July 2013

Changes to UK GAAP Are you ready?

FRS 102 is the third of three new standards which will form the bulk of UK GAAP. FRS 102 is expected to be the standard of choice for most unquoted large and medium sized companies. The rules for determining a companys size are quite complicated but typically it will be those which exceed more than one of the following criteria: turnover 6.5m per annum, total assets of 3.26m and 50 employees.

The biggest change to UK GAAP (generally accepted accounting principles) was broadly completed in March this year with the introduction of Financial Reporting Standard 102 (FRS 102).

But what does all of this mean for businesses and how should they make sure they are ready to deal with the impact of FRS 102?
In summary almost all of the current accounting standards are being replaced by FRS 102 largely because existing UK accounting standards have become dated, unwieldy and increasingly struggle to meet all of the needs of the users of accounts. In addition, for a number of years, there has been a programme of converging UK GAAP with International Financial Reporting Standards (IFRS) and whilst those frameworks are still not fully aligned, the introduction of FRS 102 is a great leap forward in that respect. Whilst the new standard can be adopted early it is mandatory for accounting periods commencing on or after 1 January 2015.Typically those companies caught in the first wave of mandatory adoption will be those preparing accounts for the year ending 31 December 2015. However, since accounts must include comparative information companies really need to be ready for the new standards from 1 January 2014. This is is effectively the D Day for companies adopting FRS 102 and requires action and planning far earlier than the headline effective date might suggest. Experience has shown than many companies operate on the premise of putting off apparently non-essential changes until the last minute but in this case being prepared and speaking to accountants and auditors now willallow them to make reasoned and considered decisions and take advantage of genuine planning opportunities on transition to FRS 102. . When quoted businesses moved over to International Accounting Standards in 2005, many seriously underestimated the task at hand resulting in dedicating significant time and resource at the last minute to ensure that they were compliant. We are trying to help businesses avoid a similar situation arising with the transition to FRS 102.

A consequence of the adoption of FRS 102 is reported profits may change which could impact upon an companys ability to pay dividends. Another critical factor to consider concerns banking covenants which would have been drafted on the basis of being tested against accounts prepared under current and soon to be superseded UK GAAP. Without action adoption of FRS 102 may cause a breach of banking covenants which could be avoided if the impact of FRS 102 adoption is assessed beforehand and covenants renegotiated before a breach occurs. With a wealth of things to consider, RSM Tenon is staging a number of advisory events to help businesses get up to speed with the changes, including practical advice and guidance on how and when they should prepare. Please contact your local RSM Tenon office for further information.

For further information please contact your local RSM Tenon advisor who will be able to provide you with further information. www.rsmtenon.com
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