Impact of FRS 102: Transitional Arrangements

globalCredit Unions should be preparing for FRS 102 and starting to think about the transitional arrangements for the new standard. There are a wide number of rules and options within the standard that apply on first time adoption.

Under FRS 102, loans are only written-off when the Credit Union is no longer entitled to the cash flows of the loan and not when the board “write them off”. Thankfully FRS 102 states, loans written-off before the transition date, must continue to be classed as being written-off. This saves having to recalculate what the loan balance should have been at the transition date under the new FRS 102 rules which could be a time-consuming and messy calculation.

Please note that the date of transition is the opening date of the comparatives on your first set of accounts adopting FRS 102. So if your first accounts under the new standard are for the year ended 30 September 2016 your transition date is 1 October 2014. The loans balance on your 30 September 2016 accounts would therefore need to account for loans written-off after 1 October 2014 using the rules within FRS 102. There are a number of other restrictions in the transition process and Chapter 35 of FRS 102 contains further details.

If a Credit Union owns property then it can choose to revalue the property at the date of transition and use this valuation as the cost for future years. This means that the Credit Union is not adopting a valuation policy and therefore would not have to incur the cost of regular valuations in the future.  Please note, however, that CREDS does place restrictions on the amount of any upwards revaluations that can be used in your capital to asset ratio. In particular one of the criteria for being able to use revaluation reserve is that you have regular revaluations. It should also be remembered that a decrease in this valuation will adversely impact your surpluses and reserves.

Alternatively, if you already have adopted a policy of valuations of your property then you do have the option of switching to a depreciated cost basis going forward. There are a number of other options within the standard including choices on treatment of joint ventures and treatment of lease incentives.

For more details on the transition arrangements please see Chapter 35 of the standard. It is worth reviewing this in detail prior to implementing FRS102. The standard can be accessed by clicking here. We do offer tailored training and FRS 102 health checks to Credit Unions to help them prepare for the new standard. Please contact us if you require any further information.

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2 Replies to “Impact of FRS 102: Transitional Arrangements”

  1. Hi. Hope you can clarify something for me. You say “Under FRS 102, loans are only written-off when the Credit Union is no longer entitled to the cash flows of the loan”. But when would that be?

    1. Under FRS 102 a loan is only derecognised (written off) when the contractual rights are settled or expire or where all the risks and rewards are substantially transferred to another party or where control is transferred over the asset. This date can vary but may be the date that bankruptcy means it is no longer enforceable. I have seen one high street bank’s financial statements where they tool the view that loans are written off after 5 years of falling into arrears as they would no longer be recoverable at this point. If it has been “written off” by the Board but not in the accounts it should normally be 100% provided. It should therefore be more of an issue of presentation that impacting your surplus or assets.

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