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1. FRS 102 New and Revised accouting Policies Storyboard for

2. …clear thinking

3. By completing this module you will be able to: Describe what FRS 102 requires as regards accounting policies List authoritative reference for accounting policies Explain how changes to estimates and corrections of errors should be treated List FRS 102 sections where new accounting policies are most likely to be needed At the end, you can visit useful Internet sites on a “Web Ride” Lecturer: Ralph Tiffin Learning time: approx. 20 min How to use this learning module? - Click on "Help" in the Table of Contents (TOC) FRS 102 – New and revised accounting policies Graphic: [presenter or standard graphic]

4. Selection and application of accounting policies • Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements • If an FRS or FRC Abstract specifically addresses a transaction, other event or condition, an entity shall apply that FRS or FRC Abstract Graphic: [chess game]

5. Management shall use its judgement in developing and applying an accounting policy that results in information that is: relevant to the economic decision-making needs of users reliable, in that the financial statements: represent faithfully the financial position, financial performance and cash flows of the entity reflect the economic substance of transactions, other events and conditions, and not merely the legal form are neutral - that is free from bias are prudent are complete in all material respects If there is no specific FRS or FRC Abstract Graphic: [Rodin‘s „the thinker“]

6. Management should refer to: the requirements and guidance in an appropriate FRS or FRC Abstract the requirements and guidance in an applicable SORP the content of Section 2 Concepts and Pervasive Principles the requirements and guidance in appropriate EU-adopted IFRS Making the judgement when devising an accounting policy Graphic: [Financial Reporting Council logo]

7. An entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless an FRS or FRC Abstract specifically requires or permits categorisation of items for which different policies may be appropriate If an FRS or FRC Abstract requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category Consistency of accounting policies Graphic: [2 apples]

8. An entity shall change an accounting policy only if the change: is required by an FRS or FRC Abstract - or results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position Changes to accounting policies Graphic: [a weather vane]

9. The following events do not give rise to a change in accounting policy: the application of an accounting policy for transactions, other events or conditions that differ in substance from those previously occurring the application of a new accounting policy for transactions, other events or conditions that did not occur previously or were not material a change to the cost model when a reliable measure of fair value is no longer available (or vice versa) for an asset that an FRS or FRC Abstract would otherwise require or permit to be measured at fair value Events do not give rise to a change in accounting policy Graphic: [a sprit level]

10. Changes in accounting policies should be applied retrospectively and this is explained in detail in 10.12 However there are further requirements where there are transitional provisions and for some financial instruments situations, earnings per share, operating segments and exploration for and evaluation of mineral resources – covered in 10.11 a, b and c How to apply changes in accounting policies Graphic: [a tool box]

11. An entity shall recognise the effect of a change in an accounting estimate, other than a change to which paragraph 10.17 applies, prospectively by including it in profit or loss in: the period of the change, if the change affects that period only, or the period of the change and future periods, if the change affects both 10.17: to the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, the entity shall recognise it by adjusting the carrying amount of the related asset, liability or equity item in the period of the change Changes in accounting estimates Graphic: [MOT logo]

12. Existing UK GAPP requires correction for Fundamental Errors whereas FRS 102 requires correction of prior period errors which are: omissions from, and misstatements in, an entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that: was available when financial statements for those periods were authorised for issue, and could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements 10.20 explains such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud Corrections of prior period errors Graphic: [bottle of Tipp-ex]

13. An entity shall disclose the following about material prior period errors: the nature of the prior period error for each prior period presented, to the extent practicable, the amount of the correction for each financial statement line item affected to the extent practicable, the amount of the correction at the beginning of the earliest prior period presented an explanation if it is not practicable to determine the amounts to be disclosed in (b) or (c) above Disclosure of prior period errors: 10.23 Graphic: [a loud hailer]

14. Where there are significant differences identified in the FRS: Error correction (as described above) Investment property (treatment of revaluation amount) Intangible assets and goodwill (Assumed life of 5 years or less) Deferred tax (deferred tax on revalued assets) Grants (choice of method of matching grant and expenses) For Specialised activities (section 34) What sections of FSR102 could give rise to changes in accounting polices? Graphic: [an office block]

15. Revenue recognition - more definition of revenue streams and the point of recognition Leases - more operating leases may be caught with the FRS102 wording Generally anywhere where the transition is used as a time to 'tighten up', include more, or finesse existing accounting polices Where FRS 102 may be seen to be different Graphic: [a fancy photocopier]

16. The basis of the accounts must be stated The FRC has pointed out for years that wording should not just be generalist 'boiler plate' but as specific as possible Illustrations of what may be involved when revising accounting policies Graphic: [IMI plc logo]

17. For tangible fixed assets the accounting policies are straightforward but the 2006 version brings in the important issue of impairment - tangible fixed assets should be reviewed for impairment  Where an asset has components, these parts should be depreciated at different rates if the lives are different Tangible fixed assets Graphic: [a factory]

18. This is a change in policy as IFRS is considered to require the capitalisation of development expenditure UK GAAP allowed capitalisation, but as for IMI the majority of companies tended to play safe and write all expenditure off in the year incurred FRS102 allows capitalisation of development expenditure if recognition and measurement conditions are met - but the prudent approach of writing off such expenditure is also allowed - section 18H of FRS102 An entity may recognise an intangible asset arising from development Development expenditure Graphic: [engineer in workshop]

19. e) Revenue recognition - 2012 IMI plc Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and that the revenue can be reliably measured As a result of the above, the significant majority of the Group’s revenue is recognised on a sale of goods basis Revenue Graphic: [a cash register]

20. Taxation IFRS income tax accounting and disclosures are not the same as for the Anglicised FRS 102 but the example demonstrates that MORE disclosure will be required Leases There is a more detailed explanation of what 'equivalent capital value' is. IFRS is considered stricter in classifying assets as leased and it will be interesting to see if FRS 102 is interpreted likewise IMI makes the clear statement that most transactions are for operating leases Tax and leases Graphic: [HMRC logo]

21. The 2006 and 2012 IMI policies are inevitably more detailed FRS 102 has specific sections 11 and 12 on financial instruments and eCPD modules on these will be available later in the year Financial Instruments Graphic: [market zigzag graph]

22. The key things to remember from this module are: As a minimum, new terminology is used Some accounting policies will have to change New accounting policies may be needed This is a good time to review all accounting policies Summary Graphic: [standard summary graphic]

23. Web Ride

24. …clear thinking

25. Please select the correct answer(s) and then click on “Submit” Which of the following are re-sentences that can be used when making judgements on suitable FRS 102 accounting policies? The requirements and guidance in an FRS or FRC Abstract dealing with similar and related issues The guidance in a UITF pronouncement Where an entity’s financial statements are within the scope of a relevant SORP The pervasive principles in Section 2 of FRS 102 Question 1

26. Please select the correct answer(s) and then click on “Submit” Which of the following are NOT a change in accounting policy? The application of an accounting policy for transactions that differ in substance from those previously occurring The application of a new accounting policy for transactions that did not occur previously or were not material A change which results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions A change to the cost model when a reliable measure of fair value is no longer available for an asset that an FRS would require or permit to be measured at fair value Question 2

27. Please select the correct answer(s) and then click on “Submit” Which of the following have to be disclosed when prior period errors have been discovered? The nature of the prior period error For each prior period presented, to the extent practicable, the net amount of the correction of the profit or loss for the year To the extent practicable, the amount of the correction at the beginning of the earliest prior period presented An explanation as to why it is not practicable to determine the now correct amounts to be disclosed Question 3

28. Now you have finished this module and acquired basic knowledge on FRS 102 accounting policies If you answered all the questions in the Quiz correctly, you can print out your personal certificate by clicking on the link Thank you for your attention! Finish Graphic: [standard finish graphic]