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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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FRS 102: recognition and de-recognition of financial instruments

Recognition

‘Recognition’ refers to the requirement to recognise all financial assets and liabilities, including derivatives, on an entity’s balance sheet.

FRS 102 states that an entity must recognise a financial asset or financial liability when, and only when, it becomes a party to the contractual provisions of the instrument.

For example, if a company receives a firm order for goods from a customer, it should delay recognition of the trade debt until at least one of the parties has performed under the agreement - which will normally be when the goods are shipped or delivered.

In contrast, however, a forward contract or option is recognised on the commitment date if it falls within the scope of FRS 102 section 12.

Derecognition

‘Derecognition’ means the removal of a previously recognised financial asset or financial liability from the balance sheet. CFM21750 explains de-recognition of a financial asset, and CFM21760 explains derecognition of a financial liability.