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New accounting standards: Easing the burden? - Brendan Sheridan

Wed, Jan 30, 2013

Ten years – a long time, but at last we are seeing results!

Three new standards, two published in November and one due to be published by the Financial Reporting Council (FRC) in early 2013, represent a whole new framework for Irish and UK entities.  While those continuing to adopt full IFRS, mandatorily or otherwise, or the Financial Reporting Standard for Smaller Entities (FRSSE), will not be impacted, the vast majority of Irish entities will be.

Good news! One standard approximately of 250 pages will replace Irish/UK GAAP as we know it, 2500 pages of FRSs, SSAPS and UITF abstracts.

More good news!  Much of the page-filling disclosures will no longer be required of individual companies within a group, provided certain conditions are met.

In this article we shall deal with the standards already published and later in the year we shall return to comment on the third standard, which is yet to be published.  All three have the objective of moving towards a framework which is consistent with IFRS, while retaining much of what many be considered as being important options and other characteristics of current Irish GAAP.

Standards published

The two standards published in November 2012 by the FRC are FRS 100 ‘Application of Financial Reporting Requirements’ and FRS 101 ‘Reduced Disclosure Framework’.

FRS 100 establishes how to select the appropriate accounting framework and other fundamental areas including transition provisions and the equivalence of accounting frameworks.

FRS 101 introduces a new Reduced Disclosure Framework (RDF) enabling individual entities within a group to use the recognition and measurement bases of IFRS, consistently with group accounting policies, while being exempt from having to make a number of disclosures required by full IFRS in their financial statements.

Yet to be published is FRS 102 – the standard which will replace current Irish GAAP for the majority of Irish entities.  FRS 102 will also have disclosure exemptions for individual companies within a group.

The Reduced Disclosure Framework

The remainder of this article shall focus on the RDF under FRS 101.  There are significant benefits for groups with potential efficiencies to be achieved with regard to both the accounts production and consolidation processes.

What are the qualifying criteria?

Companies can take advantage of RDF if certain conditions are met:

  • The company must be a qualifying entity, as explained below
  • The shareholders of the company must have been notified in writing and make no objection to the use of exemption
  • The company must include in its financial statements:
    • A brief narrative summary of the exemptions adopted
    • The name of the parent in whose group financial statements it is consolidated
    • Details on where those group financial statements may be obtained.

The group financial statements must be prepared in a manner equivalent to the general provisions of the EU 7th Directive which includes not only IFRS but also the accounting standards of a number of other countries, as permitted by the EU, USA, Japan and certain others.

What entities qualify?

A qualifying entity is a member of a group where the parent of that group prepares publicly available consolidated financial statements which are intended to give a true and fair view (of the assets, liabilities, financial position and profit or loss) and into which that entity is included via consolidation.  This applies to a parent entity’s separate financial statements as well as those of subsidiaries.  A charity may not be a qualifying entity.

For many of the disclosures, ‘equivalent’ disclosures are required in the consolidated financial statements of the group.  Exemption from those disclosures is not available if this is not the case.

What exemptions are available?

The exemptions that are available are set out in the following table:


Disclosure exemption
Cash flow statement Complete exemption from preparing a cash flow statement.
Share-based payments*
 Exemption from most of the disclosures required by IFRS 2 except for a description of the schemes and certain details about options exercised in the year and options outstanding at the year end.

For a subsidiary company, this exemption applies only to arrangements involving the equity instruments of another group entity.

For an ultimate parent, this exemption applies only to arrangements involving its own equity instruments and its separate financial statements must be presented alongside the group consolidated financial statements.

IFRSs issued but not effective

The listing of new or revised standards that have not yet been adopted (and information about their likely impact) may be omitted.

Assumptions and sensitivities significant for an impairment review*

Paragraphs 134 and 135 of IAS 36 require extensive disclosures for each cash generating unit which contains goodwill or an intangible asset with an indefinite life. Exemption is provided from most of these requirements, in particular in relation to assumptions and sensitivities.
Business combinations*
Exemption from many of the disclosure requirements of IFRS 3 for business combinations during the period or after the end of the period. Certain basic disclosures including the consideration paid and a table of assets and liabilities acquired are still required.

Cash flows from discontinued operations*

Exemption from providing an analysis of cash flows relating to discontinued operations.

IFRS 7 Financial instrument disclosures*

Complete exemption from all of the disclosure requirements of IFRS 7. This exemption is not available to a financial institution (see below).

IFRS 13 Fair value measurement*

Complete exemption from all of the disclosure requirements of IFRS 13. Once adopted, IFRS 13 replaces the fair value measurement disclosure requirements of IFRS 7 and extends them to other assets and liabilities. A financial institution (see below) may not use the exemption from IFRS 13

in relation to financial instruments but may use it in relation to other assets and liabilities.

Related party disclosures

Exemption for related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to a transaction is wholly owned by such a member. Also exemption from disclosure of compensation for key management personnel.

Comparatives information

Exemption from comparatives for movements on share capital, PP&E, intangible assets, investment property and biological assets.

Exemption from the requirement of IAS 1 to present a third balance sheet in some circumstances.

Capital management

Exemption from the capital management disclosure requirements of IAS 1. This exemption is not available to a financial institution.

 *Equivalent disclosures are required in group financial statements.         


Disclosures relating to financial instruments and capital management are not available to ‘financial institutions’. FRS 100 defines a ‘financial institution’, which includes a long list of classes of entity such as banks, building societies, credit unions, insurance companies and investment entities.  A change made after the exposure draft in the final edition of FRS 100 is that the definition includes ‘any other entity whose principal activity is to generate wealth or manage risk through financial instruments’.  For some entities it will not be immediately clear whether they fall within the definition, although it is considered that the focus should be on entities similar to those listed in the definition.  Further guidance may be necessary.

How do qualifying entities make the change?

Irish company law permits the financial statements of the parent company and subsidiaries to be prepared in accordance with either IFRS (IAS accounts) or Irish GAAP (Companies Act accounts).

Qualifying entities that avail of the RDF will have to prepare financial statements which accord with the presentation requirements and certain disclosure requirements of the Companies Acts 1963 to 2012. All financial statements prepared in accordance with the RDF are ‘Companies Act accounts’.  Therefore, subsidiaries currently preparing IAS accounts may be able to avail of the RDF but will have to comply with certain Companies Acts requirements.

Qualifying entities currently applying Irish GAAP will firstly have to transition to IFRS, in accordance with the principles of IFRS 1 on First-time Adoption if they wish to avail of the FRS 101 disclosure exemptions.  The effort required to achieve this will have to be balanced with efficiencies that may be achieved in the consolidation process, and the reduced disclosures.

Some groups may already be considering plans to rationalise the group structure and may see it as a good opportunity to streamline accounting throughout the group and avail of RDF.

Are there company law issues?

Changes made to Irish company law in December 2012 ease the way for companies to avail of the RDF under FRS 101.  Previous to that, companies adopting IFRS could only change to Irish GAAP if there was a ‘change in relevant circumstances’.  This limitation has now been removed enabling companies to effectively have freedom in their choice of accounting framework.  For financial years ending on or after 13 December 2012, companies are able to change their accounting framework every five years.  The requirement for a ‘change in relevant circumstances’ continues to apply to any proposal for a change in framework within a five year period.

Groups will also have to keep in mind the requirement of company law to use the same accounting framework for all group entities unless there are good reasons not to do so.


Change is no longer hovering beyond the horizon but coming clearly into view.  With the exception of companies possibly choosing to adopt FRSSE, which itself may be subject to change in due course, companies or groups currently following Irish GAAP will be required to move to FRS 101, FRS 102 or full adopted IFRS for periods beginning on or after 1 January 2015, with comparatives required from 1 January 2014.  Early adoption is possible, as early as 2012 for FRS 101.

Companies should start thinking now about the possible impact on their financial statements and the wider business considerations of change, including tax, distributable profits, bank covenants, performance based incentives, systems and other resources.


Further information may be obtained in the special editions of our Financial Reporting Brief at www.deloitte.com/ie/frb



Brendan Sheridan is Director Financial Reporting Services at Deloitte.

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