UK GAAP 2019 is the third edition of the EY publication on UK GAAP following the replacement of all previous UK accounting standards with new financial reporting standards. The original publication, New UK GAAP 2015, was published in 2015 and a revised edition, UK GAAP 2017, was published in 2017. This publication has been fully revised and updated in order to:

• incorporate the amendments made to FRSs 100-104 in December 2016, May 2017, July 2017 and December 2017. This includes the Amendments to FRS 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland – Triennial review 2017 and Incremental improvements and clarifications (published in December 2017). (Triennial review 2017) The changes made by the Triennial review 2017 are discussed in each relevant chapter;
• include the changes to legal requirements for UK companies and LLPs introduced since the previous edition; and
• provide further insight on the many issues relating to the practical application of the new UK accounting standards, based on the extensive experience of the book's authors in dealing with recent day-to-day issues. In particular, additional guidance on accounting for group reconstructions, including hive-up, hive-down and hive-across transactions, has been included in Chapter 17.

This book comprises 34 chapters. Each chapter includes a detailed list of contents and list of illustrative examples. The book contains an index of references to standards and interpretations.

FRS 101 – Reduced Disclosure Framework – Disclosure exemptions from EU-adopted IFRS for qualifying entities – uses the recognition and measurement principles of International Financial Reporting Standards (IFRS). In certain circumstances, FRS 102 also refers entities to IFRS. Detailed guidance on applying IFRS can be found in EY's publication, EY International GAAP 2019®.

With effect from accounting periods beginning on or after 1 January 2015 (or, for small entities that choose to apply the small entities regime and micro entities that choose to apply the micro entities regime, accounting periods beginning on or after 1 January 2016), all previous UK GAAP was replaced with new Financial Reporting Standards (FRSs 100-105) along with the associated accounting requirements of the Companies Act 2006 (CA 2006).

Since the publication of UK GAAP 2017, further amendments have been made to FRSs 100-104. The most significant of these were as a result of the first triennial review of the new standards. When FRS 102 was issued originally in March 2013, the FRC indicated that it would be reviewed every three years. The first triennial review was completed in December 2017 and revised versions of FRSs 100-104 were issued in March 2018 reflecting those amendments as well as incorporating amendments issued subsequent to the previous versions of the standards. The Triennial review 2017 amendments are mandatory for accounting periods beginning on or after 1 January 2019. These amendments can be adopted early provided that all are applied at the same time although there are two exceptions to this general rule.

The Triennial review 2017 amendments were developed in response to stakeholder feedback and therefore address a number of implementation issues reported to the FRC, many of which were highlighted in the previous edition of this publication. In our view, the principal changes to FRS 102 which are likely to have the most impact relate to:

• the introduction of an accounting policy choice for entities that rent investment property to other group entities, to reclassify those properties as property, plant and equipment and measure those properties either at cost (less depreciation or impairment) or at fair value;
• the introduction of more guidance supporting the conditions for classifying a financial instrument as ‘basic’, including a principles-based approach for classification of a debt instrument as a ‘basic’ financial instrument. Other changes to financial instrument accounting include an amendment to allow loans with two way compensation clauses (common in social housing loans) to be classified as ‘basic’ financial instruments and guidance on debt-for-equity swaps;
• for small entities, the ability to initially measure a loan from a person within a directors' group of close family members that includes at least one shareholder at transaction price rather than present value;
• a revised definition of separable intangible assets acquired in a business combination, which is likely to result in fewer intangible assets being separated from goodwill. However, entities may choose to separately recognise additional intangible assets if this provides useful information to the entity and to the users of its financial statements;
• an amended definition of a financial institution, which removes references to ‘generate wealth’ and ‘manage risk’ as well as eliminating stockbrokers and retirement benefit plans from the definition. This is intended to reduce interpretational difficulties and the number of entities meeting the definition of a financial institution; and
• an amendment to allow the tax effect of gift aid payments by subsidiaries to their charitable parents to be taken into account at the reporting date when it is probable that the gift aid payment will be made in the following nine months.

Following consultation, the FRC did not introduce elements of IFRS 9 – Financial Instruments, IFRS 15 – Revenue from Contracts with Customers – and IFRS 16 – Leases – into FRS 102 in the Triennial review 2017. The FRC's current intention is to consider major changes to IFRS on a case-by-case basis and to monitor any implementation issues arising before any consultation process begins.

Going forward, the FRC now envisages that FRS 102 will be subject to periodic review every four to five years rather than the three year cycle originally envisaged. The reason for the change in time frame is to allow time for experience of the most recent edition of FRS 102 to emerge before seeking stakeholder feedback. However, the FRC will continue to assess emerging issues as they arise and therefore it is possible that there will be amendments issued outside the regular review cycle.

Since the publication of EY UK GAAP 2017, the FRC has issued amendments to FRS 101 with the main purpose of providing disclosure exemptions from IFRS 16 and to reflect the EU endorsement of IFRS 9. The amended definition of a financial institution discussed above also applies to FRS 101.

On 29 March 2017, the UK Government started the legal process of negotiating a withdrawal by the UK from the European Union (EU). Under the provisions of the relevant laws and treaties, the UK will leave the EU by 29 March 2019, unless either a deal is reached which results in a change to the date of departure, or the negotiation period is extended by unanimous consent of the European Council. On 14 November 2018 a Draft Agreement on the Withdrawal of the United Kingdom from the European Union was published. At the time of writing this publication, the draft agreement is subject to approval of the UK parliament. This approval is uncertain. Other scenarios remain a possibility.

After the EU referendum result, the FRC issued a press notice confirming that companies must continue to abide by the regulations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect. Many requirements that derive from EU legislation, treaties and directives have been directly incorporated into UK company law. As a result, even in the event of EU legislation ceasing to apply, UK financial and reporting regulations will not change until applicable company law and regulations are amended. In particular, the application of EU adopted IFRS is enshrined in the CA 2006 and nothing will change in that respect without a change to the CA 2006.

The Accounts and Reports (Amendment) (EU Exit) Regulations 2018 were laid in draft before Parliament on 31 October 2018. This draft Statutory Instrument amends certain provisions of the CA 2006 that refer to the EU, EEA or entities within these areas. The timing of the effective date of this proposed legislation depends on whether or not a transition period is agreed with the EU.

The UK will also need to establish its policy on the endorsement of future IFRSs. It appears likely, at the time of writing this publication, that a UK endorsement process will be established although any details are yet to be published.

Given the uncertain nature of the final terms of the UK's withdrawal from the EU, the final form of the draft legislation described above and the extent of further legislative and regulatory changes in the UK affecting the financial reporting framework, the matters referred to above are subject to change.

FRS 102 is much shorter in length than either IFRS or previous UK GAAP and, as a result, is less prescriptive on many issues. This publication includes our views on the judgemental areas we believe are likely to be most common in practice based on our experience of applying the new standards and similar issues encountered in applying IFRS. As experience of applying FRS 102 grows over time, we expect our views will continue to evolve. It is not possible for this publication to cover every aspect of company reporting. For some of the more complicated or less common areas which are not covered by FRS 102 and for which IFRSs provide relevant guidance, further explanations can be found in our publication International GAAP® 2019.

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We are deeply indebted to many of our colleagues within the UK organisation of EY for their selfless assistance and support in the publication of this book.

Our thanks go particularly to those who reviewed, edited and assisted in the preparation of drafts, most notably: Mike Bonham, Tony Clifford, Tim Denton, Bernd Kremp, Richard Moore and Kirsty Smith.

Our thanks also go to everyone who directly or indirectly contributed to the book's creation, including the following members of the Financial Reporting Group in the UK: David Bradbery, Denise Brand, and Mqondisi Ndlovu.

We also thank Jeremy Gugenheim for his assistance with the production technology throughout the period of writing.

The following references and abbreviations are used in this book:

References in index of standards:

Professional and regulatory bodies:

Accounting related terms:

The content of this book takes into account all UK accounting standards and exposure drafts extant as at November 2018.

References to the main text of each chapter to the pronouncements below for FRSs 100-105 are generally based on the version of the standard issued in March 2018 (which incorporate amendments made in December 2017 and earlier).

• 1 INTRODUCTION
• 2 SUMMARY OF FRS 100
• 3 DEFINITIONS
• 4 FRS 100 – APPLICATION OF FINANCIAL REPORTING REQUIREMENTS
  • 4.1 Scope of FRS 100
  • 4.2 Effective date
  • 4.3 Withdrawal of previous UK and Irish GAAP
  • 4.4 Basis of preparation of financial statements
    • 4.4.1 Company law and regulatory requirements governing financial reporting framework
    • 4.4.2 EU-adopted IFRS
    • 4.4.3 FRS 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland
    • 4.4.4 FRS 101 – Reduced Disclosure Framework
    • 4.4.5 Section 1A of FRS 102
    • 4.4.6 FRS 105 – The Financial Reporting Standard applicable to the Micro-entities Regime
    • 4.4.7 Considerations on choice of financial reporting framework
  • 4.5 Reduced disclosure framework
  • 4.6 Statement of compliance
    • 4.6.1 Related Companies Act 2006 requirements
  • 4.7 SORPs
    • 4.7.1 Status of SORPs
  • 4.8 Brexit
  • 4.9 Future development of FRS 102
• 5 TRANSITION
  • 5.1 Transition to EU-adopted IFRS
  • 5.2 Transition to FRS 101
  • 5.3 Transition to FRS 102
  • 5.4 Transition to FRS 105
  • 5.5 Impact of transition on distributable profits
• 6 COMPANIES ACT 2006
  • 6.1 Basis of preparation of financial statements
    • 6.1.1 Choice of IAS accounts and Companies Act accounts under the CA 2006
    • 6.1.2 CA 2006 restrictions on changes of financial reporting framework
    • 6.1.3 Consistency of financial reporting framework in individual accounts of group undertakings
  • 6.2 Companies Act requirements for the annual report and accounts
    • 6.2.1 Companies Act requirements for annual accounts
      • 6.2.1.A Companies Act accounts
      • 6.2.1.B IAS accounts
      • 6.2.1.C General – Companies Act accounts and IAS accounts
      • 6.2.1.D Interaction of the Small Companies Regulations with FRS 101 and FRS 102
    • 6.2.2 Companies Act requirements for annual reports
      • 6.2.2.A The Companies (Miscellaneous Reporting) Regulations 2018
      • 6.2.2.B Exemptions for micro, small and medium-sized companies
      • 6.2.2.C Additional requirements for quoted companies and companies with transferable securities admitted to trading on a regulated market
      • 6.2.2.D Additional requirements for Public Interest Entities (‘PIEs’)
  • 6.3 Preparation of consolidated financial statements
    • 6.3.1 Requirements of accounting standards to prepare consolidated financial statements
    • 6.3.2 Exemption from publishing the individual profit and loss account where group accounts are prepared
  • 6.4 Micro-entities regime
    • 6.4.1 Scope of the micro-entities regime
    • 6.4.2 Companies Act requirements for micro-entities
    • 6.4.3 Micro-entities in the Republic of Ireland
  • 6.5 Small companies
  • 6.6 Medium-sized companies and groups
    • 6.6.1 Qualification as medium-sized company
      • 6.6.1.A Size criteria for medium-sized companies and groups
      • 6.6.1.B Companies excluded from medium-sized companies
    • 6.6.2 Disclosure exemptions available for medium-sized companies
      • 6.6.2.A Disclosure exemptions available in the accounts and reports prepared for members
      • 6.6.2.B Abbreviated accounts
  • 6.7 Disclosures
    • 6.7.1 Disclosures required by the Regulations
    • 6.7.2 Existing Companies Act disclosures in the accounts and reports applicable to IAS accounts and Companies Act accounts
  • 6.8 Distributable profits
    • 6.8.1 Realised profits
    • 6.8.2 Qualifying consideration
    • 6.8.3 Realised losses
    • 6.8.4 Disclosure of distributable profits
    • 6.8.5 Impact of transition on distributable profits
• 7 FINANCIAL REPORTING COUNCIL (FRC) AND ACCOUNTING STANDARD SETTING
  • 7.1 Accounting standards setting
  • 7.2 Scope and authority of accounting standards
    • 7.2.1 Accounting standards and true and fair
  • 7.3 UK GAAP