FRS 102 – UK GAAP: Changes to financial statements

| 19th December 2014

From 1 January 2015, companies filing their financial statements currently according to UK Generally Accepted Accounting Practice will see several changes implemented, in the form of FRS 102.

We’ve set out the key changes to financial statements below, so you’re aware of them.

Cash Flow Statement

Currently, only 90% subsidiaries are exempt from preparing a cash flow statement (according to FRS 1), however under FRS 102, it is possible for any company to opt out of preparing a cash flow statement, provided certain conditions are met.

Additionally, cash flow statements are prepared under a simplified three classifications according to FRS 102, as opposed to nine under FRS 1.

Error Correction

The current rules require errors that are ‘fundamental’ (i.e. would affect a true and fair view being presented) be corrected by a prior-period adjustment. FRS 102 stipulates that if an error is ‘material’ they have to be corrected the same way – widening the scope and requiring more corrections.

Stock Valuation

FRS 102 bans the use of a LIFO (Last In First Out) method of stock valuation, and requires either FIFO (First In First Out), or average cost.

Investment Property

Gains or losses on revaluations should be taken directly to the profit and loss account from 1 January. Previously, losses were taken to the P&L as a non-deductible expense; however gains were transferred to a revaluation reserve on the balance sheet (and did not appear on the P&L)

These gains, however, are not distributable to shareholders as a dividend.

Intangible Assets & Goodwill

Under FRS 102, goodwill and other intangible assets are deemed to have a finite life, of a maximum of five years unless management can show a reliable estimate in excess of that. Under current UK GAAP, it is presumed to be 20 years.


According to the current rules, leases are treated as finance leases (and the asset is listed on the balance sheet) if the minimum lease payments equate to 90% or more of the asset value. The new guidelines do away with the 90% threshold, and replace it with ‘substantially all’ of the lease payment value.

Employee Benefits

FRS 102 specifies that entities make accruals for unpaid short-term employee benefits (e.g. unpaid sick pay and holiday pay) at the end of the reporting period. Currently there is no specific requirement.

Deferred Tax

From 1 January onwards, deferred tax is required to be recognised in relation to revalued assets, regardless of whether a binding agreement is in place.

FRS 19 (current UK GAAP) does not require this.


Income from grants can either be recognised as deferred income, once conditions have been met to recognise it, or alternatively be matched against related expenses (as is currently required).


FRS 102 uses international terminology in accordance with IFRS (e.g. balance sheet = statement of financial position etc). You can still use the current UK GAAP titles, provided they are not misleading.

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