CFM23093 - New UK GAAP: FRS 105: financial instruments: overview

For those entities applying FRS 105 with an accounting period beginning on or after 1 January 2016.

For those micro-entities that chose to apply FRS 105 there is no financial instruments accounting policy choice, they must follow the accounting requirements of Section 9.

Section 9 sets out the requirements for the recognition, derecognition, measurement and disclosure of financial assets and financial liabilities.

FRS 105 does not have the distinction between ‘basic’ financial instruments and non-basic financial instruments as contained in FRS 102.

Examples of financial instruments that are within the scope of FRS 105 Section 9 are as follows:

  • Cash;
  • Trade debtors and creditors;
  • Commercial paper and commercial bills held;
  • Demand and fixed-term deposits with banks or similar institutions;
  • Bonds, loans and similar instruments;
  • Investments; and
  • Derivatives (e.g. options, warrants, futures contracts, forward contracts and interest rate swaps).

The requirements of Section 9 of FRS 105 do not apply to certain financial instruments that are covered by other Sections of FRS 105. There are exceptions for Leases (Section 15), Employers’ rights and obligations under employee benefit plans (Section 23), those financial instruments that fall within the definition of Share-based payments (Section 21), financial guarantee contracts (Section 16) and contingent consideration in a business combination, for the acquirer (Section 14).