FRC Revises UK and Ireland Accounting Standards
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Jenny Faulkner 
28 March 2024 09:45
On 27 March 2024, the Financial Reporting Council (FRC) issued comprehensive improvements to financial reporting standards applicable in the UK and Republic of Ireland. These standards are used by an estimated 3.4 million businesses.
The amendments have been designed to improve the quality of UK financial reporting and are expected to provide better information to users of financial statements. They follow extensive stakeholder feedback from FRED 82 which was issued in December 2022 and proposed a number of amendments to FRS 102 and FRS 105, specifically around leases and revenue and the alignment to the applicable international financial reporting standards (IFRS). Other stakeholder feedback was obtained on Supplier Finance Arrangements and changes to FRS 102 through FRED 84 which was issued in September 2023.
The amendments to the standards will in most cases be effective for accounting periods beginning on or after 1 January 2026 with early application permitted provided all amendments are applied at the same time. Transitional provisions are included. 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.
As expected, the most significant changes apply to leases and revenue recognition to align with recent changes to IFRS. The FRC has made changes to the initial proposals seen in FRED 82 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 sheet.
Overall the changes made include a number of improvements and clarifications that are designed to make it easier to apply and understand the standards.
The FRC’s Executive Director of Regulatory Standards, Mark Babington, said:
“Overall, the new amendments, alongside the removal of unnecessary reporting burdens, are expected to provide a net benefit to the UK and support better access to capital by UK corporates necessary to realise growth opportunities.”
Of course there will be some implementation costs, however, the FRC has been mindful of the need for changes to be proportionate.
FRS 102 Headline changes (reproduced from FRC material):
| FRS 102 Section | What’s changed? | Key benefits |
|
Section 20 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. |
Improved financial information through greater transparency over the indebtedness of the business and more relevant information about assets and liabilities, better depicting the economics of significant lease arrangements.
High quality financial information supports a range of broader effects, potentially including improved access to capital. Consistency with international accounting principles is re-established, improving comparability and reducing ‘GAAP differences’. |
|
Section 23 Revenue from Contracts with Customers
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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. |
Easier for entities to account for revenue transactions correctly and consistently, across all sizes of entity and all contract types. More reliable and useful information about nature, amount and timing of revenue and cash flows arising from contracts with customers.
High quality financial information supports a range of broader effects, potentially including improved access to capital. Consistency with international accounting principles is re-established, improving comparability and reducing ‘GAAP differences’. |
FRS 102 Other incremental changes (reproduced from FRC material):
| 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. |
Easier for UK small entities to decide which disclosures need to be provided, supporting consistent high-quality reporting. |
|
Section 2 Concepts and Pervasive Principles |
Updates to align with latest international framework. |
Laying foundation for continued international alignment, with benefits including consistency and comparability and minimising ‘GAAP differences’. |
| Section 2A Fair Value Measurement |
Updated to align definitions with latest international standards and provide additional guidance. |
Fair value measurement is fundamental to accounting for some transactions and balances but can be subject to significant judgement. Additional guidance should help preparers arrive consistently at appropriate conclusions. |
| Section 7 Statement of Cash Flows |
New disclosure requirements about supplier finance arrangements (effective 1 January 2025 with early application permitted). |
Answers stakeholder demands for more information about such arrangements, and promotes consistency with IFRS reporting. |
| Section 26 Share-based Payment | Additional guidance aiding application of the principles in certain situations. | Answers stakeholder demands for further guidance, and promotes consistency with IFRS reporting. |
| Section 29 Income Tax | Introduction of guidance on accounting for uncertain tax positions. | Provides additional guidance to preparers dealing with such positions, and promotes consistency with IFRS reporting. |
| Section 34 Specialised Activities | Various improvements and clarifications to clarify existing requirements and make consequential changes to reflect other amendments. |
Preparers should find it easier to understand and apply the requirements.
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FRS 105 (Micro-entities) Headline and other changes:
No equivalent change is made to FRS 105 for leases.
Similar amendments are made to FRS 105 for revenue, with additional simplifications.
When applicable, similar incremental improvements and clarifications are made to FRS 105 for other changes.
Other IFRS changes
For clarity there have been no changes to either FRS 102 or FRS 105 in relation to the expected credit loss model of financial asset impairment as found in IFRS 9 Financial Instruments or to align standards with IFRS 17 Insurance Contracts. They will be part of future projects and separate consultations in due course.
How Mercia can help
As usual our range of A&A update courses will be considering the changes in detail and walking through practical examples in due course. Our relevant disclosure checklists housed within our various products such as the audit methodology will be updated and made available in a timely manner.
We will release a series of courses over the coming period to support firms as they transition their clients – watch this space!
If you have detailed technical queries regarding the revisions then please contact us as usual through our technical query request form.
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