FRS 102 is evolving: Key changes UK businesses need to prepare for

​The UK Financial Reporting Council (FRC) has announced significant amendments to Financial Reporting Standard (FRS) 102, aiming to enhance alignment with International Financial Reporting Standards (IFRS) and improve clarity in financial reporting. These changes will affect entities applying UK Generally Accepted Accounting Practice (UK GAAP) and are set to take effect for accounting periods beginning on or after 1 January 2026, with early adoption permitted.​

Key amendments:

1. Revenue recognition: FRS 102 and FRS 105 will adopt a revised approach to revenue accounting, incorporating the five-step model from IFRS 15. This model emphasizes recognizing revenue when control of goods or services transfers to the customer, ensuring a more consistent and transparent depiction of revenue streams.​

2. Lease accounting: The amendments introduce an 'on-balance sheet' model for lessees, akin to IFRS 16. Lessees will now recognize a right-of-use asset and a corresponding lease liability for most leases, providing a clearer picture of an entity's financial obligations.​

3. Small entities disclosures: Section 1A has been updated to offer greater clarity on the disclosures required for small entities to present a true and fair view, aiding in the preparation of more informative financial statements.​

4. Conceptual framework: Section 2 has been revised to reflect the IASB's 2018 Conceptual Framework for Financial Reporting, ensuring that the underlying principles of FRS 102 are consistent with current international standards.​

5. Fair value measurement: A new Section 2A replaces the previous appendix, aligning fair value measurement principles with those in IFRS 13, thereby standardizing the approach to determining fair value across entities.​

6. Financial instruments: The option to adopt the recognition and measurement requirements of IAS 39 has been removed for new adopters, signaling a move towards more contemporary financial instrument accounting practices.​

Effective dates:

• The primary amendments are effective for accounting periods beginning on or after 1 January 2026.​

• New disclosures about supplier finance arrangements in Section 7 are effective from 1 January 2025.​

• A new requirement in Section 6 of FRS 103 Insurance Contracts is effective from 1 January 2024.​

Early application of these amendments is permitted, provided all changes are applied simultaneously.​

Action steps:

Entities should begin assessing the impact of these amendments on their financial reporting processes. Early preparation will facilitate a smoother transition and ensure compliance with the updated standards. Consulting with accounting professionals can provide valuable insights and guidance tailored to specific organizational contexts.

For detailed information and further guidance, please refer to the FRC's official publications on these amendments.​