To mark this momentous year for UK GAAP, I'm embarking on a mission to work my way through FRS 102, reading a portion on each working day of 2015 and writing a short blog entry on my thoughts and musings (be they few or many).
It's time to get strapped in - we're plummeting into financial instruments today...
DAY 20 (3 Feb)
Sections 11 and 12 are the evil twins of FRS 102. Both deal with financial instruments - how they're recognised, measured, derecognised and disclosed. Section 11 deals with basic instruments and section 12 with other, non-basic instruments, but this is no 'good cop, bad cop' scenario. They both pack a punch.
So far in this blog, I've been whizzing through the standard at a fair old clip, but section 11 demands a slower, more careful approach. That's because these requirements are, for the vast majority of us, utterly new. Current UK GAAP has kindly allowed most of us to deal with derivatives in a straightforward sense, often by simply omitting them from the balance sheet. That's no longer going to be possible. Sections 11 and 12 open up like an undiscovered landscape, and we'll need to get our bearings and proceed cautiously.
But I may be assuming too little of you, dear reader; some of you will have been using the 'fair value suite' of current UK standards (most notably, FRS 26) which is aligned to current international GAAP on financial instruments (FRS 26 is a UK-branded copy of IAS 39). From this vantage point, FRS 102's requirements are more likely to be annoying than baffling, since they are familiar but are not the same as those in FRS 26 (or the current IAS 39, as adopted in the EU). To add to the confusion, the international approach itself is changing; the new IFRS 9 is distinctly different from IAS 39 and (in some respects) from FRS 102 as well.
So to reduce the risk of annoying adjustments when moving from either 'old' international GAAP (IAS 39 or FRS 26) or the 'new' IFRS 9 to FRS 102, para 11.2 allows entities to instead opt for either IAS 39 or IFRS 9 for recognition and measurement. FRS 102 will still apply for disclosure purposes. This should smooth the transition to the new standard.
For the rest of us, it's going to be one of three new and painful paths: FRS 102, IAS 39 or IFRS 9. We'll begin tomorrow...
P.S. If you missed yesterday's instalment click here