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Section 35: Transition to this FRS
This section applies to a first-time adopter of this FRS, regardless of whether its previous accounting framework was EU-adopted IFRS or another set of generally accepted accounting principles (GAAP) such as its national accounting standards, or another framework such as the local income tax basis. Where FRS 102 financial statements have been prepared previously but these did not contain an explicit and unreserved statement of compliance with FRS 102 then they must submit the accounts with this statement and the requirements of Section 35 of FRS 102 or restate the prior year’s results in line with Section 10.
First-time adoption
Extract from FRS102: Section 35.3-35.6
35.3 A first-time adopter of this FRS shall apply this section in its first financial statements that conform to this FRS.
35.4 An entity’s first financial statements that conform to this FRS are the first financial statements in which the entity makes an explicit and unreserved statement in those financial statements of compliance with this FRS. Financial statements prepared in accordance with this FRS are an entity’s first such financial statements if, for example, the entity:
(a) did not present financial statements for previous periods;
(b) presented its most recent previous financial statements under previous UK and Republic of Ireland requirements that are therefore not consistent with this FRS in all respects; or
(c) presented its most recent previous financial statements in conformity with EU-adopted IFRS.
35.5 Paragraph 3.17 defines a complete set of financial statements.
35.6 Paragraph 3.14 requires an entity to disclose, in a complete set of financial statements, comparative information in respect of the preceding period for all amounts presented in the financial statements, as well as specified comparative narrative and descriptive information. An entity may present comparative information in respect of more than one preceding period. Therefore, an entity’s date of transition to this FRS is the beginning of the earliest period for which the entity presents full comparative information in accordance with this FRS in its first financial statements that comply with this FRS.
OmniPro comment
FRS 102 should be applied by all entities for periods beginning after 1 January 2015. The date of transition is therefore the beginning of the comparative period included in its first financial statements in conformity with FRS 102. The length of the comparative period is irrelevant, it is the date from the start of that comparative period which dictates the transition date.
Example 1: Transition date
Company A has a 31 December year end. Therefore the first financial statements in conformity with FRS 102 is for the year ended 31 December 2015. The date of transition is therefore the 1 January 2014. Therefore the balances at 1 January 2014 form the opening balances (statement of opening position) under FRS 102 and will need to be restated to conform to FRS 102. The year end 31 December 2014 will also have to be restated.
Example 2: Transition date
Company A usually had a 31 December year end. However the prior year financial statements were prepared for the 18 month period 1 July 2013 to 31 December 2014. The date of transition is therefore the 1 July 2013.
A complete set of financial statements under FRS 102 (which does not meet the definition of a small company and do not meet the definition as a qualifying entity) shall include the following:
- Statement of financial position/balance sheet
- Statement of comprehensive income
- Statement of changes in equity
- Cash flow statement
- Notes to the financial statements
In order for financial statements to meet the definition of being prepared under FRS 102, there must be an unreserved statement of compliance disclosed in those financial statements. See an example of such a statement.
Example 3: compliance statement on adoption of FRS 102
‘This is the first set of financial statements prepared by XXXXX Limited in accordance with accounting standards issued by the Financial Reporting Council, including the FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”). The company transitioned from previously extant UK and Irish GAAP to FRS 102 as at 1 January 2014. An explanation of how transition to FRS 102 has affected the reported financial position and financial performance is given in note X‘.
Example 4: compliance statement for companies applying the FRS 102 small entities financial statements (only applicable to UK Companies at this time as the Republic of Ireland government have not yet enacted EU Directive 2013/34)
Example wording to be included in the small entities financial statements below (note not mandated but the inclusion illustrates best practice.)
‘‘This is the first set of financial statements prepared by XXXXX Limited in accordance with accounting standards issued by the Financial Reporting Council, including the FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”). The company transitioned from previously extant UK and Irish GAAP to FRS 102 as at 1 January 2014. An explanation of how transition to FRS 102 has affected the reported financial position and financial performance is given in note X.
‘The FRC issued amendments to FRS 102 called ‘Amendments to FRS 102-Small entities and other minor adjustments’ which can be applied for accounting periods beginning on or after 1 January 2016 with early adoption permitted. The company has adopted these amendments in these financial statements on the basis that it meets the requirements of a small company.’
Where the exemptions are being claimed by qualifying entities as detailed in Section 1 of FRS 102, the entity should provide a disclosure to this effect. The below provides proposed wording for such a statement.
Example 4A: Disclosure where an entity is applying the reduced disclosure framework
‘FRS 102 sets out a reduced disclosure framework for a ‘qualifying entity’ as defined in FRS 102 which addresses the financial reporting requirements and disclosure exemptions in the financial statements of qualifying entities that otherwise apply the recognition, measurement and disclosure requirements of FRS 102.
The company is a qualifying entity for the purposes of FRS 102. Note X gives details of the company’s parent and from where its consolidated financial statements prepared in accordance with (insert GAAP) GAAP may be obtained. The company has notified its shareholders in writing about, and they do not object to, the use of disclosure exemptions availed of by the company in these financial statements.’
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