What You Need to Know About 2024 Volume FRS: Latest Changes in Financial Reporting Standards

As financial circumstances advances, so do the standards governing financial reporting. In line with this progression, ACRA pronouncement on 2024 volume of Financial Reporting Standards (FRS) introduces fundamental updates and modifications that require the attention of entities across industries. These changes, includes official pronouncements issued up to 31 December 2023 and are required to be applied for annual reporting period beginning on 1 January 2024. This represents a significant milestone in the journey toward transparent and reliable financial reporting practices.

What’s new in 2024 Volume?

Standards effective periods beginning on or after 1 January 2023 includes:

  • Amendments to FRS 117, Insurance contracts
  • Amendments to FRS 12, Deferred Tax Relating to Assets and Liabilities arising from a single transaction
  • Amendments to FRS 8, Definition of Accounting Estimates
  • Amendments to FRS 1 and Practice Statement 2, Disclosure of Accounting Policies

Standards effective periods beginning on or after 1 January 2024, are:

  • Amendments to FRS 1, Classification of Liabilities as Current or Non-current
  • Amendments to FRS 1, Non-current Liabilities with Covenants
  • Amendments to FRS 116, Lease liability in a sale and leaseback

Highlights of changes

I. FRS 117, Insurance Contracts

This standard represents a significant achievement in financial reporting. The new standard supersedes FRS 104 and addresses issues of comparability by requiring consistent accounting for all insurance contracts. It sets out comprehensive guidelines for the recognition, measurement, presentation, and disclosure of insurance contracts within its scope. FRS 117 applies to insurance contracts issued by entities, reinsurance contracts held, and investment contracts with discretionary participation features.

II. FRS 12, Deferred Tax Relating to Assets and Liabilities arising from a single transaction

The amended standard requires entities to recognize deferred tax on certain transactions that initially create equal amounts of taxable and deductible temporary differences. These amendments could significantly impact financial statement preparation for entities with substantial balances of right-of-use assets, lease liabilities, decommissioning, restoration, and similar liabilities requiring recognition of additional deferred tax assets and liabilities.

The amendments are applicable for annual periods starting on or after 1 January 2023 with earlier application permitted, using a modified retrospective basis. Transition requirements include recognizing deferred tax assets and liabilities at the beginning of the earliest comparative period presented, along with adjusting the opening balance of retained earnings or other equity components to reflect the cumulative effect if initially applying the amendments, without a full retrospective application.

III. FRS 8, Definition of Accounting Estimates

In the revised standard, it introduces a new definition of ‘accounting estimates’. These amendments aim to clarify the distinction between changes in accounting estimates, changes in accounting policies, and the correction of errors, as well as how entities utilize measurement techniques and inputs to formulate accounting estimates.

Previously, changes in accounting estimates were defined as adjustments resulting from new information or developments, distinct from corrections of errors. Prior to these amendments, the standard lacked a specific definition of accounting estimates, which made it challenging to differentiate between accounting policies and estimates. The revised standard defines accounting estimates as monetary amounts subject to measurement uncertainty and explains their relationship with accounting policies.

IV. FRS 1 and Practice Statement 2, Disclosure of Accounting Policies

The amendments aim to enhance the usefulness of accounting policy disclosures by replacing the term ‘significant’ with ‘material’ accounting policies and offering guidance on applying materiality in policy disclosure decisions. Accounting policy information is deemed material if it influences the decisions of users of financial statements when considered alongside other information.

Entities must assess whether accounting policy information is material, considering qualitative and quantitative factors. The amendments stress the importance of providing entity-specific accounting policy information, which is more valuable to financial statement users than standardized or duplicative information.

Immaterial accounting policy information should not overshadow material information, emphasizing the need for clear and concise disclosure. These amendments mark a significant shift in accounting policy disclosure requirements, aiming to provide users of financial statements with more relevant and understandable information for decision-making purposes.

V. FRS 1, Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants

Key requirements in the amended standards includes defining the right to defer settlement, clarifying that management’s expectations do not impact classification, adding guidance on lending conditions, and specifying requirements for liabilities settled using an entity’s own instruments.

The amendments emphasize that an entity’s right to defer settlement must have substance and exist at the end of the reporting period. Management’s intention to settle in the short run does not affect classification, though disclosures may be necessary to explain settlement timing.

The amendments in FRS clarify that future covenants should not influence the current or non-current classification of debt at the reporting date; instead, such covenants should be disclosed in the financial statement notes. The objective is to improve investor comprehension of the risk that long-term debt could become repayable prematurely, thereby enhancing information transparency.

VI. FRS 116, Lease Liability in a Sale and Leaseback

The amendments specify that seller-lessees must measure lease liabilities arising from sale and leaseback transactions to ensure they do not recognize gains or losses related to retained rights of use. Seller-lessees apply specific paragraphs of FRS 116 to determine lease payments in a manner that excludes recognition of such gains or losses. There are no specific measurement requirements for lease liabilities arising from leasebacks, requiring seller-lessees to develop and apply relevant and reliable accounting policies.

The amendments to FRS 7 and FRS 107 introduce disclosure requirements for supplier finance arrangements. Supplier finance arrangements involve finance providers paying amounts owed by an entity to its suppliers, allowing extended payment terms. These arrangements, also known as supply chain finance, payables finance, or reverse factoring, offer insights into an entity’s liabilities, cash flows, and liquidity risk. The disclosure requirements include terms and conditions, carrying amounts of financial liabilities, payment due dates, and non-cash changes in liability amounts.

What to Expect on the Forthcoming Revisions to the Standards?

Understanding this upcoming standard provides insights into changes in accounting principles and helps to assess the impact on the financial reporting of the entity.

As entities initiates the process of implementing the revised standards, collaboration and knowledge-sharing amongst stakeholders will be instrumental in navigating the complexities and seizing opportunities for growth and innovation in an ever-evolving business environment.

Stay tuned for further insights and updates as we explore deeper into the implications and applications of the revised FRS.

All materials have been prepared for general information purposes only. The information presented in this document is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice. Professional advisory should be sought before taking or refraining from any action as a result of the contents of this document.