Amendments to FRS 102

What’s the issue?

The Financial Reporting Council (FRC) has issued comprehensive improvements to the accounting and financial reporting standards applicable in the UK and Republic of Ireland.

These amendments finalise the FRC’s periodic review of the UK’s accounting standards consulted on in FRED 82 Draft amendments to FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of Ireland and other FRSs - Periodic Review 2024 and FRED 84 Draft amendments to FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of Ireland - Supplier finance arrangements.

The impact for each UK business will vary depending upon the nature of the entity’s operations and activities. Care is required to ensure that a full impact assessment is carried out early to allow for adequate implementation of any new accounting requirements, particularly where full retrospective application is required as at the start of the earliest period presented, which for entities with a calendar year-end will be 1 January 2025.

What does this mean?

What is a summary of the key changes?

• Section 23 Revenue from Contracts with Customers – The revenue accounting requirements have been completely replaced with a new section that is based on IFRS 15 Revenue from Contracts with Customers.

The amendments set out a five-step model to be applied to all contracts with customers, with some practical simplifications, requiring revenue to be recognised to depict the transfer of promised goods or services (a promise being an obligation to transfer a good or service (or bundle of goods or services) that is distinct) to customers, with the amount to reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. The requirements will ensure that more useful information is reported about the nature, amount and timing of revenue and cash flows arising from contracts with customers.

The amendments include considerably more extensive requirements and guidance than the current requirements of Section 23, including areas of revenue accounting that were not previously specifically dealt with or were limited. These new, or revised, areas include warranties, non-refundable upfront fees, principal versus agent considerations, customer options for additional goods or services, variable consideration, refund liabilities, repurchase agreements, licensing, and contract balances. 

• Section 20 Leases – The lease accounting requirements have been completely replaced with a new section that is based on IFRS 16 Leases. The amendments require all lease arrangements to be recognised on-balance sheet, with some exemptions and practical simplifications, and therefore removing the distinction between operating and finance lease arrangements. The exemptions allow short-term leases and leases of low-value assets to remain off-balance sheet. The practical simplifications, which (when compared to IFRS reporting) are in relation to:
  • Introducing a lessee’s obtainable borrowing rate as an alternative to the lessee’s incremental borrowing rate;
  • Reducing the number of situations in which a lease modification requires the determination of a revised discount rate;
  • Offering the option of a simpler approach to recognising gains and losses on sale and leaseback transactions; and
  • Providing a higher threshold when determining low-value assets. 
• Section 2 Concepts and Pervasive Principles – The section is revised to align the principles with the 2018 Conceptual Framework for reporting under IFRS. 
• Section 2A Fair Value Measurement – The section is revised, replacing the existing Appendix to Section 2, to align the key requirements with IFRS 13 Fair Value Measurement. The amendments aim to provide additional guidance to help ensure consistently of conclusions reached when determining fair values. 
• Section 7 Statement of Cash Flows – The amendments introduce new disclosure requirements about supplier finance arrangements (also referred to as supply chain finance, payables finance or reverse factoring arrangements). The amendments aim to provide users of financial statements with additional information about an entity’s use of supplier finance arrangements and the effect of such arrangements on the entity’s financial position and cash flows. The additional disclosure requirements relate to the specific terms and conditions of the arrangement and quantitative information about changes in carrying amounts of financial liabilities that are part of the supplier financing arrangement, including both cash and non-cash changes.
• Section 8 Notes to the Financial Statements – Amendments are added to require entities to disclose ‘material accounting policy information’ instead of ‘significant accounting policies’ such that the requirements become aligned with IAS 1 Presentation of Financial Statements. 
• Section 10 Accounting Policies, Estimates and Errors – Amendments are added to introduce the definition of an accounting estimate to help entities distinguish changes in accounting estimates from changes in accounting policies. 
• Section 11 Financial Instruments and Section 12 Other Financial Instruments Issues – There is the removal of the option to newly adopt the recognition and measurement requirements of IAS 39 Financial Instruments: Recognition and Measurement, in preparation for the eventual removal of this option, with the exception of allowing entities to do so solely to make the entity’s accounting policies consistent with those adopted in the consolidated financial statements in which the entity is included. The proposals do not bring in the requirements under IFRS 9 Financial Instruments to apply an expected loss model for impairment of financial assets. However, where an entity chose to apply the recognition and measurement requirements of IFRS 9 (as an accounting policy option under FRS 102), then new disclosure requirements relating to the expected credit loss model are included.
• Section 26 Share-based Payment – Amendments are added to provide additional guidance over the application of the principles in certain situation, such as measuring the fair value of cash-settled share-based payments, where there is a choice of settlement of a share-based payment, and when dealing with share-based payments issued to employees within a business combination.
• Section 29 Income Tax – Amendments are added to align with the requirements of IFRIC 23 Uncertainty over Income Tax Treatments on how to reflect the effects of uncertainty in the accounting for income taxes. 
• Section 34 Specialised Activities – Various amendments are made to improve and clarify existing requirements and make consequential changes to reflect other amendments. This includes guidance in relation to heritage assets, incoming resources from non-exchange transactions, and agricultural assets.

What has not changed?

The amendments do not introduce an expected credit loss model of financial asset impairment, as set out in IFRS 9 Financial Instruments, and do not introduce any alignment with IFRS 17 Insurance Contracts. Any alignment with IFRS 17, or further alignment with IFRS 9, will be part of a future project and subject to consultation in due course.

When is this effective?

The amendments are applicable to accounting periods beginning on or after 1 January 2026, with early application permitted provided all amendments are applied at the same time. There is an exception for the new disclosure requirements relating to supplier finance arrangements that are applicable to accounting periods beginning on and after 1 January 2025.

Transitional provisions are included in relation to revenue from contracts with customers, leases, supplier finance arrangements, uncertain tax treatments and fair value measurement.

Who is it applicable to?

The amendments from this periodic review are applicable to all FRS 102 reporters.

How can we help?

The Accounting advisory services team has extensive experience in assisting clients with implementing changes to accounting standards, including implementing IFRS 15, IFRS 16, and indeed FRS 102 itself when it first became effective.

Our approach is tailored to the needs of your business, so please get in touch for a practical discussion on how this may impact you, and how we can assist.

Contact us today