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Amendments to FRS 102

Sayer Vincent

At the end of March 2024, the FRC issued amendments to FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review 2024, which is effective from 1 January 2026 (although early adoption is permitted).

The changes are broadly in line with those that we have previously communicated to you and predominantly relate to a new model for revenue recognition and accounting for operating leases, as well as other incremental improvements and clarifications. More detail is provided below:

Revenue:

  • The introduction of a 5-step income recognition model based on performance obligations.
  • This will apply to contractual income, so it is important to ensure that you have a complete register of contractual income, that outlines:
  • Who the contract(s) is with and the value of the contract.
  • The performance obligations within the contract.
  • An allocation of the contract value to performance obligations identified.

Leases:

  • Lessees now required to include operating leases on the Balance Sheet as a Right of Use Asset and Lease Liability, except where exemptions apply.
  • Lease expenditure will now be classified as depreciation (for Right of Use Asset) and Interest (Lease liability).
  • Exemptions will be available for short-term leases and leases of low-value assets.
  • It is important to ensure you have a complete up to date register of leases, readily available to the finance team.
  • The issued amendments also confirm that no restatement of comparatives is required.

The Financial Reporting Council have not yet created new fact sheets, which often provide a more useable guide to navigate the requirements but have clarified that they intend to do so later in 2024 (for certain aspects of the new requirements). You can look out for these guides by bookmarking the following link.

The delay in launching these amendments has had an impact on the launch of a revised Charities Statement of Recommend Practice (SORP), as the SORP committee need time to consider the application of FRS 102 for charities, alongside other proposed changes that are set to be included in the next version. With respect of the other changes that will be implemented in the new SORP, you can follow the Charity SORP Committee discussion via minutes of their meetings here.

We will provide more detail on the new SORP as and when this is available.

In the meantime, you can prepare for the upcoming changes by:

  • Considering any potential impacts to your organisation relating to an increase in assets and liabilities if more leases are recognised on the Balance Sheet. This was explored in a blog written by Fleur Holden which can be accessed here .
  • Ensuring contract and lease registers are up to date.
  • Undertaking an impact assessment of likely changes:
  • What is the likely change to the Balance Sheet and Statement of Financial Activities?
  • How does this impact the presentation of the accounts and key financial ratios?
  • Does the impact need to be communicated to key stakeholders?
  • What changes will you need to make to your accounting policies?
  • Do you have the expertise to undertake the changes in-house, will training be required?
  • Will nominal ledger and cost centre codes need to be updated as well as parameters feeding automated reports?
  • What systems and controls will we need to be implemented to ensure compliance with the revised requirements, including the capture of information to satisfy disclosure requirements?
  • What is your timeline of key activities to transition to the new requirements?

We will be offering additional support nearer to the implementation date. In the meantime, if you need support with any of the above, please contact your Audit Manager or Audit Partner.