Risk & Economy » Regulation » What FDs need to focus on when it comes to FRS

What FDs need to focus on when it comes to FRS

Finance heads need to focus on investment property rented to another group entity, classification of financial instruments, intangible assets acquired in a business combination and definition of a financial institution with regards to FRS

When it comes to financial reporting compliance, and the Financial Reporting Standards in particular, there has been a huge amount to keep on top of in recent years.

Important changes that were announced all the way back in December 2017 only came into effect from January 2019.

Businesses will be starting to think about their first set of year-end accounts under the new rules, with typically nine months to get them to Companies House, unless a public company.

And now we’re in February, the first drafts of the set of accounts may be starting to trickle through in the coming weeks.

IRIS was at the forefront of delivering FRS compliant accounts. Indeed, we did so well ahead of the initial mandatory deadline, allowing our customers time to adapt and prepare for the changes.

The 2017 amendments from the Financial Reporting Council (FRC) came in its triennial review of FRS 102, with some changes also filtering down to FRS 105.

Four key points emerged that CFOs had to pay special attention to:

  1. Investment property rented to another group entity
  2. Classification of financial instruments
  3. Intangible assets acquired in a business combination
  4. Definition of a financial institution

Investment Properties

Let’s focus on the first of the four, which is key for finance directors to be on top of.

This is an area that has caused some confusion, particularly around how to treat any fair value gains and losses on Investment Properties under FRS 102.

Previously, entities were required to measure all investment property at fair value unless the fair value cannot be determined without undue cost or effort, in which case it is measured at cost less depreciation and impairment, until such time that a reliable measure of fair value can be determined.

This undue cost or effort exemption was removed, and all investment properties rented to a third party were then required to be measured at fair value.

Before going further, it’s worth looking at how investment property is defined. The regulations state its definition as:

“Property (land or a building, or part of a building, or both) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both, rather than for:

“(a) Use in the production or supply of goods or services or for administration purposes, or

(b) Sale in the ordinary course of business.”

The property is deemed ‘investment property’ if it is used to earn rentals or is being held until its value reaches an optimum price – at which point the entity will sell the property to realise its fair value. Land and a property in the course of construction can also be classified as ‘investment property’.

Fair value gains and losses

The important points to note where investment property is concerned is that all such properties must be remeasured to fair value at each balance sheet date and directors can carry out their own valuations.

Having said that, this will be a risk for the auditor if the company is audited as internal valuations are not independent.

Fair value gains and losses must pass through the profit and loss account – they are not taken directly to equity and reported as other comprehensive income. Deferred tax must also be taken into account.

The FRS 102 regulations from March 2018 contain an accounting policy choice for intra-group investment property only. This means such properties can be measured using the cost model (i.e. cost less depreciation less impairment) or at fair value through profit and loss.

If a group wishes to take advantage of this accounting policy choice then it can do, but if it wishes to early adopt this accounting policy choice then it must apply FRS 102 (March 2018) from the same date.


With so many regulations to stay on top of, it’s crucial your software is up to the challenge.

With IRIS Accounts Production, we’ve got all aspects of the compliance covered. As mentioned earlier in this article, we’ve been ready for these FRS changes for a long time, enabling our customers to become early adopters, well ahead of companies with accounting period’s starting on or after 1st January 2019.

In short: Why IRIS Accounts Production benefits your finance department

> Releases up time by automating statutory accounts preparation

> Provides a consistent, structured, guided process

> A fully iXBRL compliant solution

> Expert support from the IRIS Customer Support team

There’s an upward growth in finance directors adopting IRIS and we see this continuing. Will you be next in taking this step?

Let one of our team call you. Drop us an email at [email protected] or call us to arrange a time for an IRIS expert to ring you back 0344 844 9644.

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