What is FRS 102 and how does it differ from full IFRS for intangible assets?
Short Answer
FRS 102 is the UK accounting standard for non-listed companies. Unlike full IFRS, it requires goodwill amortisation (max 10 years if life cannot be estimated) and sets a narrower test for recognising intangibles in a business combination.
Full Explanation
FRS 102 (Financial Reporting Standard applicable in the UK and Republic of Ireland) is the standard used by most private companies in the UK that do not adopt full IFRS. For intangible assets, several key differences from full IFRS exist. Goodwill treatment: under FRS 102, goodwill is amortised over its estimated useful life (with a maximum of 10 years if useful life cannot be reliably estimated). Under IFRS, goodwill is not amortised but tested annually for impairment. This is one of the most significant practical differences, as it directly affects reported earnings. Intangible asset recognition: FRS 102 Section 18 requires intangible assets to be identifiable (separable or arising from contractual rights), and applies a probability and reliable measurement criterion similar to IAS 38. In a business combination, however, FRS 102 paragraph 18.8 sets a narrower test than IFRS 3: an intangible must be recognised separately from goodwill only if it is both separable and arises from contractual or other legal rights, although an entity may adopt a policy, applied to a whole class, of also recognising those that meet only one of the two tests. Development costs: under FRS 102, there is a policy choice — companies can either expense all development costs or capitalise them when specific criteria are met (similar to IAS 38). In practice, many UK private companies choose to expense all development costs for simplicity. Impairment testing: under FRS 102, goodwill and other intangible assets are tested for impairment only when there are indicators of impairment, using a single-step test similar to IAS 36. For companies transitioning from FRS 102 to full IFRS (for example, ahead of an IPO), the treatment of goodwill and intangible assets is one of the areas requiring most attention, as the cessation of goodwill amortisation and potential recognition of additional intangible assets can significantly affect the balance sheet.
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