Table of Comparison - 101 vs IASB ED

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02 December 2021
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The IASB published Exposure Draft ED/2021/7 Subsidiaries without Public Accountability: Disclosures in July 2021. The ED seeks to develop a reduced-disclosure IFRS Standard for subsidiaries without public accountability, which include companies that are not financial institutions or listed on a stock exchange.

FRS 101 Reduced Disclosure Framework sets out an optional reduced disclosure framework for the individual financial statements of subsidiaries, intermediate parents, and ultimate parents that otherwise apply the recognition, measurement and disclosure requirements of UK-adopted international accounting standards. This paper compares the two Standards using the following tables:

Contents

Table 1: Comparison of Companies Act accounts prepared in accordance with FRS 101 and IASB ED

Companies Act 2006 FRS 101 IASB ED
Applicable Accounting Framework
Companies Act 2006, section 395 defines the accounting frameworks to be used when an individual company produces its accounts. It permits the use of two accounting frameworks for preparation of accounts by a company: i) UK-adopted International Accounting Standards (IAS individual accounts) or ii) in accordance with the framework set out in the Companies Act (Companies Act individual accounts). Financial statements prepared by a qualifying entity in accordance with FRS 101 are Companies Act individual accounts. Therefore, those accounts must comply with the applicable provisions of Parts 15 and 16 of the Company Act 2006 and with The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) (the Regulations) 1. The reduced-disclosure IFRS Standard, when issued by the IASB and if adopted into UK-adopted international accounting standards, would be part of the IAS accounting framework.
UK 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 Companies Act 2006. A company that currently applies UK GAAP and wishes to use the draft standard, would be deemed to have transferred from the Companies Act accounting framework to the IAS accounting framework. Such companies will need to ensure that they comply with the Companies Act 2006 provisions in relation to changes in accounting frameworks.
Formats
A company (excluding banking and insurance companies) that produces Companies Act individual or group accounts can choose to adapt the balance sheet and profit and loss account formats in Schedule 1 to the Regulations. IAS 1 is amended to enable compatibility with the Regulations. The ED does not change the presentation requirements in IAS 1.
The format requirements for IAS 1 and those for the Regulations may be incompatible, for example, because of differences in the definition of: - fixed assets (non-current assets in IAS 1); - current assets; and - creditors falling due within or after one year (current and non-current liabilities in IAS 1). In addition, the Regulations require presentation of debtors falling due after more than one year within current assets. Under IAS 1 those items would be presented in non-current assets. Eligible subsidiaries that applying the draft Standard will be preparing IAS accounts and therefore the formats set out in Schedule 1 to the Regulations will not be relevant to those companies.
Negative goodwill
The Companies Act 2006 permits negative goodwill to be transferred to the profit and loss account in accordance with certain principles and rules. IFRS 3 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. IFRS 3 requires that negative goodwill is recognised as a gain in profit or loss at the acquisition date (IFRS 3.34). The IASB ED proposes no changes to these requirements.
The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
Non-amortisation of goodwill
Paragraph 22 of Schedule 1 to the Regulations requires acquired goodwill to be written off over its useful economic life. Under IFRS 3 Business Combinations goodwill is not amortised. FRS 101 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. Goodwill recognised in accordance with IFRS 3 is not amortised. The IASB ED proposes no changes to these requirements.
Additional disclosures are required giving the 'particulars of the departure, the reasons for it and its effect'. The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
Discontinued operations
The Regulations require an entity to show totals for turnover, profit or loss before taxation and tax arising from ordinary activities on the face of the profit and loss account. FRS 101 amended IFRS 5 to require the analysis of post-tax results of discontinued operations to be presented on the face of the statement of comprehensive income in a columnar format ie separately from continuing operations; a total column shall also be presented. IFRS 5 allows the analysis of post-tax results of discontinued operations to be presented on the face of the statement of comprehensive income or in the notes (IFRS 5.33). The IASB ED proposes no changes to these requirements.
The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
Assets and liabilities of a parent or subsidiaries
Entities preparing Companies Act accounts must comply with the measurement requirements of the Companies Act 2006. IFRS 1 First-time Adoption of International Financial Reporting Standards is amended to restrict the application of the first-time adoption options in paragraph D16 and D17 to situations where the measurement of assets and liabilities in the subsidiary's or parent's individual financial statements based on the consolidated financial statements would comply with FRS 101. IFRS 1 provides an option for a subsidiary that becomes a first-time adopter later than its parent, which allows the subsidiary to measure its assets and liabilities at the carrying amounts that would be included in the parent's consolidated financial statements, based on the parent's date of transition to IFRS (D16).
Under IFRS 1, if a parent becomes a first-time adopter later than in its consolidated financial statements, it shall measure its assets and liabilities at the same carrying amounts as in the consolidated financial statements (D17).
The IASB ED proposes no changes to these requirements.
The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
Realised profits.
The Regulations require that, subject to specific exemptions, Companies Act accounts only include profits realised at the balance sheet date in the profit and loss account. FRS 101 amended IAS 1 to clarify the precedence of the Companies Act 2006 requirements in relation to Companies Act accounts. IAS 1 requires the recognition of all income and expenses in profit or loss, unless otherwise required or permitted by an IFRS (IAS 1.88). The IASB ED proposes no changes to these requirements.
Entities measuring investment properties, living animals or plants, or financial instruments at fair value may transfer such amounts to a separate non-distributable reserve instead of carrying them forward in retained earnings but are not required to do so. The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
However, directors calculating profits available for distribution will need to follow the relevant legal requirements, as applicable.
Government grants
Off-setting of items that represent assets against items that represent liabilities is prohibited under the Regulations, unless specifically permitted or required. The option in IAS 16 Property, Plant and Equipment that permits the carrying amount of property, plant and equipment to be reduced by government grants in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance is removed. IAS 16 permits the carrying amount of property, plant and equipment to be reduced by government grants in accordance with IAS 20. The IASB ED proposes no changes to these requirements.
The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
Balance sheet off-setting
Offsetting of items that represent assets against items that represent liabilities is prohibited under the Regulations, unless specifically permitted or required. The option in IAS 20 that permits government grants related to assets to be deducted, in arriving at the carrying amount of the asset, is removed ie gross amounts must be presented. The IASB ED proposes no changes to these requirements in IAS 20 in relation to off-setting of government grants.
The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
Profit and loss account off-setting
Off-setting of items that represent income against items that represent expenditure is prohibited under the Regulations, unless specifically permitted or required. The option in IAS 20 that permits grants related to income to be deducted in reporting the related expense, is removed ie gross amounts must be presented. The IASB ED proposes no changes to these requirements in IAS 20 in relation to off-setting of government grants.
The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
Presentation of fair value gains and losses in other comprehensive income
Paragraph 40 of Schedule 1 to the Regulations sets out that where a financial instrument is accounted for as an available for sale financial asset, and is not a derivative, the change in value may be credited to or (as the case may be) debited from the fair value reserve. IFRS 9 Financial instruments requirement to present fair value gains or losses attributable to changes in own credit risk in other comprehensive income is expected to be reported as a departure from the requirement of the Regulations, for the overriding purpose of giving a true and fair view. The IASB ED proposes no changes to the requirements in IFRS 9 related to presentation of fair value gains or losses attributable to changes in own credit risk in other comprehensive income.
Additional disclosures are required giving the 'particulars of the departure, the reasons for it and its effect'. The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
Revenue
Paragraph 68 of Schedule 1 to the Regulations requires particulars of turnover to be disclosed, including the amount of turnover attributable to each class of business carried on by the company. Qualifying entities must comply with the requirements of the Regulations. Disaggregation of revenue from contract with customers into categories is required by the ED.
The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
Accounting for investment entities
The Regulations permit investments in subsidiaries to be measured on three different bases as follows: - at historical cost using the historical cost accounting rules; - at fair value with fair value movements recognised in reserves using the alternative accounting rules; or - at fair value with fair value movements recognised in profit or loss using the fair value accounting rules. FRS 101 is not applicable to the preparation of consolidated financial statements. Paragraph 11A of IAS 27 Separate Financial Statements states: “If a parent is required, in accordance with paragraph 31 of IFRS 10 to measure its investment in a subsidiary at fair value through profit or loss in accordance with IFRS 9, it shall also account for its investment in a subsidiary in the same way in its separate financial statements. "The IASB ED proposes no changes to these requirements.
However, if a qualifying entity meets the definition of an investment entity under IFRS 10 it must measure its investment in subsidiaries at fair value through profit or loss in its individual financial statements. The reduced-disclosure IFRS Standard would be part of the IAS accounting framework and this provision of the Companies Act 2006 will not be relevant to companies using that framework.
The requirement to measure investments in subsidiaries at fair value through profit or loss under paragraph 11A of IAS 27 does not conflict with the Regulations but merely restricts the measurement bases that an investment entity may apply to such investments.

Table 2: Scope and disclosure objectives

Topic FRS 101 IASB ED
Scope
FRS 101 may be applied to the individual financial statements of a qualifying entity ie - subsidiaries; - intermediate parents; and - ultimate parents. The draft Standard applies to the consolidated or individual financial statements of: - subsidiaries; and - Intermediate parents. Individual financial statements for ultimate parent companies are not eligible to apply the draft Standard.
A qualifying entity is a member of a group where the parent of that group prepares publicly available consolidated financial statements which are intended to give a true and fair view (of the assets, liabilities, financial position and profit or loss) and that member is included in the consolidation. An entity is permitted to apply the draft Standard if at the end of its reporting period, it: (a) is a subsidiary; (b) does not have public accountability 2; and (c) has an ultimate or intermediate parent that produces consolidated financial statements available for public use that comply with IFRS Standards.
Disclosure objectives No exemption from disclosure objectives. Some IFRS Standards contain a disclosure objective followed by disclosure requirements designed to satisfy the objective. The ED excludes disclosure objectives to avoid entities being compelled to provide the same disclosures as if they had not applied the draft Standard.

Table 3: A summary of major disclosure exemptions under FRS 101 compared with IASB ED

IFRS Standard FRS 101 IASB ED Subsidiaries with Public Accountability: Disclosures
IAS 7 Statement of Cash Flows No requirement to prepare a statement of cash flows. Requires a statement of cash flows to be prepared in accordance with IAS 7.
IFRS 7 Financial Instruments: Disclosures Disclosure exemption from IFRS 7 and 13, except financial institutions, provided that equivalent disclosures are included in the consolidated financial statements of the group in which the entity is consolidated. For IFRS 7, the ED includes most of the disclosures from IFRS 7.
IFRS 13 Fair Value Measurement However, a qualifying entity that has financial instruments measured at fair value in accordance with the requirements of paragraph 36(4) of Schedule 1 to the Regulations (or equivalent), is required to provide the relevant disclosures set out in UK-adopted international accounting standards. Such disclosures should be based on extant standards. With regard to IFRS 13, the ED requires reduced disclosures compared to the disclosure requirements in IFRS 13. It requires the following disclosures: - for each class of assets and liabilities measured at fair value – carrying amount at the end of the reporting period, level of the fair value hierarchy, description of valuation techniques for Level 2 and 3 including inputs used; and - additional disclosures for Level 3 hierarchy – total gains recognised in profit or loss and other comprehensive income including the line items.
IFRS 2 Share-based Payment The only disclosure required is a description of each type of share-based payment (SBP) transaction. Disclosure requirements for SBP arrangement: - description of each type of SBP arrangement; - number and weighted average exercise prices of share options breakdown into outstanding, granted, forfeited, exercised, expired, exercisable; - equity-settled SBP—how fair value of goods or services received or fair value of equity instruments granted are measured; - cash-settled SBP—how the liability is measured; and - total expense recognised in profit or loss and total carrying amount for liabilities.
The other disclosures of IFRS 2 are exempted, provided that for a qualifying entity that is: - a subsidiary, the share-based payment arrangement concerns equity instruments of another group entity; - an ultimate parent, the share-based payment arrangement concerns its own equity instruments and its separate financial statements are presented alongside the consolidated financial statements of the group; and, in both cases, provided that equivalent disclosures are included in the consolidated financial statements of the group in which the entity is consolidated.
IFRS 3 Business Combinations The disclosures required are: - information for each business combination—name and description of the acquiree, acquisition date, % of voting equity interests acquired; - fair value of total consideration transferred and acquisition date fair value of each major class of consideration; - amounts recognised at acquisition date for each major class of assets acquired and liabilities assumed; The disclosures required are: - details of each business combination—name and description of acquirer, acquisition date, % of voting rights acquired, factors that make up goodwill recognised, fair value of total consideration transferred, contingent consideration arrangement and indemnification assets; - bargain purchase—amount of any gain recognised and line item in the statement of comprehensive income;
- bargain purchase—amount of any gain recognised and line item in the statement of comprehensive income; and - non-controlling interest—amount recognised at acquisition date and measurement basis. - reconciliation of carrying amount of goodwill (comparative not required); and - contingent consideration—changes in recognised amount, valuation techniques and key models used for measurement.
The other disclosures of IFRS 3 are exempted, provided that equivalent disclosures are included in the consolidated financial statements of the group in which the entity is consolidated.
IAS 24 Related Party Disclosures Disclosure exemptions: - key management personnel compensation; - amounts incurred for the provision of key management personnel services provided by a separate management entity; and - 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. This exemption is consistent with company law. The ED requires disclosure of: - parent-subsidiary relationships ie, name of parent, name of entity that prepares consolidated financial statements; - key management personnel compensation, in total only; - amounts incurred for the provision of key management personnel services provided by a separate management entity; - related party transactions ie amounts, outstanding balances, provisions for uncollectable receivables related to the amount of outstanding balances, expenses recognised for bad and doubtful debts due from related parties (exemption for transactions with a government); and
IFRS 15 Revenue from Contracts with Customers Disclosure exemptions: - whether transactions were made at arm's length, if can be substantiated.
- The disclosures exempted under FRS 101 are required by the ED except significant judgements, and changes in the judgements made in applying IFRS 15.
- significant judgements, and changes in the judgements made in applying IFRS 15; - disaggregation of revenue into categories; - if an entity applies IFRS 8, relationship between the disclosure of disaggregated revenue and revenue information for each reportable segment; - contract balances - explanation of the significant changes in the contract asset and the contract liability balances; - when an entity satisfies its performance obligations, significant payment terms and nature of good or service to transfer; - details of transaction price allocated to the remaining performance obligations; - performance obligations satisfied over time—methods used to recognise revenue; - transaction price and the amounts allocated to performance obligations—methods, inputs and assumptions used for assessing whether an estimate of variable consideration is constrained; and - whether elects to use the practical expedients relating to significant financing components and/or incremental costs of obtaining a contract.

Table 4: A summary of other disclosure exemptions under FRS 101 compared with IASB ED

IFRS Standard FRS 101 IASB ED Subsidiaries with Public Accountability: Disclosures
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Exemption from the requirement to disclose net cash flows attributable to the operating, investing and financing activities of discontinued operations under both FRS 101 and IASB's ED.
IFRS 1 First-time Adoption of International Financial Reporting Standards No requirement to present opening IFRS statement of financial position at the date of transition. An opening IFRS statement of financial position at the date of transition is required.
No disclosure exemptions. The ED proposes reduced disclosure requirements that apply to an entity that is preparing its first IFRS financial statements and has elected to apply the draft Standard.
IFRS 6 Exploration for and Evaluation of Mineral Resources Exemption from the requirement to disclose the operating and investing cash flows arising from the exploration for and evaluation of mineral resources under both FRS 101 and IASB's ED.
IFRS 16 Leases For lessee, exemption from the requirement to present a maturity analysis of lease liabilities in accordance with IFRS 7, provided that the disclosure of details of indebtedness required by paragraph 61(1) of Schedule 1 to the Regulations is presented separately for lease liabilities and other liabilities, and in total. A maturity analysis of the total of future lease payments at the end of the reporting period payable is required.
Disclosure exemptions for lessor: - finance leases: disclosure of selling profit or loss; - finance income on the net investment in the lease; and income relating to variable lease payments not included in the measurement of the net investment in the lease and explanation of significant changes in the net investment in finance lease. - operating leases: disclosure of lease income. The disclosures for lessors exempted under FRS 101 are not required by the ED except for finance lease—income relating to variable lease payments not included in the measurement of the net investment in the lease.
IAS 1 Presentation of Financial Statements No requirement to disclose a reconciliation detailing movements between the beginning and end of the period for: - number of shares outstanding (IAS 1); - property, plant and equipment (IAS 16); - intangible assets (IAS 38); - investment property (IAS 40); and - biological assets (IAS 41). Requires disclosure of a reconciliation detailing movements between the beginning and end of the current period only (ie comparative not required) for: - number of shares outstanding (IAS 1); - property, plant and equipment (IAS 16); - intangible assets (IAS 38); - investment property (IAS 40); and - biological assets (IAS 41).
IAS 1 Presentation of Financial Statements (cont'd) No requirement to present a third statement of financial position when there is a change in accounting policy, retrospective restatement or reclassification that has a has a material effect. A third statement of financial position is required when there is a change in accounting policy, retrospective restatement or reclassification that has a has a material effect.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors Exemption from the requirement to disclose information that enables users of the financial statements to evaluate the entity's objectives, policies and processes for managing capital, except financial institutions. No requirement to disclose information that enables users of the financial statements to evaluate the entity's objectives, policies and processes for managing capital.
Exemption from the requirement to disclose a new IFRS that has been issued but is not yet effective. Requires disclosure of a new IFRS that has been issued but is not yet effective and the possible impact on the financial statements in the period of initial application.
IAS 16 Property, Plant and Equipment Exemption from the requirement to disclose information about the sale of items that are not an output of the entity's ordinary activities, but which are produced while bringing an item of property, plant and equipment to the location and condition necessary for it to be capable of operating in the manner intended by management. This disclosure is not required by the ED.
IAS 36 Impairment of Assets Disclosure exemptions, provided that equivalent disclosures are included in the consolidated financial statements of the group in which the entity is consolidated: - details of valuation technique(s) and key assumptions used for assets where the recoverable amount is fair value less costs of disposal categorised within level 2 and 3 of the fair value hierarchy; and - detailed information regarding estimates used to measure recoverable amounts of cash generating units containing goodwill or intangible assets with indefinite useful lives These disclosures are not required by the ED.
IAS 37 Provisions Contingent Liabilities and Contingent Assets Full disclosure requirements including numerical disclosures in relation to provisions and contingent liabilities for situation where some or all the disclosure requirements of IAS 37 can be expected to prejudice seriously the position of the entity in a dispute with other parties on the subject matter of the provision (prejudicial situation). These disclosures are required by the ED albeit less detailed compared to the equivalent disclosures in IAS 36.
In prejudicial situations, IAS 37 disclosures are not required. Instead, only the general nature of the dispute and reasons why the information has not been disclosed are required to be disclosed.

Table 5: IFRS Standards where IASB ED requires less disclosures than FRS 101

IFRS Standard FRS 101 IASB ED Subsidiaries with Public Accountability: Disclosures
IFRS 12 Disclosure of Interests in Other Entities No disclosure exemptions The ED does not require the following disclosure requirements of IFRS 12: - significant judgements and assumptions made ie in determining there is control, joint control or significant influence ; and the type of joint arrangement (ie joint operation or joint venture) when the arrangement has been structured through a separate vehicle; - interests in subsidiaries - information that enables users of consolidated financial statements: to understand the composition of the group; and the interest that non-controlling interests have in the group's activities and cash flows; and to evaluate: the risks associated with interests in consolidated structured entities and consequences of changes in ownership interest in a subsidiary that do not result in a loss of control. - interests in unconsolidated subsidiaries (investment entities); - nature, extent and financial effects of an entity's interests in joint arrangements and associates; and - risks associated with an entity's interests in joint ventures and associates.
IAS 19 Employee Benefits For defined benefits plans, the ED does not require the following disclosures in IAS 19: - detailed information about the characteristics of defined benefit plans and associated risks; - separate reconciliation for the effect of asset ceiling; - description of how the defined benefit plans may affect the amount, timing and uncertainty of the entity's future cash flows ie sensitivity analysis for each significant actuarial assumption, the methods and assumptions used in preparing the sensitivity analyses and the limitations of those methods; and - detailed narrative information regarding multi-employer plans. Reconciliation of opening and closing balances of present value of defined benefit obligation and plan assets are required for the current period only (comparative is not required).

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Footnotes

  1. All references in this document to The Regulations are to the provisions of Schedule 1 of the Regulations—Companies Act individual accounts: companies which are not banking or insurance companies which can be accessed here: https://www.legislation.gov.uk/uksi/2008/410/schedule/1. ↩

  2. An entity has public accountability if: its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses (most banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks would meet this criterion). ↩