March 2014

Breaking News UK

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Breaking News UK − UK and international financial reporting developments

Welcome to Breaking News UK, a monthly bulletin from KPMG in the UK that brings you information on UK and international standards in the accounting and regulatory space. This bulletin is based on articles from KPMG IFRG Limited's Breaking News, which are available on the Global IFRS Institute site.

There are quick links above, giving you easy access to KPMG's Global IFRS Institute and past editions of Breaking News UK.

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FRC issues new accounting standard for insurance

The Financial Reporting Council (FRC) has published new accounting and reporting requirements for entities with insurance contracts, set out in FRS 103 Insurance Contracts. FRS 103 applies for those entities applying FRS 102, whether or not they are ‘insurance companies’, and applies to insurance contracts (including reinsurance contracts) that the entity issues and reinsurance contracts that the entity holds, as well as other financial instruments that the entity issues with a discretionary participation feature.

FRS 103 allows entities, generally, to continue with their current accounting practices for insurance contracts, but permits them the same flexibility to make improvements (subject to legal and regulatory requirements) as those UK entities applying IFRS 4 Insurance Contracts have. One of the reasons for this ‘grandfathering’ approach is that the FRC expects FRS 103 to have a limited life. Once the IASB has issued its updated standard on insurance contracts, the FRC will review FRS 103 and consult on any proposed changes.

The FRC has also issued Implementation Guidance, which accompanies, but is not part of, FRS 103. This non-mandatory guidance has been developed from material that was previously included in either FRS 27 Life Assurance or the Association of British Insurers’ Statement of Recommended Practice on Accounting for Insurance Business (the ABI SORP) and provides guidance on applying:

  • the requirements of FRS 103;
  • the requirements or principles of FRS 102 The Financial Reporting Standard applicable to entities in the UK and Republic of Ireland by entities with general insurance business or long-term insurance business; and
  • the requirements of Schedule 3 to the Regulations1.

FRS 103 is effective for periods beginning on or after 1 January 2015 and is available to
download here
. The FRC’s Implementation Guidance is available to download here.

1 The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410)

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FRC’s Conduct Committee review finding – Anglo-Eastern Plantations plc

The FRC has reported on its review finding in respect of Anglo-Eastern Plantations plc‘s financial statements for the year ended 31 December 2010. Following the review, Anglo-Eastern has agreed to restate the fair value of its palm oil trees (accounted for as biological assets using a present value technique). The fair value will now reflect a contributory asset charge for the land occupied by the palm trees, which is based on current market data rather than historical data.

The FRC’s review findings are available to download here.

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Newly effective standards: are you prepared?

For those companies with a 31 March year end, the following will apply for the first time in their annual financial statements:

  • Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)
  • Government Loans (Amendments to IFRS 1)
  • Disclosures: Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)
  • IFRS 13 Fair Value Measurement
  • IAS 19 Employee Benefits (2011)
  • IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
  • Annual Improvements to IFRS 2009–2011 Cycle – various standards

Note that the consolidation suite of standards (IFRSs 10 to 12, IASs 27, 28) are effective in the EU for periods starting on or after 1 January 2014 but are also available for early adoption.

KPMG IFRG Limited's In the Headlines – IFRS: New standards sets out those standards/ interpretations that are newly effective and where you can find further guidance.

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New non-financial reporting requirements for large listed companies and financial institutions across EU

The European Parliament and Council have agreed to amend existing EU legislation to require large public interest entities to disclose information on social, environmental and diversity matters.

The draft Directive, which is expected to be adopted by the European Parliament in April, is non-prescriptive and would allow companies to use international, European or national guidelines that they consider appropriate as a reporting framework.

The UK’s Strategic Report regulations have already introduced disclosure requirements on such matters that go beyond the draft Directive.

For further information on the new proposals, refer to the EC Statement. The FRC has also issued a press release, which is available to download here.

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Paths diverge on lease accounting

Full convergence on lease accounting seems unlikely after the International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) disagreed on key aspects of the proposals in their March meeting.

Although both Boards remain committed to on-balance sheet recognition of leases by lessees, they could not agree on exactly how lessee accounting should work. The IASB favoured a single model for all leases but the FASB preferred a dual model that would allow straight-line recognition of total lease expense in many cases.

Read KPMG IFRG Limited’s IFRS Newsletter: Leases for a summary of recent developments.

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Financial instruments: 2018 effective date for new standard

With deliberations on the classification and measurement and impairment phases complete, the IASB has decided tentatively on an effective date for IFRS 9 Financial Instruments (2014) of 1 January 2018. A final standard is expected in mid-2014.

Refer to KPMG IFRG Limited’s IFRS Newsletter: Financial Instruments for a summary of recent developments in this area.

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A change in direction for FASB’s insurance project

The FASB has decided to change the future direction of its insurance contracts project, and will consider targeted improvements to current US GAAP. It will also limit the project’s scope to insurance entities, although contracts written by non-insurers may be added back as the project progresses.

These decisions are likely to significantly limit convergence between the IASB’s and FASB’s insurance contracts projects.

Meanwhile, the IASB’s tentative decision on a 2018 effective date for its financial instruments standard may make it easier for insurers to adopt the new insurance contracts IFRS at the same time.

Refer to KPMG IFRG Limited’s IFRS Newsletter: Insurance for a summary of recent developments.

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