The final and probably the most important of the three new UK GAAP standards, FRS 102, which is the “Financial Reporting Standard applicable in the UK and Republic of Ireland “ has been issued and represents the culmination of a near decade long process to replace UK GAAP. Most organisations will be mandated to adopt FRS 102 and, although many will be choosing to adopt it earlier, it will become mandatory in respect of financial years beginning on or after January 1st 2015 and major firms of accountants like Baker Tilly are already setting out roadmaps for clients to help them navigate their way to seamless FRS 102 adoption.
In their particular case, they have chosen to guide clients through the process with the aid of a number of customised tools including an early warning checklist which enables them to identify any potential issues that might affect a client’s business at the date of transition, a special toolkit that they have devised to conduct a detailed comparison of the accounting frameworks which might be relevant to each client and, finally, a bespoke set of model accounts which allows them to make sure each client’s accounts are fully compliant.
The firm also recommends that companies start off by earmarking a starting point for transitioning to FRS 102 and it suggests that the ideal time is while preparing the final statutory accounts under existing UK GAAP or immediately afterwards. This starting point is identified as the transitional balance sheet which is the opening balance sheet for the comparative year. Doing this at this specific juncture will help clients to identify possible factors that might be particularly relevant to them as they change over to FRS 102.
There may, for example, be a reduction in your company’s balance sheet which could compromise its ability to meet banking covenants or there could be changes to distributable reserves that could impact its ability to maintain a particular dividend rate.
Once this initial milestone has been reached, the next logical step is for you to prepare comparative accounts under FRS 102. Since you will be preparing accounts for that comparative period anyway under UK GAAP, it makes a lot of sense to think about preparing comparative accounts under FRS 102 either alongside or right after preparing your statutory accounts for the period.
You will need the comparative figures anyway and doing this work at this stage will also provide you with any information you are likely to need when talking to bankers, shareholders and other parties. In addition, it will enable you to have at hand the opening balances required for producing meaningful management accounts.
Making the transition to FRS 102 using this road map will mean that you have already had a final dress rehearsal before the main event and, in the meantime, it will enable you to commence the processing of transactions in accordance with FRS 102 and not have to keep making retrospective changes for reporting purposes. Moreover, you will have your comparatives at hand and been able to address any issues with bankers, shareholders etc.
To find out more about the new UK GAAP: FRS 102 visit Baker Tilly’s FRS 102 content hub.