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In the last article we looked at how loans would be valued under FRS102. In this article we look at some of the other changes to the treatment of loans under FRS102.

Firstly, FRS102 uses the phrase “impairment” instead of “bad debt provision”. In itself this is just a change in terminology but it may cause confusion to the reader of the accounts.

Under FRS102, loans would only get ‘written off’ in the financial statements when the Credit Union is no longer entitled to future payments. What this means is that when the Board decide to ‘write off’ a loan it will now be fully impaired and not ‘written off’. While this is only a presentational change it will be difficult for people to get used to the new method of treating loans.

The level of disclosure with regard to financial instruments and in particular loans will also increase under FRS102. Some of the financial disclosures that may be required will include:

  • Risks and how the Credit Union manages these risks
  • The Credit Union’s maximum exposure to Credit Risk
  • The level of collateral held for loans
  • Information about the credit quality of financial instruments
  • Interest Rate Disclosures
  • Sensitivity Analysis
  • Details regarding capital and regulatory compliance.

It is worth noting that while there is an increase in disclosures under FRS102 there would have been even more onerous requirements had full International Financial Reporting Standards (IFRS) been required.