FRC consults on property and plant exemption in FRS 101

The Financial Reporting Council (FRC) is consulting on minor amendments to FRS 101 Reduced Disclosure Framework as part of the 2020/21 review cycle to keep it in line with IFRS

The draft disclosure document, FRED 77, proposes only limited amendments and the accounting standard setter claims that there will be no additional costs incurred as a result of the proposals. It is also conscious of the need to ‘avoid gold plating’ by duplicating existing UK rules under Companies Act 2006, which could increase red tape to the detriment of companies operating out of this jurisdiction.

The FRC as also confirmed that it will not amend property lease related reporting requirements despite changes to the global standard, IFRS 16 Leases to take account of the impact of the covid-19 pandemic, stating that ‘providing an exemption from this new requirement would provide minimal cost savings for preparers of the financial statements of qualifying entities, and may limit the useful information available to users’.

The main change relates to a tightening up of a disclosure exemption to IAS 16 Property, Plant and Equipment. Paragraph 74A(b) introduces a new requirement to ‘disclose information about the sale of items that are not an output of the entity’s ordinary activities, which are produced while bringing an item of property, plant and equipment to the location and condition necessary for it to be capable of operating in the manner intended by management’.

The FRC consultation also stressed: ‘As the information provided by the requirement supports items in the income statement, rather than the statement of financial position, it is not likely to be directly relevant to those users who are focused on an entity’s liquidity and solvency.’

Other minor amendments will take into account changes to IAS 1 Presentation of Financial Statements. The amendments to IAS 1 clarified the criteria for the classification of liabilities as either current or non-current.

While FRS 101 is a standard within the main UK accounting framework FRS 102 – UK GAAP – it specifically sets out an optional reduced disclosure framework which addresses the financial reporting requirements for individual financial statements of subsidiaries and ultimate parent companies that otherwise apply the recognition, measurement and disclosure requirements of EU-adopted International Financial Reporting Standards (IFRS). Disclosure exemptions are available to a qualifying entity in its individual financial statements.

The closing date for comment is 28 February 2021.

FRED 77 Draft amendments to FRS 101 Reduced Disclosure Framework – 2020/21

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