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| Old GAAP | FRS 102 | Further Comment on Differences |
| Groups | Consolidated and Separate Financial Statements- Groups (S.9) | |
| No such exemption exists and no option to fair value. | Groups are exempt from consolidating subsidiaries held as part of an investment portfolio on the basis that they are held for resale. All portfolio investments are measured at fair value through P&L. This may result in more entities being excluded from consolidation. | As a result of this difference it will result in more entities being excluded from consolidation. However in reality the number of entities likely to be effected by the difference is small. |
| Control is the ability to direct the financial and operating policies of another undertaking with a view to gaining economic benefits from its activities: · holds a majority of voting rights; or · is a member and can appoint or remove directors holding a majority of voting rights; or · has the right to exercise or actually exercises dominant influence or control; or · managed on a unified basis. | Control is the power to govern the financial and operating policies of an entity to obtain benefits from its activities: · directly or indirectly owns more than 50% of the voting power; or · has legal or contractual rights to control the majority of the entities voting power or board of directors; or · having control by having convertible instruments that are currently exercisable; or · dominant influence; or · managed on a unified basis. | The definition of control under both standards are almost identical. Therefore no differences are expected in this area on transition. |
| Exemption from Consolidation – CA. | Exemption from Consolidation – CA. | No differences, therefore no impact on transition. |
| Uniform accounting policies should be applied for amounts included in the financial statements with departures explained. | Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events and conditions in similar circumstances. | No differences, therefore no impact on transition. |
| For increases, assets and liabilities were revalued to fair value and goodwill arising on the increase is calculated by reference to those values. For decreases the profit/loss was recognised in the consolidated profit and loss. | When a parent company increases/decreases its controlling interest in a subsidiary i.e. no change in control, this is accounted for as an equity transaction with no goodwill recognised / profit or loss on disposal recognised. | A) (This is a significant change. On transition, there will be a need to assess if there was an increase/decrease in a controlling interest from the opening balance sheet date to ensure they are restated to conform to Section 9). However Section 35.9(e) mandates that any such transactions which arose prior to the date of transition should not be adjusted, instead the treatment under old GAAP should be maintained. Therefore a transition adjustment will only be required where such acquisitions or disposals have arisen since the date of transition (i.e. in the current or comparative years of the first set of financial statements). See attached the likely transition journals required when such a transaction has occurred (Example 13 – Acquisition Not Resulting In A Change Of Control After Date Of Transition and Example 14 – Disposal Resulting In No Change In Control In The Subsidiary After Date Of Transition). |
| In the individual parent/entity financial statements investments in associates, subsidiaries and joint ventures must be measured at cost less impairment. | In the individual parent/entity financial statements investments in subsidiaries, associates and joint ventures can be carried at either: · cost less impairment; or · fair value through the profit and loss account (where it can be reliably measured); or · fair value through other comprehensive income (where it can be reliably measured). An entity should apply the accounting policy chosen consistently for all investments of the same type i.e. an entity may apply fair value to associates but not to joint ventures and subsidiaries etc. Note where an entity does not intend to apply fair value accounting it cannot use the fair value as deemed cost going forward. If a fair value option is chosen an adjustment will be required on transition. | This is a significant difference from old GAAP and where on transition to FRS 102, an entity adopts a policy of fair valuing transition adjustments will be required. (In practice it is unlikely that many entities will adopt a fair value model). Where an entity adopts the fair value option they will need to assess which option to take (i.e. fair value through the P&L or to the revaluation reserve/OCI). Whichever fair value option is chosen, where investments in subsidiaries are recognised at fair value in the individual financial statements on transition to FRS 102, deferred tax will need to be recognised as well as an adjustment to reflect the investment at its fair value from cost. The deferred tax rate to be used depends on the tax rate that will be payable on settlement i.e. whether the investment is held for dividend income or for future sale. See attached the likely transition journals required through illustration of a worked example when an entity decides to adopt a policy of fair valuing through the profit and loss (Example 15 – Disposal Of A Subsidiary Where Control Is Lost). See attached the likely transition journals required through illustration of a worked example when an entity decides to adopt a policy of fair valuing through the OCI/revaluation reserve (Example 16 – Adoption Of Fair Value Through Profit And Loss On Transition). |
| FRS 2 mandates that a provision should be made for the non-controlling interest where subsidiaries are in a net liability position and there is a legal obligation to provide non recoverable funding to rectify this (can be sometimes created through the provision of a letter of support). | No provision required where such a condition exists. | Where such a legal obligation existed at the date of transition or subsequent to that date a transition adjustment will be required. The journals to be posted to reverse the old GAAP posting on transaction would be: Dr Provision Cr Minority interest A journal would also be required to reverse the amount posted in the comparative year of the first set of FRS 102 financial statements for any loss made. |
| FRS 2 refers to a minority interest. | Section 9 refers to a non-controlling interest. They have the same meaning. | This is merely a wording difference; the concepts are the same so no differences will occur. The updated wording should be used in the consolidated financial statements. |
| No specific guidance on the presentation of non-controlling interest and no requirement to split out the minority interest elements posted to other comprehensive income and the profit and loss. | Non-controlling interest should be presented within equity. In addition, FRS 102 requires that the profit and loss on items posted to other comprehensive income be separated and shown separately to that which is apportioned to the non-controlling interest and that apportioned to the parent. | This disclosure is only required from the date of transition. See example attached for an illustration of the disclosure requirement under FRS 102 (Example 17 – Extract From The Consolidated Profit And Loss Account Showing Split Between Controlling And Non-Controlling Interest). |
| Not applicable | Section 35.10(r) provides a choice to subsidiaries, associates, joint ventures who adopt FRS 102 later than its group to measure its assets and liabilities at either: 1) the carrying amounts that would be included in the parent’s consolidated financial statements based on the parent’s date of transition to FRS 102, if no adjustments were made for consolidation procedures and for the effects of business combinations in which the parent acquired the subsidiary; or 2) the carrying amounts required by the rest of FRS 102 based on the subsidiaries’ date of transition. In effect the subsidiaries etc can choose to apply the choices adopted by the parent in the consolidated financial statements and roll these forward to the date of transition for the subsidiary. | Instances where the parent prepares FRS 102 accounts for consolidation before the subsidiary has prepared them are very rare. However where this occurs, disclosure of the exemption chosen should be disclosed. |
| Not applicable. | Section 35.9 mandates that where an entity which has previously recognised goodwill (prior to the date of transition) on increases in ownership which did not result in a change of control to continue carrying that asset until it is sold. The same is the case for a decrease in an interest where there was no change in control. | This has been discussed above with regard to the non-necessity to restate prior transactions where control was retained. |
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