FRC amends FRS 101 for insurance contracts

The Financial Reporting Council (FRC) has issued an amendment to FRS 101 reduced disclosure framework as part of its annual review, to address a conflict with the new insurance contracts standard

It is also consulting on a change in the hedge accounting requirements of FRS 102.

The regulator has issued amendments to FRS 101 – 2018/19 cycle, which changes the definition of a qualifying entity so that insurers cannot apply FRS 101 from the effective date of IFRS 17 Insurance Contracts. 

FRS 101 requires the application of the recognition and measurement requirements of EU-adopted IFRS with reduced disclosures.  Unlike accounts that apply IFRS in full (IAS accounts), those prepared in accordance with FRS 101 (non-IAS accounts) must comply with detailed accounting requirements set out in company law.  Some of these requirements conflict with the requirements of IFRS 17. 

This amendment to FRS 101 was necessary to ensure continued compliance with company law that applies to non-IAS accounts.

The primary conflict is in relation to schedule 3 formats of the primary statements. The FRC says the approach and methodology that underpins IFRS 17 is so fundamentally different that presenting accounts determined in accordance with that standards, within the formats laid down in law for non-IAS accounts, is not possible.

The amendments change the definition of ‘qualifying entity’ so that entities that are required to comply with schedule 3 and have contracts within scope of IFRS 17 may not be qualifying entities. This means that these entities cannot apply FRS 101 from the effective date of IFRS 17.

The amendment is necessary to ensure that insurance companies that are not required to – and choose not to – prepare IAS accounts continue to comply with company law requirements by only applying FRS 102 the Financial Reporting Standard applicable in the UK and Republic of Ireland with FRS 103 Insurance Contracts.

The amendments take effect for accounting periods beginning on or after 1 January 2021. If an entity applies the recognition, measurement and disclosure requirements of IFRS 17 early, the amendments to FRS 101 are applied at the same time.

In addition, the FRC has issued FRED 72 Draft amendments to FRS 102 – interest rate benchmark reform to respond to a current financial reporting issue. 

FRED 72 proposes amendments to specific hedge accounting requirements of FRS 102 to provide relief that will avoid unnecessary discontinuation of hedge accounting as interest rate benchmarks are being reformed.  FRED 72 is based on similar proposals issued by the IASB and has a proposed effective date of 1 January 2020, with early application permitted.  The draft is open for comments until 20 September.

Amendments to FRS 101 Reduced Disclosure Framework 2018/19 cycle is here: https://www.frc.org.uk/getattachment/5601deae-29ac-48d3-903b-90dc26100a78/Amends-to-FRS-101-WEB-READY.pdf

FRED 72 Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, Interest rate benchmark reform is here: https://www.frc.org.uk/getattachment/a076acf3-b0ed-4160-9625-c6340b8b7726/FRED-72-Web-ready.pdf

Pat Sweet 

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