In November and December 2015, the FRC issued a number of Financial Reporting Exposure Drafts (FREDs) for consultation:
- FRED 62: Draft amendments to FRS 102 Financial Reporting Standard applicable in the UK and Republic of Ireland - Fair value hierarchy disclosures;
- FRED 63: Draft Amendments to FRS 101 Reduced Disclosure Framework - 2015/16 cycle; and
- FRED 64: Draft amendments to FRS 103 Insurance Contracts - Solvency II.
Let's take a brief look at who they affect and the key proposals in each.
FRED 62 proposed limited amendments to FRS 102 that are only relevant to financial institutions and retirement benefit plans.
In essence, they look to address concerns that the disclosure requirements relating to the analysis of how financial instruments have been valued was inconsistent with the IFRS equivalent disclosures, with which users of the accounts may have been more familiar.
Therefore, the proposed amendments require disclosures of categorisation of fair value measurements by levels consistent with the fair value hierarchy set out in IFRS 13, rather than the fair value hierarchy set out in Section 11 of FRS 102. Although amendments have been proposed to Section 34 of FRS 102 (Specialised Activities), no amendments are being made to the FRS 102 fair value hierarchy itself at this stage.
The FRC have indicated that revision to the FRS 102 fair value hierarchy will be considered more widely as part of the first triennial review of the standard.
FRS 101 is essentially a reduced disclosure version of IFRS for the individual financial statements of subsidiaries and ultimate parents that otherwise apply the recognition, measurement and disclosure requirements of EU-adopted IFRS. This standard saw amendments in July 2015 that incorporated changes in company law that should make the standard a more realistic proposition than it has been to date.
The FRC have to keep FRS 101 in line with the ever-evolving IFRS and FRED 63 represents its proposals for the 2015/16 review cycle effective for periods commencing on or after 1 January 2016.
Proposed amendments include disclosure exemptions in relation to IFRS 15 Revenue from Contracts with Customers and also clarify a legal requirement relating to the order in which the notes to the accounts are presented.
When the FRC initially issued FRS 103 Insurance Contracts, it did so on the basis that further amendments may be required to reflect changes in the regulatory framework.
FRED 64 is the FRC's proposal for limited amendments that result from these changes; specifically the commencement of Solvency II, which will affect accounting periods ending after 1 January 2016.
However, the FRC also proposed that an entity should be permitted to apply established accounting policies if they choose to do so.
It is expected that proposals above will be finalised by the FRC over the next few months.