FRC postpones periodic review changes to UK GAAP
The FRC has published a project update on its review of FRS 102 and other FRSs, announcing a delay in the implementation of periodic review amendments.
In an autumn 2023 project update, the FRC announced that it expects to publish periodic review amendments in the first six months of 2024.
This means that the effective date for these amendments will be reporting periods beginning on or after 1 January 2026 at the earliest, rather than periods beginning on or after 1 January 2025 at the earliest, as previously mooted in Financial Reporting Exposure Draft (FRED) 82 ‘Draft amendments to FRS 102 and other FRSs – periodic review’.
This will give entities an 18-month lead in time to prepare for the changes. The major changes proposed in FRED 82 regarding the alignment of FRS 102 and FRS 105 with IFRS 15 ‘Revenue from contracts with customers’ and the alignment of FRS 102 with IFRS 16 ‘Leases’ are to be included in the revised FRSs. However, the FRC is considering changes to some of the detailed proposals set out in FRED 82, based on the consultation responses it received.
Revenue recognition
Consultation respondents generally supported the proposed amendments on revenue recognition, subject to some specific feedback which suggested that greater alignment with IFRS 15 was desirable. However, respondents also raised concerns about the proportionality of the corresponding amendments to FRS 105.
The FRC is continuing to work towards a five-step model of revenue recognition as contained in IFRS 15 for all FRS 102 and FRS 105 preparers. They are working on fine-tuning the FRS 102 amendments and monitoring the progress of the International Accounting Standards Board’s (IASB’s) IFRS for SMEs project, which includes similar proposals. They are also seeking further simplifications to ensure proportionality for micro-entities.
Lease accounting
Many respondents agreed that off-balance sheet operating lease accounting should be replaced, but some were concerned that the costs of aligning with IFRS 16 principles at this point would outweigh the benefits, particularly for smaller companies and charities.
In our response to FRED 82, we highlighted significant concerns about the complexity of the proposed lease accounting requirements for charities. Charities are not permitted to apply FRS 105, so charities which meet the micro-entity size criteria are unable to take advantage of the off-balance sheet accounting model for operating leases which will continue to be available for micro-entities.
The FRC is continuing to work towards a single lease accounting model, and is reconsidering how to ensure that the model is proportionate and understandable for FRS 102 preparers of all sizes. This may include, for example, clarifying the scope of the recognition exemption for leases of low value assets.
Industry and sector specific SORPs
The revised timetable for publishing the final periodic review amendments and for implementing those amendments will impact on the timing of any related changes to industry and sector specific Statements of Recommended Practice (SORPs), which will also be subject to public consultation. However, revised SORPs, such as the Charities SORP and the Pensions SORP will apply at the same time as the periodic review amendments.
New supplier finance disclosures to accompany the statement of cash flows
The FRC has recently published FRED 84 Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland – Supplier finance arrangements, with a deadline for comments of 31 December 2023.
The amendments impact on Section 1 (Scope) and Section 7 (Statement of cash flows) of FRS 102 and arise from amendments to IAS 7 (Statement of cash flows) and IFRS 7 (Financial instruments: disclosures) issued by the IASB in May 2023. The amendments will require companies applying FRS 102 and preparing a statement of cash flows to make additional disclosures about any supplier finance arrangements they have alongside this statement. No changes to Section 11 (Basic financial instruments) or Section 12 (Other financial instruments issues) of FRS 102 are proposed.
The FRC’s consultation stage impact assessment highlights that it anticipates the new disclosure requirements are most likely to impact large companies.
The UK Endorsement Board issued a related call for comments on its approach to adopting the related IASB amendments on supplier finance arrangements into UK-adopted IFRS. The UKEB's comment period closes on 18 October.
The FRC expects to finalise its proposed amendments in the first half of 2024, alongside the amendments arising from the periodic review. However, the proposed effective date of these amendments is 1 January 2025, which is before the implementation of the periodic review amendments
