Following extensive stakeholder consultation, the final amendments arising from the periodic review of UK GAAP have been issued by the Financial Reporting Council (FRC).

In most cases the amendments will be effective for accounting periods beginning on or after 1 January 2026. Early adoption is available provided all amendments are applied at the same time.

While the amendments primarily focus on updating FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland, the final changes affect the whole suite of UK GAAP standards, including FRS 105 The Financial Reporting Standard applicable to the Micro‑entities Regime.

Headline amendments

Of the finalised amendments, there are two which are most significant: the first being the introduction of a single, comprehensive five-step model for revenue recognition in FRS 102 and FRS 105.

The model is based on a simplified adaptation of the requirements of IFRS 15 Revenue from Contracts with Customers. Distinct goods or services promised to a customer will need to be identified, and the associated revenue will be recognised, when an entity satisfies the obligation to transfer those goods or services to the customer.

The second principal amendment is the adoption of a new model for lease accounting, aligned with IFRS 16 Leases, which will see lessees being required to recognise all leases on the balance sheet (subject to limited exemptions relating to short-term and low-value leases).

Lessees will be required to recognise an asset reflecting their right to use the leased asset over the lease term and a lease liability reflecting the obligation to make the lease payments.

FRS 105 will maintain a lease accounting model based on distinguishing between operating and finance leases.

Other amendments

A range of other incremental improvements and clarifications are made to FRS 102 and other standards, including:

• greater clarity for small entities that apply Section 1A Small Entities of FRS 102 on the disclosures required to give a true and fair view;
• revisions to Section 2 Concepts and Pervasive Principles to reflect the IASB’s updated Conceptual Framework for Financial Reporting;
• a new section 2A Fair Value Measurement based on the principles of IFRS 13 Fair Value Measurement that replaces the current Appendix to Section 2; and
• the removal of the option for entities to newly adopt the recognition requirements of IAS 39 Financial Instruments: Recognition and Measurement (unless needed for consistency in group accounting policies). However, those already applying IAS 39 may continue to do so.

The FRC has maintained its original position to defer the decision about aligning FRS 102 with the expected credit loss model of IFRS 9 Financial Instruments.

Reacting to the amendments, ICAEW supports the alignment in FRS 102 with international accounting standards, but offers a word of caution on the potential impact of the FRS 105 changes.

Sally Baker, ICAEW’s Head of Corporate Reporting Strategy, said: “Reporting requirements that are proportionate to the size and complexity of entities is an important feature of the UK financial reporting framework and we’re therefore pleased to see that the lease accounting changes have not been reflected in FRS 105.

“The introduction of the five-step revenue recognition model into FRS 105, however, may prove disproportionate for some entities.”

The Corporate Reporting Faculty will be examining the amendments in detail over the coming months and  producing guidance on the new requirements to support members with implementation. ICAEW’s periodic review of UK GAAP hub will be updated with resources as they become available.