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). If you're still alive after yesterday's ramblings through s11.9a, then we'll proceed...
DAY 24 (11 Feb)
Having merrily despatched 11.9a, we come to the bizarrely-enumerated (or should that be alphabetised?) 11.9aA and 11.9aB. Heaven knows what they'll do if these paragraphs need further amendment. I'd suggest animating the reference so it dances in a slow circle. Mind you, I can relate to odd references. I once lived at an address which bore the number 49½. Not 49A, you understand (there was already one of those), but 'forty-nine-and-a-half'. We had to pay our mailman in Cuban cigars not to dump all our letters in the nearest bin in protest.
Back on the topic, what 11.9aA and aB do is insert the extra guidance on loans which are themselves index-linked to inflation, and loans which vary the return at some point in the loan. However, this latter variation must satisfy the conditions in 11.9a (covered yesterday) and is normally not contingent on future events, i.e. it is 'determinable' in advance. This allows for a dual-rate loan (e.g. 3% for 2 years, then 5% for the remainder).
Another objection to the March 2013 FRS 102 arose from the social housing sector. Here, it is common for loan rates to be varied due to the credit rating of the borrower - should this deteriorate, the lender needs the flexibility to amend the rate. Therefore, this is introduced as an exception to the 'determinable' clause, as are changes to market rates, and changes to levies applied by central banks or changes to relevant taxation or law. This allows lenders and borrowers to engage in more flexible loans that still meet the 'basic' condition.
What you can't have (as a basic instrument, at least) is a loan in which the lender can vary the terms unilaterally, without the external triggers listed above.
Well done for getting this far!
P.S. If you missed yesterday's instalment click here