How will amendments to financial reporting standards impact businesses

A periodic review of “FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland” (FRS 102) is undertaken every five years. This is to ensure high quality reporting from concerned entities.

On 27 March 2024, the Financial Reporting Council (FRC) issued amendments to FRS 102 as a part of their second five-yearly review exercise. Although the focus of the amendments is on FRS 102, it impacts the whole suite of UK GAAP standards from FRS 101 to FRS 105. The proposed amendments will be most relevant to the privately owned businesses and subsidiaries of listed groups including multinationals that apply FRS 102 in their statutory accounts.

The amendments will be mandatorily effective for the accounting period beginning on or after 1 January 2026. An exception is the new disclosure requirements for supplier finance arrangements that will be effective for the accounting period beginning on or after 1 January 2025.

The amendments are intended to provide better access to capital and growth opportunities with a net benefit on cost of compliance to the UK and Irish organisations.

Key changes in FRS 102

The FRC issued the amendments to align with the latest International Financial Reporting Standards (IFRS) and IFRS for SMEs with primary focus on revenue recognition and lease accounting. The FRC aims not to unnecessarily increase the cost and burden of financial reporting. For example, it increased the lease recognition exemption threshold for low value leases as compared to the IFRS leasing standard to ensure that only the most significant leases are recognised on balance sheet.

FRC has also introduced guidance on accounting of uncertain tax positions and issued additional guidance on application of share-based payments principles in certain situations.

Historically, FRS 102 allowed entities to apply the recognition and measurement principals of the legacy IFRS standard, IAS 39, on financial instruments. The option to adopt IAS 39 is now removed. However, entities already applying IAS 39 are still permitted to do so.

Other key amendments to FRS 102 include a new section on fair value measurement based on IFRS fair value measurement principles, and revisions to the standard’s Concepts and Pervasive Principles. Clarifications are also included where required to facilitate ease of understanding and application of the amendments.

The FRC has not introduced any alignment with the IFRS model for bad debt provisioning or IFRS 17 on insurance contracts. The aim is to align these topics as a part of future projects.

What are the next steps?

During the year, FRC intends to publish new editions of the FRS 102 standards reflecting the new requirements.

Organisations applying FRS 102 that have extensive leasing or that operate in industries such as technology, where complex or bespoke sales arrangements are common, may want to familiarise themselves with the new requirements and their potential impacts on their data requirements and reported results.

Many IFRS preparers found that the introduction of the current IFRS revenue and leasing standards involved additional work. For example, these standards required capturing data about contractual terms, pricing etc. that were not needed previously.