FRED 82 Update - Proposed amendments to FRS 102

Last December the FRC published its exposure draft, FRED 82, proposing significant changes to FRS 102 and other financial reporting standards as a result of its periodic review. Following the conclusion of the consultation period the FRC has now issued a project update showing how the proposals might be amended following the feedback received.

The changes are extensive and seek to align FRS 102 more closely with IFRS, with a number of simplifications.

Principal changes to FRS 102

A new model for revenue recognition is proposed. This model is based on the five step model for revenue recognition in IFRS 15 with a small number of simplifications. Revenue will largely be recognised based on promises included in contracts with customers and whether these are satisfied over time or at a point in time.

A new on-balance sheet leasing model is proposed. This model is based on the IFRS 16 leasing requirements with a small number of simplifications. Lessees with significant operating leases will be most affected by the amendments, as most leased assets and lease liabilities will come onto the balance sheet. Exceptions are available for leases of low value assets and for short-term leases (those with a lease term of 12 months or less at the commencement date).

Both of these changes look set to proceed based upon the generally positive feedback received, although the FRC is looking to fine-tune the amendments and to ensure that the changes to lease accounting in particular are proportionate and understandable for FRS102 preparers of all sizes.

Other changes to FRS 102

Following Brexit, the FRC now has more flexibility surrounding disclosure requirements for small companies. Amendments are therefore proposed to make what are currently encouraged disclosures in Appendix E to Section 1A mandatory.

A revised Section 2 Concepts and Pervasive Principles is proposed based on the IASB’s updated Conceptual Framework. The framework was updated in 2018 and the FRC considers that similar updates are necessary to FRS 102.

A new Section 2A Fair Value Measurement is proposed to replace the current guidance in the Appendix to Section 2. The new section is based on the requirements of IFRS 13 Fair Value Measurement.

The option to newly apply the recognition and measurement requirements of IAS 39 is proposed to be removed, although the option will remain for those already opting to apply IAS 39. It is anticipated that the option will be removed entirely in later amendments, though these are some years away.

There are also a lot of other minor changes to other sections of the standard. The project update made no mention of any of these proposed changes, so it can be safely assumed that they will proceed as planned.

Changes to FRS 105

The most significant change to FRS 105 is the proposal to introduce the five step model for revenue recognition, which, like the proposed amendments to FRS 102, is based on that of IFRS 15.

Changes are also proposed to Section 2 Concepts and Pervasive Principles to align with the updated IASB’s conceptual framework.

Whilst there are a number of other minor changes proposed to FRS 105, no significant changes are proposed to the current accounting for leases.

Timescales

The big announcement made in the project update is that the revised version of FRS102 is now expected to come into effect for periods commencing on or after 1 January 2026, a year later than originally planned, although early adoption will be permitted as long as all amendments are applied at the same time.

This delay will enable the FRC to take into account progress made at an international level in revising the IFRS for SMEs, the principles of which underpin much of FRS102, and also the conclusions of UK Government’s Smarter Regulation non-financial reporting review, including possible changes to the company size criteria.

How we can help

Once the amendments are finalised, our disclosure checklists and example accounts will be updated to reflect the changes.

We can also help by answering technical queries about changes to the standards.