Key Differences Between FRS 102 and IFRS for SBR UK Exam

1. Scope and Applicability

   • FRS 102: Applies to most UK entities not using IFRS or other specific regimes (e.g., FRS 101, FRS 105). Simpler and tailored for UK/Irish entities, often smaller or unlisted companies.
   • IFRS: Used globally by public companies in 168 jurisdictions, including listed UK companies and international groups. More complex, detailed, and principle-based, designed for larger, publicly accountable entities.

2. Financial Instruments

   • FRS 102: Classifies instruments as “basic” (amortised cost/cost less impairment) or “other” (fair value through profit or loss). No option for fair value through other comprehensive income (OCI) for equity investments, unlike IFRS.
   • IFRS (IFRS 9): Offers more options, including fair value through OCI for equity instruments (irrevocable election), and complex hedge accounting rules. Requires more extensive disclosures and valuation techniques.

3. Goodwill and Intangibles

   • FRS 102: Amortises goodwill over its useful life (max 5 years if life can’t be measured reliably). No impairment testing unless there’s an indication of impairment.
   • IFRS (IFRS 3, IAS 36): Requires annual impairment testing for goodwill (no amortisation) and recognises a wider range of intangibles with more detailed impairment reviews, potentially leading to different profit impacts.

4. Investment Property

   • FRS 102: Requires measurement at fair value with changes in profit or loss, with no cost model option.
   • IFRS (IAS 40): Allows a choice between fair value (changes in profit or loss) and cost model (depreciated cost), offering more flexibility but requiring additional disclosures for fair value measurements.

5. Revenue Recognition

   • FRS 102: Follows a simpler, principles-based approach, potentially recognising revenue earlier or differently than IFRS for certain contracts.
   • IFRS (IFRS 15): Uses a five-step model (identify contract, performance obligations, transaction price, allocate price, recognise revenue), which can result in deferred revenue recognition and more complex disclosures for long-term contracts.

6. Leases

   • FRS 102: Recognises leases as assets/liabilities only if risks and rewards of ownership are substantially transferred (similar to old IAS 17). Short-term leases (<12 months) or low-value assets can be expensed.
   • IFRS (IFRS 16): Requires all leases (except short-term or low-value) to be recognised on the balance sheet as right-of-use assets and lease liabilities, impacting financial ratios and disclosures significantly.

7. Employee Benefits

   • FRS 102: Recognises holiday/sick pay liabilities and adjusts pension scheme accounting (e.g., defined benefit schemes split between profit or loss and OCI), but with simpler rules than IFRS.
   • IFRS (IAS 19): Requires more detailed actuarial valuations for defined benefit plans, with complex disclosures and recognition of all remeasurements in OCI, potentially affecting reported equity and profit.

8. Disclosure Requirements

   • FRS 102: Offers reduced disclosures, especially for small entities under Section 1A, with exemptions for group transactions and simplified statements (e.g., no cash flow statement for small companies).
   • IFRS: Mandates extensive disclosures, including detailed notes on fair value measurements, risks, and segment reporting, reflecting its focus on transparency for public companies.

9. Complexity and Cost

   • FRS 102: Generally simpler and less costly to implement, suitable for smaller UK entities, with fewer options and disclosures.
   • IFRS: More complex, principle-based, and costly, designed for larger, listed, or international entities requiring greater comparability and transparency.

10. Transition and Impact

    • FRS 102: Transition from old UK GAAP may affect taxable profits, loan covenants, and reported figures, but the impact is typically less significant than IFRS adoption.
    • IFRS: Transition often involves significant restatements, complex fair value measurements, and increased compliance costs, particularly for entities moving from UK GAAP.