Overarching differences between IFRS 19 and FRS 101.

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Introduction

Background

1FRS 101 Reduced Disclosure Framework is a Standard developed and maintained by the Financial Reporting Council (FRC). First issued in 2012, it sets out an optional reduced disclosure framework for qualifying entities in the UK, that otherwise apply the requirements of adopted IFRS.

2In May 2024, the IASB issued IFRS 19 Subsidiaries without Public Accountability: Disclosures. This voluntary Standard is part of IFRS Accounting Standards. It permits an eligible subsidiary to apply the recognition, measurement and presentation requirements in IFRS Accounting Standards, along with a reduced set of disclosure requirements. The Standard will be effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted.

3Both standards have similar objectives, i.e. enabling more cost-effective and streamlined reporting within groups, but there are significant differences in their application i.e. their scopes are different.

Purpose

4The main purpose of this document is to highlight the overarching differences between IFRS 19 and FRS 101. It is also intended to help stakeholders understand how the two reduced disclosure standards fit into the UK financial reporting framework.

5Overall, there are many differences between the specific reductions in disclosure requirements in IFRS 19 and the exemptions offered by FRS 101. For example:

IFRS 19 requires a statement of cash flows; FRS 101 financial statements do not require the preparation of a statement of cash flows.
IFRS 19 requires reduced disclosures for IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair Value Measurement; FRS 101 provides disclosure exemptions from IFRS 7 and 13, for entities other than financial institutions, provided that equivalent disclosures are included in the consolidated financial statements of the group in which the entity is consolidated.
IFRS 19 requires most of the disclosures for IAS 24 Related Party Disclosures; FRS 101 exempts qualifying entities from the requirements in IAS 24 to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member.

UK Accounting Frameworks

Background

6Section 395 of the Companies Act 2006 (the Act) defines the accounting frameworks to be used when an individual company produces its accounts. It permits the use of two accounting frameworks for the preparation of accounts by a company:

UK-adopted International Accounting Standards (IAS individual accounts); or
the framework set out in the Companies Act (Companies Act individual accounts).

7UK registered companies (except for charities) may choose to use either of these two frameworks when preparing their individual accounts. A similar provision for group accounts is included in section 403 of the Act.

8The table below compares how IFRS 19 and FRS 101 fit into the UK financial reporting framework:

Table 1: IFRS 19 and FRS 101 within the UK financial reporting framework
IFRS 19
If the UKEB endorses IFRS 19 for use in the UK, it would become part of UK-adopted international accounting standards. Accordingly, eligible subsidiaries electing to use IFRS 19 would be preparing IAS accounts. Information about the UKEB endorsement project for IFRS 19 can be accessed here.
A company that currently applies UK GAAP and wishes to use IFRS 19 would be deemed to have transferred from the Companies Act accounting framework to the IAS accounting framework. If such companies wish to revert to UK GAAP in a subsequent reporting period, they will need to ensure that they comply with the Companies Act 2006 provisions in relation to changes in accounting frameworks.

UK company law requirements applicable to Companies Act accounts

9The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) sets out a number of requirements applicable to Companies Act accounts prepared in accordance with FRS 101.

10In order to achieve compliance with the Regulation, FRS 101 has made a number of amendments to adopted IFRS[^2]. For example:

A qualifying entity can choose to adapt the balance sheet and profit and loss account formats in Schedule 1 to the Regulations. Under FRS 101, IFRS 18 Presentation and Disclosure in Financial Statements[^3] is amended to enable compatibility with the Regulations Section B The Required Formats for Accounts.
Schedule 6 paragraph 9(6) of the Regulation permits negative goodwill to be transferred to the profit and loss account in accordance with certain principles and rules. Under FRS 101, IFRS 3 Business Combinations[^4] is amended to require negative goodwill to be separately disclosed on the face of the statement of financial position on the acquisition date, immediately below goodwill, to be released to profit or loss over time.
Paragraph 22 of Schedule 1 to the Regulations requires acquired goodwill to be written off over its useful economic life. Under IFRS 3, goodwill is not amortised. FRS 101[^5] has not amended IFRS 3. Therefore, the non-amortisation of goodwill will usually be a departure from the Regulations, for the overriding purpose of giving a true and fair view. Additional disclosures are required giving the 'particulars of the departure, the reasons for it and its effect'.

11In contrast, if adopted in the UK, IFRS 19 would be part of the IAS accounting framework. The requirements set out in the Regulations are not relevant to companies using that framework.

12Consequently, an eligible subsidiary choosing to use IFRS 19 would apply the recognition, measurement and presentation requirements in IFRS Accounting Standards. Therefore, these amendments to adopted IFRS under FRS 101 would not be relevant to an eligible subsidiary applying IFRS 19.