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| Old GAAP | FRS 102 | Further Comment on Differences |
| Accounting Policy Selection | Accounting Policy Selection (S.10) | |
| Policies that give a true and fair view based on relevance, reliability, comparability and understandability. | If the FRS does not fully cover a transaction or condition: · apply the FRS (or FRC Guidance document); · SORP; · the basic concepts and pervasive principles; · may also consider IFRS. Accounting policies adopted should result in information that is: a) relevant to the economic decision-making needs of users; b) reliable, in that the financial statements: i. represent faithfully the financial position, financial performance, and: ii. cash flows of the entity; iii. reflect the economic substance of transactions, other events and conditions; iv. and not merely the legal form; v. are neutral, i.e. free from bias; vi. are prudent; vii. are complete in all material respects. | FRS 102 provides a hierarchy for dealing with any items not specifically addressed by the standard, old GAAP did not have such a hierarchy. This will not result in any differences on transition. The requirement for a true and fair view is the same under both standards so therefore there are no differences expected. |
| Changes in accounting estimates are not treated as prior period adjustments. | Changes in accounting estimates are not treated as prior period adjustments. | No differences. |
| In exceptional circumstances if the financial statements in prior periods have been issued with errors that are of such significance as to destroy the “true and fair” view and hence the validity of the financial statements (fundamental errors) prior periods should be accounted for retrospectively (prior period adjustment to adjust opening reserves and comparative figure) with all other errors being accounted for prospectively (adjusted in the current period). | All material prior period errors are adjusted retrospectively (prior period adjustment) unless it is not possible to quantify the effect of the error which is highly unlikely. | As the threshold is lower under FRS 102 (i.e. material error as opposed to a fundamental error), this will result in an increase in the frequency of prior period adjustments. Under old GAAP a prior year adjustment was only required where a fundamental error arose. Fundamental was a higher threshold to meet than material. Under Section 10 a prior year adjustment is required for all material errors. Therefore if in the comparative financial year of the first set of FRS 102 financial statements if there was an error which was not corrected on the basis that it was not fundamental based on old GAAP a prior year restatement will be required such that the comparative years’ balance sheet will have to be adjusted. The details of the prior year error would have to be disclosed as part of the explanation of the adjustments from old GAAP to FRS 102. The word ‘restated’ would not be included on the prior year comparative as in the first year of adoption of the FRS the results will all have been restated. See attached an example disclosure for a prior period adjustment required as a result of a material error on the first set of financial statements prepared under FRS 102 (Example 18 –Disclosure Of A Prior Year Adjustment). |
| No requirement to disclose in the financial statements, whether a change in accounting policy arose due to a voluntary change or an FRS requirement. | Disclosure required in the financial statements detailing the reason for a change of accounting policy, whether it is due to an FRS requirement or a change made voluntarily. | This is merely a disclosure change and has no financial impact on transition to FRS 102. Where a change in accounting policy is made under FRS 102 this disclosure is required. |
| FRS 3 requires the cumulative effect of the prior period restatement to be noted at the foot of the statement of total recognised gains and losses and a note included detailing the reason for the prior period adjustment. | Prior year restatements due to a change in accounting policy or prior period error should be presented in the statement of changes in equity or statement of income and retained earnings (where applicable) together with a note detailing the reason for the change. | Old GAAP required disclosure of the prior period adjustment in the STRGL, FRS 102 does not require it to be disclosed in OCI. |
| Old GAAP only required the effect to be disclosed. There was no requirement to disclose it on a line item basis (however, in practice this was usually provided). | Section 10 requires the disclosure of the nature and effect of a prior period adjustment for each financial line item affected. | This is merely a disclosure requirement and therefore no transition adjustments are required. See attached an example disclosure for a prior year adjustment required as a result of a material error under FRS 102 (Example 19 – Prior Period Error). |
| Regular review of accounting policies. | Section 10 does not require a regular review of accounting policies. | No differences expected in this area as entities are expected to review accounting policies at transition (but no review mandated) to ensure applicability and ensure it informs the reader of the financial statements in a meaningful way. |
| For a change in accounting estimate, disclosure of the effect for the current period only required to be disclosed and changes to accounting estimates were not limited to just new information coming to light. | For a change in accounting estimate, disclosure of the effect for the current and future period is required to be disclosed. Section 10.18 requires disclosure of the effect a change in an accounting estimate had on assets, liabilities, income, expenses for the current period and the future period where applicable. It also makes it clear a change is only required where new information or developments come to light. | This is merely a disclosure requirement and therefore no transition adjustments are required. See attached an example disclosure for a change in accounting estimate under FRS 102 (Example 20 – Change In Accounting Policy Disclosure). |
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