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime; and
for small entities ineligible for or choosing not to apply the micro-entities regime, it should be replaced with a new Section 1A Small Entities within FRS 102.

This proposal was supported by respondents and the Accounting Council advises that the FRSSE is withdrawn, with consequential amendments made to FRS 100 Application of Financial Reporting Requirements to set out the revised framework.

Other minor amendments

13The Accounting Council advises that other minor amendments are made to FRS 100 for compliance with company law. This principally relates to the Application Guidance: The Interpretation of Equivalence.

14One respondent to FRED 60 requested clarification relating to the meaning of equivalent disclosures included in the consolidated financial statements in relation to intra-group balances eliminated on consolidation. The Accounting Council agreed that this could usefully be clarified whilst amendments were being made to the Application Guidance: The Interpretation of Equivalence and advises that it is made clear that, provided relevant disclosures have been made in the consolidated financial statements, the exemption is permitted when intra-group balances have been eliminated on consolidation. This is, of course, subject to any disclosures that are required by law.

Effective date

15The Accounting Council advises that the amendments to FRS 100 arising from the implementation of the new Accounting Directive are effective for accounting periods beginning on or after 1 January 2016, with early application available providing an entity also applies the edition of FRS 101, FRS 102 or FRS 105 effective for accounting periods beginning on or after 1 January 2016 and subject to the early application provisions set out in those standards.

Approval of this Advice

16This advice to the FRC was approved by the Accounting Council on 4 June 2015.

Appendix I: Glossary


##
###
Foreword to FRS 100
Financial Reporting Standard 100 Application of Financial Reporting Requirements (FRS 100) was issued by the Financial Reporting Council (FRC) in November 2012.
This Foreword to FRS 100 sets out the status and authority of the FRS, and the impact of the May 2015 amendments to FRS 100.
Status of FRS 100
FRS 100 sets out the financial reporting framework for entities that prepare financial statements in accordance with legislation, regulations or accounting standards applicable in the UK and Republic of Ireland. It requires financial statements to be prepared in accordance with either:
* EU-adopted International Financial Reporting Standards (IFRS); or
* FRS 101 Reduced Disclosure Framework; or
* FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102); or
* FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime (FRS 105).

Authority of the FRS The FRC issues accounting standards for the purposes of company law in the UK and Republic of Ireland. This Foreword to FRS 100 has legal status.

FRS 100 is an accounting standard issued by the FRC. It therefore forms part of the framework of accounting standards that apply to entities preparing financial statements in accordance with UK and Republic of Ireland Generally Accepted Accounting Practice (GAAP).

Impact of the May 2015 amendments to FRS 100 The FRC issued Amendments to FRS 100 in May 2015, which introduced a new Section 1A Small Entities to FRS 102. The amendments to FRS 100 also clarified that: * Small entities are permitted to use FRS 102 (including Section 1A Small Entities) or FRS 105. * Entities are only able to apply FRS 105 if they are micro-entities.

This Foreword to FRS 100 was issued by the FRC in May 2015.

Financial Reporting Council

May 2015

For further information please contact the FRC at: 8th Floor, 125 London Wall, London EC2Y 5AS Telephone: +44 (0)20 7492 2300 Email: [email protected] Website: www.frc.org.uk

Appendix II: Note on legal requirements

This appendix provides an overview of how the requirements in FRS 100 address United Kingdom company law requirements. It is therefore written from the perspective of a company to which the Companies Act 2006 applies.

Many entities that are not constituted as companies apply accounting standards promulgated by the FRC for the purposes of preparing financial statements that present a true and fair view. A brief consideration of the legal framework for some other entities can be found at A2.20 and A2.21. For those entities that are within the scope of a SORP, the relevant SORP may provide more details on the legal framework.

References to the Act in this appendix are to the Companies Act 2006. References to the Regulations are to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410).

Applicable accounting framework

Group accounts of certain parent entities (those with securities admitted for trading on a regulated market in an EU Member State) are required by Article 4 of EU Regulation 1606/2002 (IAS Regulation) to be prepared in accordance with EU-adopted IFRS.

All other entities, except those that are eligible and choose to apply FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime, must apply either FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, EU-adopted IFRS or, for financial statements that are the individual financial statements of a qualifying entity, FRS 101 Reduced Disclosure Framework [^15].

Section 395(1) of the Act states:

"A company's individual accounts may be prepared—

in accordance with section 396 (“Companies Act individual accounts"), or
in accordance with international accounting standards (“IAS individual accounts")."

Section 403(2) of the Act states:

"The group accounts of other companies may be prepared—

in accordance with section 404 (“Companies Act group accounts"), or
in accordance with international accounting standards (“IAS group accounts")."

Accounts prepared in accordance with EU-adopted IFRS are therefore within the scope of the IAS Regulation. All other accounts are classified as either 'Companies Act individual accounts', including those of qualifying entities applying FRS 101, or 'Companies Act group accounts' and are therefore required to comply with the applicable provisions of Parts 15 and 16 of the Act and with the Regulations.

Financial reporting by small entities

The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008 (SI 2008/409) set out the legal framework for both the micro-entities regime and the small companies regime, with the eligibility criteria for both set out in Part 15 of the Act. FRS 105 and FRS 102 contain notes on legal requirements applicable to these regimes.

[Deleted]

Financial reporting by charitable companies

Section 395(2) of the Act states that 'the individual accounts of a company that is a charity must be Companies Act individual accounts', and section 403(3) of the Act mirrors this for a parent company that is a charity.

Moving between IAS accounts and Companies Act accounts

Sections 395 and 403 of the Act restrict an entity's ability to move from preparing IAS individual accounts to preparing Companies Act individual accounts and from preparing IAS group accounts to preparing Companies Act group accounts respectively. A company or group is permitted to switch from IAS accounts to Companies Act accounts preparation:

if there is a 'relevant change in circumstance' (as defined in the Act); or
for financial years ending on or after 1 October 2012, for a reason other than a relevant change of circumstance, once in a five year period [^16].

For example, provided the condition in section 395(4A) is met, a subsidiary company which previously prepared IAS individual accounts is permitted to move to preparing Companies Act individual accounts in applying FRS 101 or FRS 102, providing it is also complying with other requirements of the Act, such as those relating to consistency of financial reporting within groups.

Consistency of financial reporting within groups

Section 407 of the Act requires that the directors of the parent company secure that individual accounts of a parent company and each of its subsidiaries [^17] are prepared using the same financial reporting framework, except to the extent that in the directors' opinion there are good reasons for not doing so.

In addition, consistency is not required in the following situations:

when the parent company does not prepare consolidated accounts; or
when some subsidiaries are charities (consistency is not needed between the framework used for these and for other subsidiaries).

Where the directors of a parent company prepare IAS group accounts and IAS individual accounts, there only has to be consistency across the individual financial statements of the subsidiaries.

All companies, other than those which elect or are required to prepare IAS individual accounts in accordance with law, prepare Companies Act individual accounts.

Applicability of UK company law to entities preparing IAS accounts

Entities that prepare IAS accounts, either voluntarily or because they are required to do so by law, only need apply certain sections of the Act as it relates to financial reporting. They are not required to comply with Schedules 1 and 6 to the Regulations (for companies and groups), nor with Schedules 2 or 3 (for banks and insurance companies). Schedules 4, 5, 7 and 8 to the Regulations are, however, still applicable.

The sections of parts 15 and 16 of the Act that contain financial reporting requirements applying to IAS accounts, as well as to Companies Act accounts, are as follows (in some cases the requirements only apply to companies meeting certain criteria):

Section 410A	Off-balance sheet arrangements;
Section 411	Employee numbers and costs;
Section 412	Directors' benefits: Remuneration;
Section 413	Directors' benefits: Advances, credit and guarantees;
Sections 414A to 414D	Strategic Report;
Sections 415 to 419	Directors' Report;
Sections 420 to 421	Directors' Remuneration Report; and
Section 494	Services provided by auditor and associates and related remuneration.

Entities not subject to company law

Many entities that may apply FRS 102 are not companies, but are nevertheless required by their governing legislation or other regulation or requirement, to prepare financial statements that present a true and fair view of the financial performance and financial position of the reporting entity. However, the FRC sets accounting standards within the framework of the Act and therefore it is the company law requirements that the FRC primarily considered when developing FRS 102. Entities preparing financial statements within other legal frameworks will need to satisfy themselves that FRS 102 does not conflict with any relevant legal obligations.

However, the FRC notes the following:

Legislation	Overview of requirements
## A2.3 The terms Accounting Directive, Act, date of transition, EU-adopted IFRS, financial institution, FRS 100, FRS 101, FRS 102, FRS 105, IAS Regulation, IFRS, individual financial statements, public benefit entity, qualifying entity, small entity and SORP are defined in the glossary included as Appendix I to this FRS.

Basis of preparation of financial statements

4Financial statements (whether consolidated financial statements or individual financial statements) that are within the scope of this FRS, and that are not required by the IAS Regulation or other legislation or regulation to be prepared in accordance with EU-adopted IFRS, must be prepared in accordance with the following requirements:

If the financial statements are those of an entity that is eligible to apply FRS 105 [^2], they may be prepared in accordance with that standard;
If the financial statements are those of an entity that is not eligible to apply FRS 105, or of an entity that is eligible to apply FRS 105 but chooses not to do so, they must [^3] be prepared in accordance with FRS 102, EU-adopted IFRS [^4] or, if the financial statements are the individual financial statements of a qualifying entity, FRS 101 [^5].

Application of statements of recommended practice (SORPs)

5If an entity's financial statements are prepared in accordance with FRS 102 SORPs will apply in the circumstances set out in that FRS.

6When a SORP applies, an entity, other than a small entity applying the small entities regime in FRS 102, shall state in its financial statements the title of the SORP and whether its financial statements have been prepared in accordance with the SORP's provisions that are currently in effect [^6]. In the event of a departure from those provisions, the entity shall give a brief description of how the financial statements depart from the recommended practice set out in the SORP, which shall include:

for any treatment that is not in accordance with the SORP, the reasons why the treatment adopted is judged more appropriate to the entity's particular circumstances; and
brief details of any disclosures recommended by the SORP that have not been provided, and the reasons why they have not been provided.

A small entity applying the small entities regime in FRS 102 is encouraged to provide these disclosures.

7SORPs recommend particular accounting treatments and disclosures with the aim of narrowing areas of difference and variety between comparable entities. Compliance with a SORP that has been generally accepted by an industry or sector leads to enhanced comparability between the financial statements of entities in that industry or sector. Comparability is further enhanced if users are made aware of the extent to which an entity complies with a SORP, and the reasons for any departures. The effect of a departure from a SORP need not be quantified, except in those rare cases where such quantification is necessary for the entity's financial statements to give a true and fair view.

8Entities whose financial statements do not fall within the scope of a SORP may, if the SORP is otherwise relevant to them, nevertheless choose to comply with the SORP's recommendations when preparing financial statements, provided that the SORP does not conflict with the requirements of the framework adopted. Where this is the case, entities are encouraged to disclose that fact.

Statement of compliance

9Where an entity prepares its financial statements in accordance with FRS 101 or FRS 102, it shall include a statement of compliance in the notes to the financial statements in accordance with the requirements set out in the relevant standard unless it is a small entity applying the small entities regime in FRS 102, in which case it is encouraged to include a statement of compliance in the notes to the financial statements.

Date from which effective and transitional arrangements

10An entity shall apply this FRS for accounting periods beginning on or after 1 January 2016. Early application of this FRS is permitted, providing an entity also applies the edition of FRS 101, FRS 102 and FRS 105 effective for accounting periods beginning on or after 1 January 2016 and is subject to the early application provisions set out in those standards. An entity choosing not to apply these amendments to accounting periods beginning before 1 January 2016 shall not adopt the associated amendments made to FRS 101, FRS 102 nor FRS 105 to accounting periods beginning before 1 January 2016. If an entity applies this FRS before 1 January 2016 it shall disclose that fact, unless the entity is a micro-entity or a small entity. A small entity is encouraged to provide this disclosure.

11On first-time application of this FRS, or when an entity changes the basis of preparation of its financial statements within the requirements of this FRS, it shall apply the transitional arrangements relevant to its circumstances as follows:

An entity transitioning to EU-adopted IFRS shall apply the transitional arrangements set out in IFRS 1 First-time Adoption of International Financial Reporting Standards as adopted by the EU.
A qualifying entity transitioning to FRS 101 shall, unless it is applying EU-adopted IFRS prior to the date of transition (see paragraph 12), apply the requirements of paragraphs 6 to 33 of IFRS 1 as adopted by the EU including the relevant appendices except for the requirement of paragraphs 6 and 21 to present an opening statement of financial position at the date of transition; references to IFRSs in IFRS 1 are interpreted to mean EU-adopted IFRS as amended in accordance with paragraph 5(b) of FRS 101.
An entity transitioning to FRS 102 shall apply the transitional arrangements set out in that standard.
An entity transitioning to FRS 105 shall apply the transitional arrangements set out in FRS 105.

12A qualifying entity applying EU-adopted IFRS prior to the date of transition to FRS 101 will then be preparing Companies Act individual accounts in accordance with section 395(1)(a) of the Act and thus will no longer be preparing IAS individual accounts in accordance with section 395(1)(b) of the Act. It shall consider whether amendments are required to comply with paragraph 5(b) of FRS 101, but it does not reapply the provisions of IFRS 1. Where amendments to the recognition, measurement and disclosure requirements of EU-adopted IFRS in accordance with paragraph 5(b) of FRS 101 are required, the entity shall determine whether the amendments have a material effect on the first financial statements presented. Where there is:

no material effect, the qualifying entity shall disclose that it has undergone transition to FRS 101 and a brief narrative of the disclosure exemptions adopted, for all periods presented; or
a material effect, the qualifying entity's first financial statements shall include:
1. a description of the nature of each material change in accounting policy;
2. reconciliations of its equity determined in accordance with EU-adopted IFRS to its equity determined in accordance with FRS 101 for both the date of transition to FRS 101 and for the end of the latest period presented in the entity's most recent annual financial statements prepared in accordance with EU-adopted IFRS; and
3. a reconciliation of the profit or loss determined in accordance with EU-adopted IFRS to its profit or loss determined in accordance with FRS 101 for the latest period presented in the entity's most recent annual financial statements prepared in accordance with EU-adopted IFRS.

13Where paragraph 12(b) applies but it is impracticable to apply the amendments retrospectively, a qualifying entity shall apply the amendments to the earliest period for which it is practicable to do so, and it shall identify the data presented for prior periods that are not comparable with data for the period in which it prepares its first financial statements that conform with the reduced disclosure framework set out in FRS 101 [^7].

Withdrawal of current accounting standards

14The following SSAPs, FRSs and UITF Abstracts are superseded on the early application of this FRS. These SSAPs, FRSs and UITF Abstracts will be withdrawn for accounting periods beginning on or after 1 January 2015.


SSAP 4	Accounting for government grants;
SSAP 5	Accounting for value added tax;
SSAP 9	Stocks and long-term contracts;
SSAP 13	Accounting for research and development;
SSAP 19	Accounting for investment properties;
SSAP 20	Foreign currency translation;
SSAP 21	Accounting for leases and hire purchase contracts; including the Guidance Notes on SSAP 21;
SSAP 25	Segmental reporting;
FRS 1	Cash flow statements (revised 1996);
FRS 2	Accounting for subsidiary undertakings;
FRS 3	Reporting financial performance;
FRS 4	Capital instruments;
FRS 5	Reporting the substance of transactions;
FRS 6	Acquisitions and mergers;
FRS 7	Fair values in acquisition accounting;
FRS 8	Related party disclosures;
FRS 9	Associates and joint ventures;
FRS 10	Goodwill and intangible assets;
FRS 11	Impairment of fixed assets and goodwill;
FRS 12	Provisions, contingent liabilities and contingent assets;
FRS 13	Derivatives and other financial instruments: disclosures;
FRS 15	Tangible fixed assets;
FRS 16	Current tax;
FRS 17	Retirement benefits;
FRS 18	Accounting policies;
FRS 19	Deferred tax;
FRS 20 (IFRS 2)	Share-based payment;
FRS 21 (IAS 10)	Events after the balance sheet date;
FRS 22 (IAS 33)	Earnings per share;
FRS 23 (IAS 21)	The effects of changes in foreign exchange rates;
FRS 24 (IAS 29)	Financial reporting in hyperinflationary economies;
FRS 25 (IAS 32)	Financial instruments: Presentation;
FRS 26 (IAS 39)	Financial instruments: Recognition and Measurement;
FRS 27	Life Assurance;
FRS 28	Corresponding amounts;
FRS 29 (IFRS 7)	Financial instruments: Disclosures;
FRS 30	Heritage assets;
UITF Abstract 4:	Presentation of long-term debtors in current assets;
UITF Abstract 5:	Transfers from current assets to fixed assets;
UITF Abstract 9:	Accounting for operations in hyper-inflationary economies;
UITF Abstract 11:	Capital instruments: Issuer call options;
UITF Abstract 15:	Disclosure of substantial acquisitions (Revised 1999);
UITF Abstract 19:	Tax on gains and losses on foreign currency borrowings that hedge an investment in a foreign enterprise;
UITF Abstract 21:	Accounting issues arising from the proposed introduction of the euro;
UITF Abstract 22:	The acquisition of a Lloyd's business;
UITF Abstract 23:	Application of the transitional rules in FRS 15;
UITF Abstract 24:	Accounting for start-up costs;
UITF Abstract 25:	National Insurance contributions on share option gains;
UITF Abstract 26:	Barter transactions for advertising;
UITF Abstract 27:	Revision to estimates of the useful economic life of goodwill and intangible assets;
UITF Abstract 28:	Operating lease incentives;
UITF Abstract 29:	Website development costs;
UITF Abstract 31:	Exchanges of businesses or other non-monetary assets for an interest in a subsidiary, joint venture or associate;
UITF Abstract 32:	Employee benefit trusts and other intermediate payment arrangements;
UITF Abstract 34:	Pre-contract costs;
UITF Abstract 35:	Death-in-service and incapacity benefits;
UITF Abstract 36:	Contracts for sales of capacity;
UITF Abstract 38:	Accounting for ESOP trusts;
UITF Abstract 39:	(IFRIC Interpretation 2) Members' shares in co-operative entities and similar instruments;
UITF Abstract 40:	Revenue recognition and service contracts;
UITF Abstract 41:	(IFRIC Interpretation 8) Scope of FRS 20 (IFRS 2);
UITF Abstract 42:	(IFRIC Interpretation 9) Reassessment of embedded derivatives;
UITF Abstract 43:	The interpretation of equivalence for the purposes of section 228A of the Companies Act 1985;
UITF Abstract 44:	(IFRIC Interpretation 11) FRS 20 (IFRS 2) Group and Treasury Share Transactions;
UITF Abstract 45:	(IFRIC Interpretation 6) Liabilities arising from participating in a specific market – Waste electrical and electronic equipment;
UITF Abstract 46:	(IFRIC Interpretation 16) Hedges of a net investment in a foreign operation;
UITF Abstract 47:	(IFRIC Interpretation 19) Extinguishing financial liabilities with equity instruments; and
UITF Abstract 48:	Accounting implications of the replacement of the retail prices index with the consumer prices index for retirement benefits.

15The following statements are also withdrawn:

Statement of Principles for Financial Reporting;
Statement of Principles for Financial Reporting – Interpretation for public benefit entities;
Reporting Statement: Retirement Benefits – Disclosures;
Reporting Statement: Preliminary announcements; and
Reporting Statement: Half-yearly financial reports.

15AThe Financial Reporting Standard for Smaller Entities (effective January 2015) (FRSSE) is superseded on the early application of the amendments set out in Amendments to FRS 100 (and the related amendments to other accounting standards, particularly FRS 102 and FRS 105) issued in July 2015 and the early application of The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (SI 2015/980) and is withdrawn for accounting periods beginning on or after 1 January 2016.

16. Application Guidance: The Interpretation of Equivalence

This application guidance forms an integral part of FRS 100

Introduction

AG1Section 401 of the Act exempts, subject to certain conditions, an intermediate parent from the requirement to prepare consolidated financial statements where its parent is not established under the law of an EEA state. The exemption is conditional on the company and all of its subsidiaries being included in consolidated financial statements for a larger group drawn up to the same date, or an earlier date in the same financial year, and those financial statements must be drawn up:

in accordance with, or in a manner that is equivalent to, the Accounting Directive (Section 401(2)(b)(i) and (ii));
in accordance with EU-adopted IFRS (Section 401(2)(b)(iii)); or
in accordance with accounting standards which are equivalent to EU-adopted IFRS, as determined in accordance with the EU mechanism (see paragraph AG7) (Section 401(2)(b)(iv)).

AG2FRS 101 and FRS 102 permit certain exemptions from disclosures, but those exemptions are in some cases subject to equivalent disclosures being included in the consolidated financial statements of the group in which the entity is consolidated.

AG3This Application Guidance provides guidance on interpreting the meaning of equivalence in the two circumstances set out above.

Section 401 of the Companies Act 2006

AG4Use of the exemption in section 401(2)(b)(ii) requires an analysis of a particular set of consolidated financial statements to determine whether they are drawn up in a manner equivalent to consolidated financial statements that are drawn up in accordance with the Accounting Directive. This Application Guidance aims to assist entities in adopting a consistent approach to this issue. In the absence of this guidance, companies and their auditors might feel obliged to take an overly cautious approach in response to uncertainty about whether the exemptions can be used.

AG5It is generally accepted that the reference to equivalence in section 401(2)(b)(ii) of the Act does not mean compliance with every detail of the Accounting Directive. When assessing whether consolidated financial statements of a higher non-EEA parent are drawn up in a manner equivalent to consolidated financial statements drawn up in accordance with the Accounting Directive, it is necessary to consider whether they meet the basic requirements of the Accounting Directive; in particular the requirement to give a true and fair view, without implying strict conformity with each and every provision. A qualitative approach is more in keeping with the deregulatory nature of the exemption than a requirement to consider the detailed requirements on a checklist basis.

AG6The consequences of the exemptions in section 401(2)(b) and adopting the principle in paragraph AG5 in relation to section 401(2)(b)(ii) are that consolidated financial statements of the higher parent will meet the exemption or the test of equivalence in the Accounting Directive if they are intended to give a true and fair view and:

are prepared in accordance with FRS 102;
are prepared in accordance with EU-adopted IFRS;
are prepared in accordance with IFRS, subject to the consideration of the reasons for any failure by the European Commission to adopt a standard or interpretation; or
are prepared using other GAAPs which are closely related to IFRS, subject to consideration of the effect of any differences from EU-adopted IFRS.

Consolidated financial statements of the higher parent prepared using other GAAPs or the IFRS for SMEs should be assessed for equivalence with the Accounting Directive based on the particular facts, including the similarities to and differences from the Accounting Directive.

AG7A mechanism to determine the equivalence of the Generally Accepted Accounting Principles (GAAP) from third countries was established in 2007. Subsequently, the European Commission has identified as equivalent to IFRS the following:

GAAP	Applicable from
GAAP of Japan	1 January 2009
GAAP of the United States of America	1 January 2009
GAAP of the People's Republic of China	1 January 2012
GAAP of Canada	1 January 2012
GAAP of the Republic of Korea	1 January 2012

Further, third country issuers shall be permitted to prepare their annual consolidated financial statements and half-yearly consolidated financial statements in accordance with the Generally Accepted Accounting Principles of the Republic of India for financial years starting before 1 January 2015. For reporting periods beginning on or after 1 January 2015, in relation to GAAP of the Republic of India, equivalence should be assessed on the basis of the particular facts.

Equivalent disclosures are included in the consolidated financial statements of the group

AG8In deciding whether the consolidated financial statements of the parent provide disclosures which are equivalent to the requirements of EU-adopted IFRS or FRS 102, from which relief is provided in paragraphs 8 to 9 of FRS 101 and paragraphs 1.12 to 1.13 of FRS 102 respectively, it is necessary to consider whether the consolidated financial statements of the parent provide disclosures that meet the basic disclosure requirements of the relevant standard or interpretation issued (or adopted) by the relevant standard setter, without requiring strict conformity with each and every disclosure. This assessment should be based on the particular facts, including the similarities to and differences from the requirements of the relevant standard from which relief is provided.

AG9The concept of 'equivalence' described in paragraph AG8 is intended to be aligned to that described for section 401 of the Act.

AG10Disclosure exemptions for subsidiaries are permitted where the relevant disclosure requirements are met in the consolidated financial statements, even where the disclosures are made in aggregate or in an abbreviated form, or in relation to intra-group balances, those intra-group balances have been eliminated on consolidation. If, however, no disclosure is made in the consolidated financial statements on the grounds of materiality, the relevant disclosures should be made at the subsidiary level if material in those financial statements.

17. Approval by the FRC

Financial Reporting Standard 100 Application of Financial Reporting Requirements was approved for issue by the Board of the Financial Reporting Council on 1 November 2012, following its consideration of the Accounting Council's advice for this FRS.

Amendments to FRS 100 Application of Financial Reporting Requirements was approved for issue by the Board of the Financial Reporting Council on 1 July 2015, following its consideration of the Accounting Council's Advice.

18. The Accounting Council's Advice to the FRC to issue FRS 100

Introduction

1This report provides an overview of the main issues which have been considered by the Accounting Council in advising the Financial Reporting Council (FRC) to issue FRS 100 Application of Financial Reporting Requirements. The FRC, in accordance with the Statutory Instrument Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc) Order 2012 (SI 2012/1741), is the prescribed body for issuing accounting standards in the UK. The Foreword to Accounting Standards sets out the application of accounting standards in the Republic of Ireland.

2In accordance with FRC Codes and Standards: procedures, any proposal to issue, amend or withdraw a code or standard is put to the FRC with the full advice of the relevant Councils and/or the Codes & Standards Committee. Ordinarily, the FRC will only reject the advice put to it where:

it is apparent that a significant group of stakeholders has not been adequately consulted;
the necessary assessment of the impact of the proposal has not been completed, including an analysis of costs and benefits;
insufficient consideration has been given to the timing or cost of implementation; or
the cumulative impact of a number of proposals would make the adoption of an otherwise satisfactory proposal inappropriate.

3The FRC has established the Accounting Council as the relevant Council to assist it in the setting of accounting standards.

Advice

4The Accounting Council is advising the FRC to issue:

FRS 100 Application of Financial Reporting Requirements; and
FRS 101 Reduced Disclosure Framework.

5FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of Ireland completes the new suite of financial reporting standards. The Accounting Council will provide its advice to the FRC on FRS 102 in that standard.

Background

6Accounting standards were formerly developed by the Accounting Standards Board (ASB). The ASB commenced its project to update accounting standards in 2002; Appendix III provides a history of the previous consultations and a summary of how the overall proposals have developed [^8].

7The ASB (and subsequently the Accounting Council) gave careful consideration to the project's objective and intended effects during its consultations on updating accounting standards. In developing the requirements in this FRS, FRS 101 and FRS 102, the overriding objective is:

To enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users' information needs.

8In achieving this objective, the ASB decided (and the Accounting Council subsequently agreed) that it should provide succinct financial reporting standards that:

have consistency with global accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective;
reflect up-to-date thinking and developments in the way businesses operate and the transactions they undertake;
balance consistent principles for accounting by all UK and Republic of Ireland entities with practical solutions, based on size, complexity, public interest and users' information needs;
promote efficiency within groups; and
are cost-effective to apply.

9The requirements in this FRS were principally consulted on in two exposure drafts; FRED 43 Application of Financial Reporting Requirements issued in October 2010, and FRED 46 Application of Financial Reporting Requirements (revised) issued in January 2012.

A differential financial reporting system and the elimination of 'public accountability'

10In the early stages of developing this FRS, the ASB consulted on whether to introduce a differential financial reporting system. A differential system requires an entity to apply specified accounting standards as prescribed based on the size, nature or other differentiating feature of the entity. FRED 43 set out proposals for a differential financial reporting system based on three tiers of entities using public accountability and size as differentiators. The proposals in FRED 43 would have extended the application of EU-adopted IFRS to those entities with public accountability. Whilst there was some support for a differential financial reporting system, entities that would be required to apply EU-adopted IFRS did not support the proposal, principally on the basis of costs and benefits [^9].

11The ASB gave careful consideration to the concerns raised and concluded that public accountability (and therefore the differential financial reporting system) could be eliminated if it were to extend the proposals by including additional requirements in FRED 44 Financial Reporting Standard for Medium-sized Entities for entities with publicly traded debt or equity, and for financial institutions, so that the proposals in that FRED applied to a broader group of entities. FRED 44 proposed to replace the majority of extant financial reporting standards with a single standard based on the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). As a consequence, FRED 44 was revised and FRED 48 issued, which addressed a broader group of entities including those previously considered to have public accountability, single entities listed on a regulated market, entities listed on a non-regulated market and additional disclosure requirements for financial instruments held by financial institutions.

12Respondents to FRED 46 supported the removal of the public accountability criteria and the Accounting Council agreed to advise the FRC not to extend the application of EU-adopted IFRS beyond that already required by company law or other legislation or regulation.

13Once this FRS becomes effective, there will be five FRSs applicable in the UK and Republic of Ireland:

FRS 100 Application of Financial Reporting Requirements;
FRS 101 Reduced Disclosure Framework;
FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland;
Financial Reporting Standard for Smaller Entities (effective January 2015) (the FRSSE); and
FRS 27 Life assurance [^10].

FRS 101 Reduced disclosure framework

14FRS 101 was developed in response to concerns that arose from earlier consultations (see Appendix III). Respondents to those consultations (and particularly the 2009 Policy Proposal) noted that a move to the IFRS for SMEs for subsidiaries of entities that apply EU-adopted IFRS would require recognition and measurement differences to be monitored and maintained at group level, and yet the alternative of a move to EU-adopted IFRS would increase disclosure in comparison to current accounting standards. The ASB therefore developed a reduced disclosure framework to address these concerns.

15Further details regarding the development of FRS 101 are located in the Accounting Council's Advice to the FRC accompanying that FRS.

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland

16FRS 102 will replace the majority of current accounting standards applicable in the UK and Republic of Ireland with a single FRS based on the IFRS for SMEs. Details of the development of FRS 102 will be set out in the Accounting Council's Advice to the FRC accompanying that FRS. One member of the Accounting Council considers that the level of input from users does not constitute adequate consultation, despite extensive efforts at outreach, and holds an alternative view on aspects of the Accounting Council's expected advice on FRS 102.

The Financial Reporting Standard for Smaller Entities (FRSSE)

17The Accounting Council advises the FRC (consistent with FREDs 43 and 46) to retain the FRSSE for a period following the application of FRS 102, with a view to consulting again on the FRSSE's future in the short to medium term.

18The eligibility criteria for applying the FRSSE are set out in paragraph 8 of the FRSSE. One of the criteria is that the entity must be 'small' as defined in company law. Turnover and balance sheet total should be measured in accordance with the FRSSE for the purposes of establishing whether the entity is 'small'; the measurement of turnover and balance sheet total in accordance with FRS 101 or FRS 102 need not be considered.

19The Accounting Council also advises the FRC to undertake further consultation to address the implications for the FRSSE of:

the European Commission proposals arising from its review of the EU Accounting Directives (an initial proposed Directive was issued in October 2011); and
the Directive on annual accounts of micro-entities that was approved by the European Council in February 2012.

20The amendments to the FRSSE set out in this FRS arise as a consequence of withdrawing current accounting standards.

Statements of Recommended Practice (SORPs)

21In its 2009 Policy Proposal, the ASB's recommendation was to remove almost all of the SORPs. Respondents to the Policy Proposal questioned this and many noted that SORPs contribute to improving the quality of financial reporting in the UK. Instead FRED 43 proposed to streamline the number of SORPs in existence. Respondents to FRED 43 were supportive of this revised proposal. The decision, however, to eliminate the definition of public accountability and thereby broaden the scope of entities eligible to apply FRS 102 had a consequential impact on the SORPs (for example, pension funds would no longer be required to apply EU-adopted IFRS), so the ASB amended its proposals again in FRED 48.

22The proposals in FRED 48 received support and the Accounting Council is now advising the FRC that they be taken forward, as follows:

SORP	Accounting Council Advice
Accounting for insurance business	A separate consultation will be undertaken on accounting for insurance
Accounting for oil & gas	The SORP-making body has indicated that they do not believe that it would make sense to update the 2001 SORP
Authorised funds	Update to be based on FRS 102
Banking segments	Withdraw
Charities	Update to be based on FRS 102
Financial reports of pension funds	Update for consistency with FRS 102 to supplement Section 34 of FRS 102
Further and higher education	Update to be based on FRS 102
Investment companies	Update to be based on FRS 102

Leasing	Withdraw
Limited liability partnerships	Update to be based on FRS 102
Registered social housing providers	Update to be based on FRS 102

23In response to a request for clarification as to the role of the SORPs, the Accounting Council is advising the FRC that a reference to the application of SORPs be included in this FRS and in Section 10 Accounting policies, estimates and errors of FRS 102, to note that they are a source of guidance on accounting policies.

Clarification of equivalence

24FRS 101 and FRS 102 permit certain exemptions from disclosures, which are in some cases subject to equivalent disclosures being included in the consolidated financial statements of the group in which the entity is consolidated. Clarification on interpreting the meaning of the term equivalence is included in Application Guidance I of this FRS.

Withdrawn publications

25Paragraph 14 of this FRS sets out the withdrawal of current accounting standards. For the avoidance of doubt, the Accounting Council (and FRC) will also not proceed with developing the following superseded Financial Reporting Exposure Drafts (FREDs):

Leases: Implementation of a new approach
IASB Exposure draft of a proposed IFRS for small and medium-sized entities (Issued April 2007)
FRED 22 Revision of FRS 3 Reporting financial performance
FRED 28 Inventories: Construction and service contracts
FRED 29 Property, plant and equipment: Borrowing costs
FRED 32 Disposal of non-current assets and presentation of discontinued operations
FRED 36 Business combinations
FRED 37 Intangible assets (IAS 38) and FRED 38 Impairment of assets (IAS 36)
FRED 39 Amendments to FRS 12 Provisions, contingent liabilities and contingent assets and FRS 17 Retirement benefits
FRED 43 Application of Financial Reporting Requirements
FRED 44 The Financial Reporting Standards for Medium-sized Entities
FRED 45 The Financial Reporting Standard for Public Benefit Entities

Effective date and early application

26In reassessing the effective date as proposed in FREDs 46 to 48, the Accounting Council supports the previous view of the ASB that application should be deferred to January 2015 for the following reasons:

although the revisions to the ASB's original proposals should ease the transition, an 18 month period between the publication of the final standard and effective date should be retained as there are significant changes to the accounting requirements for financial instruments; and
the effective date should take into consideration the process of updating the SORPs.

27This decision was reassessed by the Accounting Council when it considered the responses to FREDs 46 to 48. It decided that it was not necessary to have the same early application provisions for FRS 101, FRS 102 and the FRSSE (effective January 2015) and that specific requirements relating to early application should be set out separately in each standard.

Approval of this advice

28This advice to the FRC was approved by the nine members of the Accounting Council on 25 October 2012. The Accounting Council is comprised of the following members:

Roger Marshall (Chair of the Accounting Council)
Nick Anderson
Dr Richard Barker
Edward Beale
Peter Elwin
Ken Lever
Robert Overend
Andy Simmonds
Pauline Wallace

Appendix II: Note on legal requirements

Introduction

A2.1This appendix provides an overview of how the requirements in FRS 100 address United Kingdom company law requirements. It is therefore written from the perspective of a company to which the Companies Act 2006 applies [^14]. Appendix IV discusses the Republic of Ireland legal references.

A2.2Many entities that are not constituted as companies apply accounting standards promulgated by the FRC for the purposes of preparing financial statements that present a true and fair view. A brief consideration of the legal framework for some other entities can be found at A2.20 and A2.21. For those entities that are within the scope of a SORP, the relevant SORP may provide more details on the legal framework.

A2.3References to the Act in this appendix are to the Companies Act 2006. References to the Regulations are to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410).

Applicable accounting framework

A2.4Group accounts of certain parent entities (those with securities admitted for trading on a regulated market in an EU Member State) are required by Article 4 of EU Regulation 1606/2002 (IAS Regulation) to be prepared in accordance with EU-adopted IFRS.

A2.5All other entities, except those that are eligible and choose to apply FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime, must apply either FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, EU-adopted IFRS or, for financial statements that are the individual financial statements of a qualifying entity, FRS 101 Reduced Disclosure Framework [^15].

A2.6Section 395(1) of the Act states:

"A company's individual accounts may be prepared—

in accordance with section 396 (“Companies Act individual accounts"), or
in accordance with international accounting standards (“IAS individual accounts")."

Section 403(2) of the Act states:

"The group accounts of other companies may be prepared—

in accordance with section 404 (“Companies Act group accounts"), or
in accordance with international accounting standards (“IAS group accounts")."

A2.7Accounts prepared in accordance with EU-adopted IFRS are therefore within the scope of the IAS Regulation. All other accounts are classified as either 'Companies Act individual accounts', including those of qualifying entities applying FRS 101, or 'Companies Act group accounts' and are therefore required to comply with the applicable provisions of Parts 15 and 16 of the Act and with the Regulations.

Financial reporting by small entities

A2.8The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008 (SI 2008/409) set out the legal framework for both the micro-entities regime and the small companies regime, with the eligibility criteria for both set out in Part 15 of the Act. FRS 105 and FRS 102 contain notes on legal requirements applicable to these regimes.

A2.9[Deleted]

A2.10[Deleted]

A2.11[Deleted]

A2.12[Deleted]

Financial reporting by charitable companies

A2.13Section 395(2) of the Act states that 'the individual accounts of a company that is a charity must be Companies Act individual accounts', and section 403(3) of the Act mirrors this for a parent company that is a charity.

Moving between IAS accounts and Companies Act accounts

A2.14Sections 395 and 403 of the Act restrict an entity's ability to move from preparing IAS individual accounts to preparing Companies Act individual accounts and from preparing IAS group accounts to preparing Companies Act group accounts respectively. A company or group is permitted to switch from IAS accounts to Companies Act accounts preparation:

if there is a 'relevant change in circumstance' (as defined in the Act); or
for financial years ending on or after 1 October 2012, for a reason other than a relevant change of circumstance, once in a five year period [^16].

A2.15For example, provided the condition in section 395(4A) is met, a subsidiary company which previously prepared IAS individual accounts is permitted to move to preparing Companies Act individual accounts in applying FRS 101 or FRS 102, providing it is also complying with other requirements of the Act, such as those relating to consistency of financial reporting within groups.

Consistency of financial reporting within groups

A2.16Section 407 of the Act requires that the directors of the parent company secure that individual accounts of a parent company and each of its subsidiaries [^17] are prepared using the same financial reporting framework, except to the extent that in the directors' opinion there are good reasons for not doing so.

In addition, consistency is not required in the following situations:

when the parent company does not prepare consolidated accounts; or
when some subsidiaries are charities (consistency is not needed between the framework used for these and for other subsidiaries).

Where the directors of a parent company prepare IAS group accounts and IAS individual accounts, there only has to be consistency across the individual financial statements of the subsidiaries.

A2.17All companies, other than those which elect or are required to prepare IAS individual accounts in accordance with law, prepare Companies Act individual accounts.

Applicability of UK company law to entities preparing IAS accounts

A2.18Entities that prepare IAS accounts, either voluntarily or because they are required to do so by law, only need apply certain sections of the Act as it relates to financial reporting. They are not required to comply with Schedules 1 and 6 to the Regulations (for companies and groups), nor with Schedules 2 or 3 (for banks and insurance companies). Schedules 4, 5, 7 and 8 to the Regulations are, however, still applicable.

A2.19The sections of parts 15 and 16 of the Act that contain financial reporting requirements applying to IAS accounts, as well as to Companies Act accounts, are as follows (in some cases the requirements only apply to companies meeting certain criteria):

Section 410A	Off-balance sheet arrangements;
Section 411	Employee numbers and costs;
Section 412	Directors' benefits: Remuneration;
Section 413	Directors' benefits: Advances, credit and guarantees;
Sections 414A to 414D	Strategic Report;
Sections 415 to 419	Directors' Report;
Sections 420 to 421	Directors' Remuneration Report; and
Section 494	Services provided by auditor and associates and related remuneration.

Entities not subject to company law

A2.20Many entities that may apply FRS 102 are not companies, but are nevertheless required by their governing legislation or other regulation or requirement, to prepare financial statements that present a true and fair view of the financial performance and financial position of the reporting entity. However, the FRC sets accounting standards within the framework of the Act and therefore it is the company law requirements that the FRC primarily considered when developing FRS 102. Entities preparing financial statements within other legal frameworks will need to satisfy themselves that FRS 102 does not conflict with any relevant legal obligations.

A2.21However, the FRC notes the following:

| Legislation | Overview of requirements | | Building Societies Act 1986 | The annual accounts of a building society shall give a true and fair view of the income and expenditure for the year and the balance sheet shall give a true and fair view of the state of affairs of the society at the end of the financial year. Regulations make further requirements about the form and content of building society accounts, which do not appear inconsistent with the requirement of FRS 102. | | Charity law in England and Wales: Charities Act 2011 and regulations made thereunder | All charities are required to prepare accounts. The regulations require financial statements (other than cash-based receipts and payments accounts prepared by smaller charities) to present a true and fair view of the incoming resources, application of resources and the balance

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