The preparation of the financial statements for most RSLs this year meant that the new FRS 102 based SORP would have to be complied with. This resulted in a number of significant changes to financial reporting in the sector and was for many a difficult and time-consuming exercise.
The news, therefore, that the Financial Reporting Council (FRC) is consulting on changes to FRS 102 is unlikely to met with much joy. The FRC has issued a consultation document as part of its triennial review of accounting standards. This consultation will be followed by two Financial Reporting Exposure Drafts (FREDs) issued in the first and third quarters of 2017. The first exposure draft will contain proposed changes that will be effective in 2019 and the second, with more substantial changes, will be effective from 2022.
The changes due for 2019 will be incremental changes and clarifications. The major changes ( coming in 2022) will be in two main areas:
- Incorporating the expected loss model for impairment of financial assets in line with IFRS 9
- Updating lease accounting to be consistent with IFRS 16
The first change is unlikely to have any impact on RSLs as it is aimed at financial institutions only (although the FRC will consult on what a financial institution is). The second change at first glance could lead to more significant changes. IFRS 16 removes the distinction between an operating and finance lease and requires all leases (expect leases lasting less than a year and low value leases) to be accounted as an asset an liability by the lessee. However, there is no change in the accounting for the lessor. Therefore, no potential change in accounting for tenancies, but for any RSL that, for example, leases office premises this will result in a change. For most, however, the changes are likely to be limited to additional disclosure on how the RSL manages risks associated with leases.
Until the actual exposure drafts are issued we cannot be certain that there won’t be changes that will have a significant impact on RSLs in the future, for example, the FRC have said that they will clarify the accounting treatment of two-way break clauses in loan facilities, but at the moment it does not appear as if the next change in FRS 102 will be a major one for RSLs. It is also worth noting that the consultation document notes the inconsistency in accounting for government grants and that this is ‘not ideal’ but it has no immediate plans to change this.
We will provide updates when the exposure drafts are issued.
We will, as ever, be attending the SFHA Finance Conference on the 10th & 11th. If you are attending please come and see Allison, Jim and I at our stand in the exhibition area.