The Financial Reporting Council (FRC) has issued FRED 67 containing draft amendments to FRS 102 following its first Triennial Review.
We are very supportive of the FRC’s measured approach of deferring significant change to allow a period of stability. However, we did raise three specific points relating to the evolution of the Standard.
We support the granting an option to choose whether to separate intangible assets from goodwill or not, because this has been unduly onerous on many entities. However, FRS 102 should continue to promote robust and informed decision making by management as well as providing relevant information to users of the financial statements. We would therefore encourage the disclosure of the intangible assets included within goodwill, albeit without the requirement to value these separately.
'Undue cost or effort' by another name
We strongly feel that the proposal to outlaw the term 'undue cost or effort should be reconsidered as the Standard has hardly had chance to be used in practice. There is a possibility that dropping the term could lead to the type of ‘technical’ qualification that was endemic under old UK GAAP where management departed from GAAP for cost/benefit reasons. It could also lead to a multiple tiered approach (see below).
Two-tier system should be avoided
We are concerned about the potential development of a two-tier approach within the Standard. The suggestion that different entities should apply different approaches or have extra exemptions within the same Standard is likely to lead to confusion and lack of comparability. The following examples highlight this.
- In relation to non-interest bearing loans by directors to companies we consider that how a transaction is measured should not be determined by the size of one of the parties (other than for micro-entities) but by the nature of the transaction itself.
- It seems inequitable that group companies should be able to avoid fair value of investment properties when other entities cannot, making FRS 102 more onerous than IAS 40. We believe the cost option should be available to all entities, not just listed entities.
For more information or to see a full copy of our response please contact Danielle Stewart.