FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland is in the midst of a shake-up, which might be unnerving for UK and Ireland organisations already navigating shifting corporate governance turbulence.
A project update from the Financial Reporting Council (FRC) in September 2023 with the final amendments published at the end of March 2024, means finer details of the overhaul are now clear, and significant changes to revenue recognition and lease accounting are on the cards.
Lease accounting
One of the most notable changes concerns leasing transactions; essentially requiring that most leases for a lessee will be reported on-balance sheet.
This change is intended to align FRS 102 to IFRS 16 Leases (albeit with several simplifications). The FRC has cited efficiency within groups as one of the reasons for this alignment. The change should minimise accounting differences and enable comparability.
Any business that holds operating leases for high-value assets, such as retail space or vehicle fleets for airlines and transport companies, will be affected.
There are some limited exceptions to the proposed ruling, and these concern short-term leases and low-value leases.
Revenue recognition
The other significant change outlined concerns revenue recognition, with changes being made to FRS 102, Section 23 Revenue and also FRS 105, Section 18 Revenue. The amendments kick off with a section name change to Revenue from Contracts with Customers. The sections have also been re-written to present a simplified version of IFRS 15, adopting its five-step model approach to recognize revenue.
There will be organisations affected by this amendments, but material changes to revenue recognition accounting policies and amounts stated in the financial statements are not expected to be widespread. Businesses most likely to be affected are those that have long-term contracts or those that provide services, for example, telecoms, energy, and construction companies.
The implementation of the changes will not have an effective date before 1 January 2026, to give businesses time to assess any potential impacts and plan for the change.
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