FRC proposes changes to FRS 101

SUBSIDIARIES OF PARENT COMPANIES will be exempt from certain rules on how businesses record revenue on their books under proposed changes to FRS 101.

The FRC has issued amendments to FRS 101, an accounting standard that allows entities within groups to prepare financial statements in accordance with IFRS, but with reduced disclosures, in light of new global rules around the recognition of revenue.

“The amendments to FRS 101 are limited, and predominately provide exemptions from many of the disclosure requirements of IFRS 15 Revenue from Contracts with Customers,” the FRC said.

In May 2014, regulators published a global accounting standard that will overhaul the way businesses record revenue on their books, allowing investors to better compare how much companies from countries around the world earn. The standard applies to all businesses reporting under IFRS for periods beginning on or after 1 January 2018.

Explaining the amendments, the FRC said it considered that the interest which a provider of credit has in company financial statements is generally likely to be focused on information about the liquidity and solvency.

“As a result, in relation to the detailed disclosures required by IFRS 15, there would be greater interest in information supporting the statement of financial position, rather than information supporting the income statement,” it said.

According to the FRC’s feedback statement, some reservations were expressed from respondents made up mainly of accounting firms and bodies.

These included:

1. a) that the interests of providers of credit are unlikely to be limited to the statement of financial position, but will be focused on liquidity and solvency, and therefore on the quality of the entity’s cash flows, which may influence whether certain exemptions should be given;
2. (b) that some qualifying entities (such as banks and insurers) may have significant external users of their financial statements such as policyholders or depositors, in addition to providers of credit; and
3. (c) that the nature of the entity, the period over which credit is provided and terms on which it is provided will affect the information users are interested in, and for example where there are no intra-group guarantees the providers of credit may be more interested in the quality of the earnings of the entity

In response, the FRC said it considered that the existing principles for determining whether disclosure exemptions should be available in FRS 101 continue to be suitable and did not require amendment.

“However, the issues raised by respondents are factors that might be taken into account when considering relevance. Indeed, in finalising the disclosure exemptions from IFRS 15, the FRC has had regard to information about liquidity and solvency and reduced some of the disclosure exemptions,” it said.

The FRC also announced it would proposed in FRED 65, which is out for public consultation, that company’s no longer have to notify shareholders before applying the disclosure exemptions in FRS 101.

Paul George, executive director, corporate governance and reporting said: “In issuing these amendments we are aiming to ensure that FRS 101 remains a cost‑effective option for listed groups, by providing additional disclosure exemptions as IFRS changes.  In addition, FRED 65 responds to feedback by consulting on eliminating an administrative burden.”

Related Documents

Amendments to FRS 101 Reduced Disclosure Framework 2015/16 cycle

Impact Assessment and Feedback Statement Amendments to FRS 101 Reduced Disclosure Framework 2015/16 cycle

FRED 65: Draft Amendments to FRS 101 Reduced Disclosure Framework – Notification of Shareholders