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Introduction
Earlier this year on March 27, 2024, the Financial Reporting Council (FRC) introduced a series of amendments to FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland, following the 2024 Periodic Review. These amendments will take effect for accounting periods starting on or after January 1, 2026, though businesses are permitted to adopt the changes earlier.
These changes aim to harmonize UK and Republic of Ireland accounting standards with international frameworks while maintaining the practical needs of local businesses.
Key updates include:
- Revenue Recognition (IFRS 15 Alignment): A new revenue recognition model more closely aligned with IFRS 15, designed to improve consistency in how businesses recognize revenue. While simplified, this model is intended to bring greater clarity in complex transactions, such as performance obligations and variable consideration.
- Lease Accounting (IFRS 16 Alignment): Lessees will now be required to account for most leases on the balance sheet, in alignment with IFRS 16. This change aims to enhance transparency in financial reporting by ensuring that companies disclose lease obligations more accurately, but with practical exemptions for smaller entities.
- Fair Value Measurement and Other Updates: Additional modifications include changes to fair value measurement practices, treatment of uncertain tax positions, and accounting for business combinations. A revised Section 2 of FRS 102 has also been introduced, aligning with the IASB’s Conceptual Framework to ensure more consistent application of fundamental accounting principles.
- Early Adoption and Transition: While the majority of these changes will take effect from 2026, amendments related to supplier finance arrangements will be implemented earlier, starting from 1 January 2025. CFOs and finance leaders should begin planning now for a smooth transition, leveraging the opportunity for early adoption where beneficial.
These updates mark a significant shift in UK GAAP, encouraging greater alignment with global standards (IFRS) while catering to the specific needs of the UK and Irish markets.. For more information, visit out website: https://www.thecfohq.com
*UK impact assessment team
How Could the FRS 102 Changes Impact My Business?
The upcoming amendments to FRS 102, effective from 1 January 2026, could significantly impact various areas of your financial reporting and business operations. Below are key considerations for CFOs and finance leaders to assess:
- Impact on Key Metrics: Critical financial indicators such as EBITDA, profit, and net debt may be affected due to changes in revenue recognition and lease accounting. This may alter how your business presents its financial health, impacting external perceptions and internal decision-making.
- Debt and Pension Covenants: If key metrics like EBITDA or net debt are impacted, it may become necessary to renegotiate debt or pension covenants. Affected businesses should proactively communicate with lenders and pension trustees to ensure compliance with covenant terms.
- Incentive and Remuneration Plans: Financial performance is often tied directly to reward schemes like bonuses or share options. If the new standards alter profit calculations, adjustments may be required to keep incentive structures aligned with revised performance metrics.
- Distributable Reserves and Dividends: The changes could affect distributable reserves, potentially limiting the capacity to issue dividends. Businesses should assess the impact on reserves early to avoid unexpected restrictions on shareholder returns.
What Should You Do Next?
To prepare for these amendments, it’s crucial to begin planning early. Our advise for CFOs is to start by conducting an initial impact assessment to identify how these changes will affect their financial statements. This assessment will provide insight into potential changes to profit or loss, balance sheet metrics, and disclosure requirements. Early quantitative analysis of key areas—like revenue, leases, and liabilities—will allow you to gauge the potential financial impact of the transition.
Beyond financial statement preparation, most affected businesses may need to update their systems and processes. This includes revising charts of accounts, assessing system capabilities, and ensuring compliance with new reporting requirements. The added disclosure requirements for revenue recognition, leases, and supplier finance arrangements will also demand a strategic approach, as sensitive future revenue information will become more visible to stakeholders.
The amendments also introduce supplier finance arrangement disclosures, requiring businesses to provide detailed information on these arrangements in their financial statements. Early implementation is possible from 1 January 2025, and businesses should ensure they are ready to disclose key terms, liability amounts, and payment timelines by then.
How can we help?
Our UK Accounting Advisory team has deep expertise in guiding businesses through accounting standard changes. Whether your business requires support in impact assessments, system updates, or disclosure planning, we are here to help ensure a seamless transition. Reach out to our team to explore how we can support your compliance journey and maintain financial transparency through these important changes.
With our hands-on experience in IFRS 15 and IFRS 16 transitions, we are uniquely positioned to assist with FRS 102 amendments. For more information on how we could support your transaction, visit our website: https://www.thecfohq.com or contact us directly on 0800 654 6550
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