FAR - UK GAAP and IFRS Differences

How many qualitative characteristics does the IFRS conceptual framework include, and how many are included in UK GAAP (FRS 102)?

IFRS has 6 qualitative characteristics (2 fundamental, 4 enhancing).

FRS 102 identifies 10 qualitative characteristics (no differentiation between enhancing and fundamental).

What are the four qualitative characteristics that are identified in FRS 102 but not IFRS conceptual framework?

- Materiality

- Substance over form

- Prudence

- Balance between benefit and cost

What is the difference between the IFRS definition for an asset compared to the FRS 102 definition for an asset?

IFRS: 'potential to produce economic benefits.'

FRS 102: 'expected economic benefits are expected to flow to the entity.'

What are the 3 key formatting/presentational differences between IFRS Standards and FRS 102.

1. IFRS provides recommended formats, whereas FRS 102 is prepared in accordance with CA2006, therefore has a prescribed format.

2. IFRS does not allow a 'statement of income and retained earnings' in place of the SOCI and SOCE whereas FRS 102 does allow this option in certain circumstances.

3. Both standards permit the use of the 'true and fair override' in order to satisfy the fair presentation requirement.

What is the difference between the valuation of inventories for IFRS and UK GAAP?

IFRS uses NRV which i based on fair value achieved in an open market. Whereas instead of referring to NRV, FRS 102 refers to the estimated selling price, less costs to complete and sell. Selling price is estimated by the specific entity.

What is the difference between the presentation of discontinued operations in IFRS and UK GAAP and what FRS 101 exemption is available?

According to IFRS, discontinued operations are shown as one line in the statement of profit or loss, with further detail provided in the notes to the accounts. Whereas in FRS 102, discontinued operations are shown in a separate column in the income statement.

FRS 101 allows an exemption from disclosing cash flows from discontinued operations (following IFRS presentation).

What is the difference between the treatment for non-current assets held for sale in IFRS and UK GAAP?

According to IFRS standards, NCAs held for sale can be categorised when certain criteria are met as current and are no longer depreciated (as it is expected that they will be sold within the year).

Whereas in FRS 102, no held for sale non-current asset category exists, so assets continue to be depreciated up until disposal.

What is the difference in treatment of revenue between IFRS and UK GAAP standards?

IFRS adopts the 5 stage approach to revenue recognition. FRS 102 does not have a 5 stage approach, although treatment gives a similar outcome.

What is the difference in treatment of borrowing costs between IFRS and UK GAAP?

According to IFRS, eligible borrowing costs must be capitalised, whereas under FRS 102, there is a choice to capitalise or expense borrowing costs.

What are the 2 key differences in the treatment of intangible assets under IFRS standards in comparison to UK GAAP?

1. Under IFRS, when criteria are met, development costs must be capitalised. Whereas under FRS 102 there is a choice to capitalise or expense.

2. Under IFRS, intangibles can have an indefinite useful life, whereas under FRS 102 all intangibles have a finite useful life, with a rebuttable presumption that this does not exceed 10 years.

What is the difference in the treatment of capital grants between IFRS and UK GAAP?

Under IFRS there is a choice of either using the deferred income or netting off method, whereas under FRS 102 only the deferred income method should be applied.

What is the difference in the initial recognition of financial instruments between IFRS and UK GAAP?

Under IFRS the initial measurement is at fair value, whereas under FRS 102 the initial measurement is at transaction price.

What is the FRS 101 exemption that exists around IFRS 3 Business Combinations?

There is an exemption from disclosure of factors making up goodwill provided these are given in the consolidated accounts which the company belongs.

What are 3 key differences in treatment of goodwill under IFRS compared to UK GAAP?

1. Under IFRS, goodwill is not amortised but tested annually for impairment instead, whereas under FRS 102, goodwill is amortised over useful life (10 year presumption).

2. Under IFRS the impairment reversal is not allowed for goodwill, whereas it is for FRS 102.

3. Under IFRS, gain on bargain purchase is recognised through the SPL whereas under FRS 102 it is called negative goodwill and is shown separately in the asset section of the CSFP as a deduction from positive goodwill.

What is the difference in the treatment of acquisition costs under IFRS compared to UK GAAP?

Under IFRS, acquisition costs are expensed through the SPL, whereas under FRS 102 they are added to consideration.

What is the difference in the measurement of NCI under IFRS compared to UK GAAP?

Under IFRS, there is the choice between fair value method or proportionate method, whereas under FRS 102, only the proportionate method is allowed.

What is the difference in allowance of exclusions in consolidated financial statements under IFRS compared to UK GAAP?

Under IFRS no exclusions are allowed from consolidation.

However under FRS 102, the subsidiary should be excluded from consolidation where severe long-term restrictions apply or where subsidiary is held exclusively for resale purposes.

What is the difference in the treatment of goodwill of associates or joint ventures under IFRS compared to UK GAAP?

Under IFRS, no separate goodwill is recognised for associates or joint ventures, whereas under FRS 102, implicit goodwill should be recognised and amortised.

What is the difference in requirements of related party disclosures under IFRS compared to UK GAAP?

IFRS holds standard IAS 24 Related Party Disclosures, whereas FRS 102 does not require the disclosure of transactions entered into between 2+ members of a group (as long as subsidiary is wholly owned by other party).

What FRS 101 exemptions is available around financial instrument disclosures?

A complete disclosure exemption is allowed provided that the equivalent disclosures are in the consolidated accounts to which the company belongs.

What is the difference in the treatment of leases under IFRS compared to UK GAAP?

- Under IFRS, all leased assets with term > 12 months are now to be recognised as 'right of use asset' and therefore capitalised unless of 'low value'. Leases of < 12 months are charges to the SPL on a straight line basis.

- Under FRS 102, there is a distinction made between operating and finance leases. A finance lease is a lease that transfers substantially all the risks and rewards of ownership to the party using the asset. An operating lease is any lease other than a finance lease. Finance leases are accounted for like right of use assets, whereas operating leases are charged to the P&L on a straight line basis.

What is the difference in the treatment of proceeds arising from sale of items produced in the process of bringing PPE to necessary location/condition under IFRS compared to UK GAAP?

Under IFRS, these proceeds are recognised in the SPL in the period earned, whereas under FRS 102 these proceeds are deducted from the carrying amount of the PPE item (therefore reducing depreciation expense).