FRS 102 vs. US GAAP

Attribute	FRS 102	US GAAP
Scope	Applies to entities in the UK and Republic of Ireland	Applies to entities in the United States
Financial Statements	Requires preparation of balance sheet, income statement, statement of changes in equity, and cash flow statement	Requires preparation of balance sheet, income statement, statement of comprehensive income, statement of changes in equity, and cash flow statement
Measurement	Allows for historical cost and fair value measurement	Allows for historical cost, fair value, and lower of cost or market measurement
Revenue Recognition	Recognizes revenue when it is probable that economic benefits will flow to the entity and revenue can be reliably measured	Recognizes revenue when it is realized or realizable and earned
Leases	Classifies leases as finance leases or operating leases	Classifies leases as capital leases or operating leases

Introduction

Financial Reporting Standards (FRS) 102 and Generally Accepted Accounting Principles (GAAP) are two sets of accounting standards used by companies around the world. While both aim to provide a framework for financial reporting, there are key differences between the two that companies need to be aware of when preparing their financial statements.

Scope and Applicability

FRS 102 is the UK's accounting standard for financial reporting, applicable to all entities in the UK and Republic of Ireland. It is based on the International Financial Reporting Standards (IFRS) for SMEs. On the other hand, US GAAP is the accounting standard used in the United States, governed by the Financial Accounting Standards Board (FASB). It is also widely used by companies around the world, especially those listed on US stock exchanges.

Measurement of Assets and Liabilities

One of the key differences between FRS 102 and US GAAP is the measurement of assets and liabilities. FRS 102 allows for the revaluation of certain assets, such as property, plant, and equipment, to fair value. This can result in higher asset values on the balance sheet. In contrast, US GAAP generally prohibits the revaluation of assets, instead requiring them to be recorded at historical cost.

Revenue Recognition

Another area of difference between FRS 102 and US GAAP is revenue recognition. FRS 102 follows the IFRS framework for revenue recognition, which is based on the transfer of control of goods or services to the customer. This can result in revenue being recognized at a different point in time compared to US GAAP, which has its own specific criteria for revenue recognition.

Financial Statement Presentation

FRS 102 and US GAAP also differ in terms of financial statement presentation. FRS 102 requires a statement of comprehensive income, which includes all items of income and expense recognized in the period. US GAAP, on the other hand, allows for the presentation of a statement of comprehensive income or a separate income statement and statement of comprehensive income.

Disclosure Requirements

Both FRS 102 and US GAAP have extensive disclosure requirements to provide users of financial statements with relevant information. However, the specific disclosures required can vary between the two standards. For example, FRS 102 may have specific disclosure requirements for entities in certain industries, while US GAAP may have different requirements for entities with complex financial instruments.

Consolidation and Business Combinations

Consolidation and business combinations are areas where FRS 102 and US GAAP have some differences. FRS 102 requires the use of the acquisition method for business combinations, similar to IFRS. US GAAP, on the other hand, has its own specific guidance for business combinations, including the use of the acquisition method but also allowing for the pooling of interests method in certain circumstances.

Conclusion

In conclusion, while FRS 102 and US GAAP both aim to provide a framework for financial reporting, there are key differences between the two that companies need to be aware of. From the measurement of assets and liabilities to revenue recognition, financial statement presentation, disclosure requirements, and consolidation and business combinations, companies need to understand the specific requirements of each standard to ensure compliance and provide users of financial statements with relevant information.