FRC issues targeted amendments to UK GAAP to maintain international alignment

In February 2026, the Financial Reporting Council (FRC) published targeted amendments to FRS 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 – The Financial Reporting Standard applicable to the micro-entities regime.

The changes are narrow in scope and are primarily intended to maintain international alignment with IFRS Accounting Standards, specifically between FRS 102 and IFRS 18 Presentation and Disclosure in Financial Statements. Other targeted amendments are limited, with only a single amendment made to FRS 105.

IFRS 18 replaces International Accounting Standard (IAS) 1 Presentation of Financial Statements for IFRS reporters for periods beginning on or after 1 January 2027. In December 2025, the UK Endorsement Board confirmed that IFRS 18 was formally adopted for use in the UK. 

Although IFRS 18 doesn’t apply to UK Generally Accepted Accounting Practice (UK GAAP) reporters, companies and Limited Liability Partnerships (LLPs) applying FRS 102 are permitted by law to use adapted balance sheet and profit and loss account formats based on IFRS presentation requirements.

These adapted formats are commonly used by entities seeking closer alignment with IFRS, for example to facilitate consolidation within IFRS groups. Before the February 2026 amendments, the minimum line items required for adapted formats in FRS 102 were based on IAS 1. As IAS 1 is now being replaced by IFRS 18, the FRC concluded that limited updates were needed to ensure that the adapted format requirements in FRS 102 remain up to date.

Entities that continue to use the standard company law formats aren’t affected by these changes.

Amendments to the presentation of adapted formats under FRS 102

Amendments have been made to the minimum presentation requirements and to the commentary and definitions used when classifying balance sheet items as current or non-current. 

The FRC hasn’t attempted to replicate IFRS 18 in full. The amendments don’t introduce IFRS 18’s category-based structure for income and expenses, nor its new disclosure requirements for management-defined performance measures. The FRC concluded that bringing these features into UK GAAP wouldn’t be proportionate for entities using adapted formats under FRS 102.

Amendments relating to adapted format requirements have been made to the following sections of FRS 102:

• Section 1A Small entities. Minimum standards for adapted balance sheet and profit and loss account formats applicable to small entities have been amended so they are consistent with Sections 4 and 5 of FRS 102.
• Section 4 Statement of financial position. Intangible assets and goodwill must now be presented as separate line items. Also, some of the commentary has been updated to help preparers categorise balance sheet items as either current or non-current, reflecting updated definitions for “current assets”, “current liabilities” and “non-current assets”.
• Section 5 Statement of comprehensive income and income statement. Minimum standards for the statement of comprehensive income have been revised to include line items for “operating expenses”, “operating profit or loss”, and “profit or loss before financing and taxation”. Greater detail is also required when presenting items of other comprehensive income.
• Section 29 Income Tax. A single amendment has been made to maintain a cross-reference to Section 4.
• Appendix I Glossary. Definitions for “current assets”, “current liabilities (for the purposes of an entity applying paragraph 1A (1) of Schedule 1 to the Regulations)” and “non-current assets” have been amended to ensure consistency with the revised presentation requirements for adapted formats.

To improve clarity and accessibility, the material within Sections 4 and 5 that relates specifically to adapted formats has been moved into separate appendices as follows:

• Appendix to Section 4 – Adapting the balance sheet formats
• Appendix A to Section 5 – Adapting the profit and loss account formats

These appendices are an integral part of their respective sections and contain requirements that must be followed when an entity chooses to adapt the statutory formats.

Revised definitions

An entity that chooses to prepare an adapted balance sheet must distinguish between current and non-current line items.

Under the current edition of FRS 102, a liability is considered non-current if the entity has an “unconditional right” at the reporting date to defer settlement for at least twelve months. 

The amended definition provides a more precise requirement. A liability is now classified as non-current only if the entity has a “substantive right” to defer settlement beyond twelve months at the reporting date. 

This change introduces additional guidance to help preparers assess whether such a right exists. The updated definition puts more emphasis on the enforceability and substance of the right to defer settlement, especially in cases where there are loan covenants or conditions that could accelerate repayment. 

Although the amendments are narrow in scope, entities with more complex financing arrangements may find a greater proportion of their liabilities being classified as current.

The amendments also refine the definitions of current and non-current assets for entities using adapted balance sheet formats, aligning them more closely with the presentation principles of IFRS 18. 

While the core criteria remain broadly consistent, the amendments provide clearer guidance on how they should be applied. Assets expected to be realised, sold or consumed within twelve months, or within the entity’s normal operating cycle, continue to be classified as current. Assets held primarily for trading, or expected to be realised within twelve months, must be classified as current. All other assets are classified as non-current. 

For most entities, the updated definitions are not expected to have a significant impact on how they classify their assets. The main aim is to ensure that adapted balance sheet formats follow the same logic used by IFRS preparers.

Clarifications to Periodic Review 2024 and other clarifying amendments

Alongside the adapted format changes, the FRC has issued limited clarifications to the Periodic Review 2024 amendments affecting both FRS 102 and FRS 105. These amendments are in response to feedback received and are intended to improve clarity and consistency rather than to change underlying requirements.

• Section 9 Consolidated and separate financial statements. Amendments clarify the circumstances under which a parent entity is exempt from preparing consolidated financial statements.
• Section 13 Inventories. Paragraph 13.14, titled ‘Cost of inventories of a service provider’, has been deleted for consistency with the IFRS for SMEs Accounting Standard, which no longer includes this paragraph.

A corresponding amendment has been made to FRS 105:

• Section 10 Inventories. Paragraph 10.13, titled ‘Cost of inventories of a service provider’ has been deleted to align with the deletion of paragraph 13.14 from FRS 102.

In addition, Section 1 Scope of both FRS 102 and FRS 105 has been updated so that the February 2026 amendments fall within the scope of each standard.

Effective date and next steps

The amendments published in February 2026 are effective for accounting periods beginning on or after 1 January 2027, with early application permitted.

For most FRS 102 reporters, the practical impact of these amendments is expected to be limited. 

However, entities that currently use, or are considering using, adapted formats should review the revised presentation requirements and updated definitions to ensure they comply when the amendments take effect. 

Entities that continue to apply the standard company law formats won’t be affected by these changes.

Have your say on FRS 102

The FRC has launched a new discussion forum to give SME preparers and advisers a direct voice on how FRS 102 works in practice. It’s your chance to shape future updates to the standard and get closer to the policy team behind it. Contact the FRC by email to join the first cohort of discussions by 8 May.  

Contact the FRC