Chapter 19: UK GAAP

Question 1

What are the differences between IFRS Standards and FRS 102 in relation to characteristics?

Answer 1

IASB Conceptual Framework: Six qualitative characteristics included

FRS 102: Ten qualitative characteristics included. FRS 102 does not differentiate between fundamental and enhancing qualitative characteristics

Question 2

Does the Conceptual Framework identify materiality?

Answer 2

• The Conceptual Framework does not identify materiality, substance over form, prudence, balance between benefit and cost as separate qualitative characteristics although they are mentioned or implied
• FRS 102 identifies a wider range of qualitative characteristics with materiality, substance over form, prudence, balance between benefit and cost given explicit reference

Question 3

What does the Conceptual Framework state an asset has the potential to do?

Answer 3

• The Conceptual Framework states an asset has the ‘potential to produce economic benefits’ (Conceptual Framework, para 4.2)
• FRS 102 Asset definition is: ‘expected economic benefits are expected to flow to the entity’

Question 4

How does IFRS Standards approach IAS 1 Presentation of Financial Statements?

Answer 4

• IAS 1 provides recommended formats
• IAS 1 does not allow a ‘statement of income and retained earnings’ in place of the statement of comprehensive income and the statement of changes in equity’
• Requirement for ‘fair presentation’ which is similar to Companies Act 2006 ‘true and fair view’
• An entity can depart from IFRS Standards to satisfy the fair presentation requirement, known as the ‘true and fair override’

Question 5

How does FRS 102 approach IAS 1 Presentation of Financial Statements?

Answer 5

• FRS 102 prepared in accordance with Companies Act 2006, therefore prescribed format
• FRS 102 allows the option, in certain circumstances, to show a ‘statement of income and retained earnings’ in place of the SOCI and SOCE
• FRS 102 uses the term ‘true and fair’ consistent with the Companies Act 2006. It also permits the use of the ‘true and fair override’
• The terms ‘fair presentation’, ‘presents fairly’ and ‘true and fair’ can be used synonymously

Question 6

How does IFRS approach inventories vs FRS 102?

Answer 6

IFRS: IAS 2 Inventories: NRV is based on a fair value achieved in open the market (industry view of the expected sale price)
FRS 102:
- Instead of referring to NRV, FRS 102 refers to the estimated selling price less costs to complete and sell
- The selling price is estimated by the specific entity (entity-specific approach)

Question 7

What is the difference for discontinued operations?

Answer 7

IFRS 5:
- Discontinued operations are shown as one line on the SPL, with further detail provided in the notes to the accounts
FRS 102:
- In keeping with the Companies Act 2006, discontinued operations are shown in a separate column in the income statement
Exemptions: Follow IFRS presentation and exemption from disclosing cash flows from discontinued operations

Question 8

What is the difference for assets held for sale?

Answer 8

IFRS 5:
- When criteria are met, NCA HFS is categorised as current and no longer depreciated
FRS 102:
- No NCA HFS category exists, so assets continue to be depreciated up until disposal

Question 9

What’s the difference between IFRS 15 Revenue from Contracts with Customers and FRS 102?

Answer 9

IFRS 15:
- Adopts 5 tage approach
FRS 102:
- Does not have a 5 stage approach although treatment gives similar outcomes to IFRS 15

Question 10

How do borrowing costs differ?

Answer 10

IAS 23 Borrowing Costs:
- Eligible borrowing costs must be capitalised
FRS 102:
- There is a choice to capitalise or expense borrowing costs

Question 11

How are development costs treated?

Answer 11

IAS 38 Intangible Assets:
- When the criteria are met, development costs must be capitalised
FRS 102:
- There is a choice to capitalise or expense development costs

Question 12

What are the FRS 101 exemptions to IAS 38 Intangible Assets?

Answer 12

Exemption from reconciliation disclosure when presenting comparative information

Question 13

How are useful lives of intangibles treated?

Answer 13

IFRS:
- Intangibles can have an indefinite UL
FRS 102:
- All intangibles have a finite UL, with a rebuttable presumption that this does not exceed 10 years

Question 14

How does IAS 20 Accounting for Government Grants and Disclosure of Government Assistance differ?

Answer 14

Capital Grants:
IFRS Standards: Choice of using either the Deferred income or Netting off method
FRS 102: prescribes the deferred method only

Question 15

How does IFRS 9 Financial Instruments compare?

Answer 15

Initial recognition of Financial Instruments:
IFRS 9: Initial measurement at fair value
FRS 102: Initial measurement at transaction price

Question 16

What are the FRS 101 Exemptions to IFRS 3 Business Combinations?

Answer 16

Exemption from disclosure of factors making up Goodwill, provided these are given in the consolidated accounts to which the company belongs

Question 17

How is Goodwill treated under IFRS 3 Business Combinations?

Answer 17

IFRS 3 Business Combinations:

• Goodwill is not amortised but tested annually for impairment
• Impairment reversal not allowed for Goodwill
• Gain on Bargain Purchase is recognised through the SPL

Question 18

How is Goodwill treated under FRS 102?

Answer 18

• Goodwill amortised over UL (10 year rebuttable presumption)
• Impairment reversal allowed for Goodwill
• Gain on bargain purchase is called negative goodwill and is shown separately in the asset section of the CSFP as a deduction from positive goodwill

Question 19

How do acquisition costs differ?

Answer 19

IFRS 3: Acquisition costs are expensed to the SPL

FRS 102: Acquisition costs are added to consideration

Question 20

How does NCI differ?

Answer 20

IFRS 3: Choice of fair value method or proportionate method

FRS 102: Only the proportionate method is allowed

Question 21

How do exclusions differ under IFRS 10 Consolidated Financial Statements?

Answer 21

IFRS: No exclusions allowed from consolidation
FRS 102: Subsidiary should be excluded from consolidation where severe long-term restrictions apply or where subsidiary is held exclusively for resale purposes

Question 22

How does Goodwill differ under IAS 28 Investments in Associates and Joint Ventures?

Answer 22

IFRS: No separate Goodwill recognised
FRS: Implicit Goodwill should be recognised and amortised

Question 23

What is the difference under IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors?

Answer 23

IFRS: Does not comment on whether a change to the cost model when Fair value can no longer be determined reliably is a change of accounting policy or not
FRS: Change to cost model (when reliable measure of Fair value no longer available) not to be treated as a change of accountancy policy

Question 24

What does FRS not require in relation to IAS 24 Related Party Disclosures?

Answer 24

FRS 102: does not require disclosure of transactions entered into between 2+ members of a group (as long as subsidiary is wholly owned by other party)

Question 25

What is the FRS 101 Exemption to IFRS 7 Financial Instruments: Disclosures/IFRS 13 Fair Value Measurement

Answer 25

FRS 101 Exemptions: Complete disclosure exemption provided equivalent disclosures are in the consolidated accounts to which the company belongs

Question 26

How are leases treated under IFRS 16 Leases?

Answer 26

• All leased assets (of terms > 12 months) are now to be capitalised and recognised as ‘Right of use’ assets by lessees (unless ‘low value’)
• Leases of < 12 months (or equal to) are charged to the SPL on a straight line basis

Question 27

How are leases treated under FRS 102?

Answer 27

• Distinction made between Operating and Finance leases
• A finance lease is a lease that transfers substantially all the risks and rewards of ownership to the party using the asset
• An operating lease is any lease other than a finance lease
• Finance leases are accounted for like ‘right of use assets’
• Operating leases are charged to the P&L a/c on a straight line basis