Our previous Legal Focus included an article on FRS102, the new accounting standard introduced to replace all previous accounting standards. In it, we set out the areas where we believed that there were likely to be significant differences between existing UK GAAP (Generally Accepted Accounting Practice) and the new standard.
At the time, we were concerned that FRS102 might require practices to recognise income from contingent work earlier than under the previous standards, which were technically known as UITF40 and FRS5(g). These permit all types of contingent work in progress to be excluded from financial statements until such point as the contingent event occurs.
Over the past few months we have looked into this much more closely. We have also shared views with leading authorities in the UK Accounting Bodies, including the Institute of Chartered Accountants and the Financial Reporting Council.
Without reproducing all of the detail here, our view is that FRS102 is unlikely to result in any significant changes to the accounting treatment of contingent work in progress for most practices. i.e. there should not be any large uplift in the book value of work in progress when FRS102 becomes effective. Where there may need to be a change is in situations where practices deal with straightforward claims of the same type on a volume basis, and feel that they could not defend a contention that the outcome of them cannot be predicted with a strong degree of reliability. In this sort of situation, expected income may need to be recognised in accounts before the cases reach the point where the individual contingency has passed. We can easily advise on all of this.