FRC revises UK and Ireland accounting standards
The Financial Reporting Council (FRC) has issued improvements to financial reporting standards applicable in the UK and Republic of Ireland.
The standards being revised are:
- Financial Reporting Standard (FRS) 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’
- FRS 105 ‘The Financial Reporting Standard applicable to the micro‑entities regime’
These standards are currently used by an estimated 3.4 million businesses. The changes follow extensive stakeholder engagement and consultation on the proposals, with the FRC required to undertake a periodic review of FRS 102 every five years.
Main areas of change
The most significant changes apply to leases and revenue recognition, to align with recent changes to international financial reporting standards IFRS 16 ‘Leases’ and IFRS 15 ‘Revenue from contracts with customers’.
In response to feedback from respondents, including ICAS, to its earlier consultation the FRC has made improvements to the proposals for lease accounting and revised the recognition exemption for leases of low-value assets to clarify that the focus is to ensure that the most significant leases are recognised on balance sheets.
The FRC has also made a number of improvements and clarifications designed to make it easier for preparers to apply and understand the standards.
Scope for further future alignment with IFRSs
As previously suggested by the FRC, these periodic review amendments don’t introduce an expected credit loss model of financial asset impairment (as found in IFRS 9 ‘Financial Instruments’) or align with any aspects of IFRS 17 ‘Insurance Contracts’. The FRC intends that any alignment with IFRS 17, or further alignment with IFRS 9, will be part of a future project and subject to consultation.
Effective date
The amendments to the standards will in most cases be effective for accounting periods beginning on or after 1 January 2026. However, the effective date for new disclosures about supplier finance arrangements relating to the statement of cash flows is 1 January 2025. Early application is permitted in both cases.
Further resources
During 2024, the FRC intends to publish new editions of the standards and updated staff factsheets with guidance on key aspects of the new requirements. The FRC will also be hosting a webinar to discuss the new standards at 11am on 15 May 2024.
Key changes to FRS 102 and FRS 105
FRS 102 | FRS 105 | |
|---|---|---|
Leases | Removal of the distinction between operating and finance leases for lessees; more leases now recognised with an asset and liability on-balance sheet (similar to extant finance lease accounting). Recognition exemptions permit short-term leases and leases of low-value assets to remain off-balance sheet. Compared with IFRS 16 ‘Leases’, a higher threshold for low-value assets means that FRS 102 preparers are not required to recognise as many leases on-balance sheet. | No equivalent change is made to FRS 105. |
Section 23 Revenue from contracts with customers | A single comprehensive five-step model is introduced for revenue recognition for all contracts with customers, based on identifying the distinct goods or services promised to the customer and the amount of consideration to which the entity will be entitled in exchange. | Similar amendments are made to FRS 105, with additional simplifications. |
Section 1A Small entities | For UK small entities, more clarity on which disclosures are expected to be necessary in order to give a true and fair view as required by law. | N/A |
Section 2A Fair value measurement | Updated to align definitions with latest international standards and provide additional guidance. | N/A |
Section 7 Statement of cash flows | New disclosure requirements about supplier finance arrangements (effective 1 January 2025). | N/A |
Section 26 Share-based payment | Additional guidance aiding application of the principles in certain situations. | N/A |
Section 29 Income tax | Introduction of guidance on accounting for uncertain tax positions. | N/A |
Section 34 Specialised activities | Various improvements and clarifications to clarify existing requirements and make consequential changes to reflect other amendments. | N/A |
Organisations applying UK FRSs should now be considering the impact of these revisions on their financial statements, in consultation with their accountancy adviser where appropriate.
