FRS 102 – innocuous letters and numbers? Far from it.

FRS102 will signal a significant change on the company landscape.

The aim of FRS 102 is to provide a condensed approach to financial reporting requirements for unlisted corporate entities.

Its introduction will lead to changes in the format of businesses accounts, together with changes in the recognition criteria of certain assets and liabilities.

This could have a major effect on the way your business is able to pay dividends to its shareholders and on its credit rating.

FRS 102 will be applied by the majority of large and medium-sized UK companies.

A medium company is one which satisfies two of the following three criteria: Turnover of £6.5 million, gross assets of £3.26 million and staff numbers of 50.

The introduction of FRS 102 should not be ignored by small companies as it is expected that from January 1, 2016 small companies will have to adopt a simplified version of FRS 102.

For medium and large companies the mandatory adoption date for FRS 102 is for accounting periods commencing on or after January 1, 2015 so medium and large businesses need to start planning now.

How will you be affected? There are a number of key differences.

Intangible assets and goodwill always have a finite life. If no reliable estimate can be made of the life of the intangibles/goodwill the period of amortisation will be limited to five years. This may have a major detrimental effect on the worth of a business.

Investment property – properties are to be re-valued each year to fair value, with the gain or loss hitting the profit and loss account. Properties occupied by group companies will now be accounted for as investment properties.

Tangible assets – there is a one off opportunity to change tangible assets to fair value and to use this value in future as deemed cost. Should a policy of re-valuation be adopted the rules regarding the frequency of re-valuations have been relaxed.

Intercompany Balances – The value of long standing balances with group companies may need to be adjusted to reflect terms that could be obtained from a third party lender under normal commercial rates. This may damage the worth of some businesses Balance Sheets.

Company Directors - Ignore these innocuous letters and numbers at your peril!

Mark Worsley is managing partner at independent accountancy and advisory firm CLB Coopers. he specialises in providing strategic advice to businesses and individuals.