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FRS 102 amendments likely to differ from FRED 82

Author: ICAEW Insights

Published: 03 Oct 2023

Amendments to FRS 102 and other FRSs have been pushed back a year. The standard-setter says it will seek further simplifications to ensure proportionality for micro-entities.

Amendments to FRS 102 and other UK accounting standards in the areas of revenue recognition and leasing accounting have been pushed back by a year and will now have an effective date not before 1 January 2026.

In a project update on its periodic review of FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland and other Financial Reporting Standards (FRSs)’, the Financial Reporting Council (FRC) said it is taking into account responses received to its consultation and that the final amendments are likely to differ in a number of respects from the FRED 82 proposals.

FRED 82, published in December 2022, proposed significant amendments to FRS 102 and FRS 105 ‘The Financial Reporting Standard applicable to the Micro-entities Regime’ affecting revenue recognition, lease accounting and a number of other incremental improvements and clarifications. In particular, it proposed aligning both FRS 102 and FRS 105 with the five-step model of revenue recognition from IFRS 15 ‘Revenue from Contracts with Customers’ and, for FRS 102 preparers, bringing leases on balance sheet for lessees in a similar way to IFRS 16 ‘Leases’. 

Public feedback on the proposed changes found that, while respondents generally supported greater alignment with IFRS 15, concerns were raised about the proportionality of the corresponding amendments to FRS 105, the accounting standard for the smallest companies. The standard-setter said it was seeking further simplifications to ensure proportionality for micro entities.

Many respondents agreed that the off-balance-sheet model for operating leases should be replaced, although at the same time many response letters warned that the costs of aligning with IFRS 16’s principles at this point would outweigh the benefits, particularly for smaller companies and charities.

“We continue to work towards bringing leases on balance sheet for all FRS 102 preparers. We are reconsidering how to ensure that the model is proportionate and understandable for FRS 102 preparers of all sizes. This may include, for example, clarifying the scope of the recognition exemption for leases of low-value assets,” the FRC explains.

Following significant engagement with stakeholders, the FRC is currently taking into account the helpful responses and feedback received across all aspects of the proposals. Final amendments to FRS 102 and FRS 105 are currently expected in the first half of 2024, with an effective date of not before 1 January 2026, a year later than FRED 82 originally proposed. 

Sally Baker, Head of Corporate Reporting Strategy, says: “ICAEW members in practice and business affected by the proposals will welcome the clarity provided in this project update on the timing of the amendments to FRS 102 and other FRSs. ICAEW broadly supports the proposals contained in FRED 82 and we are pleased to see the direction of travel being maintained. As we expressed in our response, we welcome consideration being given to ways in which the new lease accounting requirements might be simplified as well as steps to ensure proportionately for FRS 105 reporters in relation to revenue.”

The Corporate Reporting Faculty will continue to monitor developments and will supplement its existing resources on the periodic review, available at icaew.com/ukgaapreview as the amendments are finalised.

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