Impact of the Summer Budget on FRS 102 results

Impact of the Summer Budget on FRS 102 results

The Summer Budget included the announcement that social housing rents would reduce by 1 percent per annum for the next four years. Housing associations were anticipating changes in the form of further cuts and capping of benefits; however this significant change to social rent policy was a seismic shift for the sector, particularly following the previous announcements on rent policy by the coalition Government.

Head of Housing

KPMG in the UK


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Impact of the Summer Budget on FRS 102 results

The announcement has wider implications for the sector, not just in relation to business plans and the level of savings needed to ensure that covenants are met further down the line, but also in respect of decisions that associations may be making for their transition to FRS 102.

So, what are the implications for FRS 102?


Impairment under the new accounting regime has been a topic of much discussion. The amendments to the final SORP were felt to have addressed the issues raised previously. However no-one could have foreseen the changes announced in July.

Under FRS 102 associations are required to undertake an annual review for impairment triggers. The SORP identifies several examples of potential triggers, one of which is a global decrease in income following a change in Government policy, where the consideration of impairment across the whole portfolio of housing stock may be needed.

The view in the sector is that this budget announcement does fit into this category, indicating that everyone will be required to complete an impairment assessment for the 31 March 2016 year end. This in itself could create an extra burden on finance teams already grappling with their conversion project, with the need to prepare calculations for income generating units and assess the whole property portfolio.

The extent to which an impairment is required may be influenced by the accounting policy adopted for housing properties on transition to FRS 102. Providers booking an uplift to property values on transition may be more exposed impairment adjustment in 2016.

Deemed costs

FRS 102 allows housing associations to take a one-off option to hold their housing property stock at deemed cost based on the valuation of that stock at 31 March 2014. This policy allows those providers currently adopting valuation to freeze stock values and get away from the perpetual cycle of valuation; and for those currently holding their properties at cost it is an opportunity to reflect more of the property value in the financial statements alongside the one-off recognition of historic grant through reserves.

The budget announcements introduce a greater level of uncertainty. Booking an uplift in value at 1 April 2014 potentially increases the need to process an impairment through the 31 March 2016 figures. The extent to which an impairment maybe required is currently being debated across the sector with differing views as to the likely value in use (for the most part approximated to depreciated replacement cost) and the extent to which this exceeds EUV-SH (Existing Use Value as Social Housing).


There is further consideration for associations with loan covenants that make no adjustment to exclude impairment charges.  Where an impairment charge takes the property value below cost, an impairment would be recognised through the surplus or deficit for the year.

This could therefore indicate a risk to future covenants.


The policy choice adopted under FRS 102 for housing properties should be reviewed taking into account the potential impairment that arises following the budget announcement. Working through the figures prior to making the final decision will be some critical for some associations, particularly those with covenants that are affected.

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