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The future direction of FRS 102: have your say

Author: ICAEW Insights

Published: 13 Aug 2021

Earlier this year the Financial Reporting Council (FRC) initiated the next periodic review of FRS 102 The Financial Reporting Standard for the UK and Republic of Ireland. As a first step, the FRC has asked stakeholders to provide comments on areas that might be considered as part of this review. ICAEW’s Financial Reporting Faculty outlines below some of the key matters that have arisen in early discussions with members.

A good starting position

This is the second major review of FRS 102 and broadly the standard appears to be working well. With many of the most troublesome teething problems addressed in the first review (the Triennial review 2017) there is a sense that, at least for existing requirements, this next review should be about ‘bug fixing’ rather than addressing major areas of concern. This is certainly a positive starting position, but it is not where the story ends.

To start, the FRC is also considering if, and how, it might incorporate the new IFRSs relating to leases and revenue into FRS 102. It may also contemplate whether to bring in the expected loss model for impairment of financial assets required under IFRS 9 Financial Instruments. In addition, the FRC is considering whether FRS 102 needs to be updated to address any new or emerging transactions.

“The potential scope and impact of the periodic review could be significant for FRS 102 and FRS 105” notes Sarah Dunn, Technical Manager in the Financial Reporting Faculty. “We encourage members to take advantage of the opportunity to input their views, either directly with the FRC or via the Financial Reporting Faculty.” 

Marianne Mau, Technical Lead for the Financial Reporting Faculty, adds: “It is important for the FRC to hear views from a wide range of stakeholders, including companies of different sizes. This will help inform the next steps and ensure as many potential issues as possible are considered at an early stage.”

Bringing in the new IFRSs

IFRS 15 Revenue from Contracts with Customers provides a comprehensive framework for determining when revenue should be recognised and how it should be measured. Our initial discussions with members suggest there may be some aspects of IFRS 15 which, if suitably adapted, could improve existing requirements within FRS 102. Others have raised concerns about the expected costs and whether these would outweigh the benefits of such a major overhaul, particularly if the end result does not significantly change current accounting.

IFRS 16 Leases provides a single lessee accounting model that requires assets and liabilities arising from almost all lease arrangements to be recognised on-balance sheet. Our discussions on this topic have sparked much debate and diverse views. One view is that bringing leases onto the balance sheet under FRS 102 is the right approach. We have heard how many companies reporting under FRS 102, including small entities, have complex lease arrangements and that the principles of IFRS 16 would provide better information to preparers and users. Nevertheless, those with this view urge the FRC to develop a simplified approach to avoid introducing all the complexities of IFRS 16 into FRS 102. In contrast, we have heard concerns that bringing all leases onto the balance sheet may be particularly challenging for very small entities, particularly owner-managed businesses, and may have limited benefits.

The expected loss model under IFRS 9 requires an entity to recognise a loss allowance for certain financial assets based on expected credit losses. Our discussions so far suggest little support for introducing this model into FRS 102, although some have suggested it could be introduced for certain relevant companies, for example, banks and building societies.

While we have heard mixed views on each of these matters, there is general agreement that the FRC should have proportionality and cost-benefit considerations at the front of its mind when considering how any new IFRS requirements might be incorporated into FRS 102. This is particularly important given the range of companies (both in terms of size and type) applying the standard. Another key question is how any changes to FRS 102 would then translate to FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime, and whether there is scope for simpler accounting requirements being retained for micro-entities on cost-benefit grounds.

New and emerging transactions

When it comes to new and emerging transactions, we have heard two recurrent issues: accounting for climate-related risks and the accounting for crypto assets. For climate-related matters, issues raised have ranged from how to reflect climate-related risk in the financial statements to the accounting for emission trading schemes. For both climate-related risks and crypto assets, a key question is whether the UK should take the lead in developing accounting requirements for these matters or wait for the IASB to develop guidance first. In the past, we might have expected the FRC to follow the IASB’s lead. However, does the urgency of these matters require the FRC to adopt a different approach? Should the FRC take a more proactive and leading role in addressing these topics? These are important questions for the FRC and its stakeholders to consider as part of this periodic review.


As noted above, while we are not currently aware of any major issues with the current requirements of FRS 102, we are aware of some areas where improvements could be made. A selection of common matters raised so far include:

  • Section 35 Transition to this FRS – currently focuses on transition from old UK GAAP and needs a refresh.
  • Section 24 Government Grants – to take account of recent experience from the COVID-19 pandemic.
  • Section 1A Small Entities and FRS 105 – to consider if the disclosure requirements for small entities and micro-entities provide sufficient information to users.

Next steps

The deadline for feedback to the FRC is 31 October 2021. Any changes proposed as part of the periodic review will be subject to public consultation, expected in 2022. The effective date for any final amendments is expected to be 1 January 2024.

The Financial Reporting Faculty will be submitting views to the FRC and will continue to seek members’ views in the coming months. If you have any comments on the matters raised in this article or with regards to the periodic review generally then please let us know at frf@icaew.com

The faculty will continue to provide commentary and guidance on a number of key topics relevant to the periodic review, particularly focusing on the implications of bringing IFRS 15 and IFRS 16 into FRS 102.

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