In the November 2013 issue of Housing Technology, Karen Conneely, the group commercial manager for Real Asset Management wrote about how being ready for the new FRS 102 regulations would dictate the need for a proactive and comprehensive programme of preparation. But as the deadline grows ever nearer, are you ready?
So, let’s do a quick recap. What is FRS 102?
FRS 102, which will officially come into force in March 2015, is based on the international financial reporting standards for SMEs but has been amended for the UK market. It will change the way accounts are currently prepared under UK GAAP and prompt an overhaul of the format of financial statements and the disclosures required. Moreover, it will change the recognition criteria for various assets and liabilities, which in turn will affect how some items are measured. It will have implications for the treatment of certain gains and losses compared with the current methodology.
For housing providers, it will mean a difference in how they report historic costs and grants. In particular, FRS 102 aims to reduce the balance sheet to a point where it only shows the true value of its properties, with the grant slowly released over time.
Under the new guidelines, grants will be treated in one of two ways. Primarily, under an accrual method (for those accounting at cost), grants will be classified as capital or revenue, with capital grants recognised as income over the economic life of the building and revenue grants recognised as cost. Alternatively, under the performance method (for those accounting at valuation) grants will be taken as income when performance criteria specified in the grant conditions are met. Extra work will be created at the forthcoming year-end, where additional reporting will be required to compare values from SORP 2010 to SORP 2014.
So if you haven’t already started, now is the time to prepare for the move; by March 2015 it will be too late. Follow the easy steps below to get ready for FRS 102 ahead of time and the transition will be smooth and stress free.
- Ditch the spreadsheet – Housing providers that are currently reliant on spreadsheets or rigid in-house systems may not be able to handle these requirements as easily or effectively. Spreadsheets generally provide insufficient reporting or audit capability. Similarly, in-house systems are often inflexible and give organisations no ability to model or reclassify assets as things change.
- Be flexible – You can prepare by ensuring your accounting systems are flexible in how they handle data. They will need to be agile enough to allow them to treat the accrual of grants differently, enabling them to be released over longer periods of time.
- Ask for advice – A specialist partner will not only be able to deliver practical tools that can help save time and provide immediate visibility of real-time accounting implications, but they will also be able to play an important role as a strategic advisor with sector-specific knowledge and experience.
Karen Conneely is the group commercial manager for Real Asset Management.