Comments from ACCA to the Financial Reporting Council
20 March 2014
The proposed amendments in the FRED arise from two developments in IFRS (Investment Entities - amendments to IFRS 10, IFRS 12 and IAS 27, and recoverable amount disclosures for non-financial assets - IAS 36).
ACCA supports the amendments, to the extent that they clarify the status of ‘true and fair’ financial statements prepared under FRS 101 and the Companies Act 2006. As set out below, we also support an effective date for the amendments which is the same as for FRS 101 generally.
In our specific comments below, we do also query whether FRS 101 should also include a reminder of the disclosure requirements relating to the true and fair ‘over-ride’. We also question whether, indeed, it is appropriate for FRS 101 to refer to IFRS 10 on Consolidated Financial Statements.
Question 1
Do you agree with proposed amendments to FRS 101 Reduced Disclosure Framework? If not, why not?
ACCA supports the addition of para. 4A into FRS 101, and the amendment to para. 6, insofar as these changes strengthen the compliance of FRS 101 with legislation, and make clear the need for such compliance when preparing financial statements in accordance with the Standard.
We also agree with the proposed relaxations in certain disclosures set out in para.130(f) of IAS 36 (proposed amended para. 8(l) of FRS 101). As with other relaxations from disclosure requirements in the same Standard, we agree that the detail would not need to be included in the individual financial statements prepared under FRS 101, as it is disclosed in the group financial statements prepared under IFRS.
In principle, ACCA welcomes the clarification that the requirement for investment entities not to consolidate, under IFRS 10, is compatible with an option available in national legislation (proposed paras. AG1(gA) and AG1(gB) of FRS 101).
However, we would question whether it is appropriate to include an extract from IFRS 10 within FRS 101, and to refer by implication to consolidated financial statements in the proposed amended para. A4.10. FRS 101 applies only to entities which are, in any event, not preparing consolidated financial statements, and so the consideration of an exception from the requirement to consolidate in IFRS 10 should not be necessary, in the context of the Standard.
As indicated in the section on ‘The Accounting Council’s Advice’ (para 13), the recognition of the investments at fair value via profit / loss indicates a departure from legislation, on the grounds of a true and fair view. We suggest that the FRC considers whether it would be helpful to draw attention, in FRS 101, to the fact that this ‘over-ride’ has to be explained in the notes to the financial statements prepared under the Standard.
Question 2
Do you agree with the proposed effective date? If not, why not?
ACCA agrees with the alignment of the effective date for these changes with FRS 101 generally, and with the principle that with early adoption should be permissible, to the extent that the changes to the related IFRS can be applied. These proposals provide a consistency in applying FRS 101, and with the adoption of related amendments to IFRS.