The Periodic Review 2024 amendments are the most significant changes to UK GAAP since the introduction of FRS 102 and FRS 105. As preparers start to familiarise themselves with the amendments, the FRC’s Stephen Maloney highlights how stakeholder feedback helped shape the key changes.
As we begin to count down towards the end of 2024 and look to future plans, accountants may be turning their attention to the Periodic Review amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs issued earlier this year.
In March, the Financial Reporting Council (FRC) published significant amendments to both FRS 102 and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime to enhance the quality of UK financial reporting and help support the access to capital and growth of the businesses applying them.
The Periodic Review 2024 amendments are the most significant changes to UK GAAP since the introduction of FRS 102 and FRS 105. It is therefore vital that preparers representing the estimated 3.4 million UK and Ireland entities which apply these standards are aware of the changes that may impact their reporting and start planning accordingly.
Key changes
The Periodic Review 2024 amendments followed an extensive period of engagement with stakeholders that started in March 2021.
The most significant changes arise from realigning accounting for revenue and leases with the principles of IFRS Accounting Standards, following significant changes to the corresponding international standards in the past 10 years.
The benefit of stakeholder feedback
The FRC is committed to developing evidence-based standards based on consultation with users, preparers and other stakeholders. Stakeholder views have therefore played a crucial role in developing the financial reporting standards; the Periodic Review amendments were no exception. A key step in the process was the publication of proposed amendments for public consultation via an exposure draft known as FRED 82, in December 2022.
To understand how the FRC’s final amendments were informed by stakeholder feedback, a great place to start is the amendments to the Basis for Conclusions to the FRSs. The Feedback Statement provides an additional summary of the stakeholder feedback on the consultation questions, and how the FRC responded.
Preparing for implementation and understanding the new requirements
With most of the amendments becoming effective on 1 January 2026, it is certainly not too soon to start preparing. Preparers will want to familiarise themselves with the amendments and think about the practicalities of how to apply them to their own individual circumstances. Users will also be interested in how the changes will impact the financial information that they receive.
The accounting for leases, and for revenue from contracts with customers, both follow the substance of the contracts an entity has entered into. Entities will want to identify their contracts in scope and how to apply the new requirements to those contracts. How much effort is involved will depend on both the number, and the variability, of contracts the entity has entered into.
To help stakeholders understand the new requirements, the FRC provided a suite of launch materials, including a three-page summary of the key changes, an overview podcast, and a recording of its launch webinar. The FRC will also publish new editions of the standards, showing the amendments in context, and updated Staff Factsheets providing further guidance on certain key aspects.
FRC staff will also be speaking at an upcoming ICAEW Corporate Reporting Faculty event, UK GAAP changes: prepare for implementation, on 7 October.
Key changes to accounting requirements
The most significant changes apply to leases and revenue recognition, to align with recent changes to international financial reporting standards. The changes will provide better information to users of financial statements including current and potential investors and lenders.
Leases
Lease accounting under extant FRS 102 was aligned with the principles of the old IAS 17 Leases, under which a lessee recognises operating leases off-balance sheet and finance leases on-balance sheet. The Periodic Review amendments updated this to align with the principles of IFRS 16 Leases, effective internationally since 2019. A lessee no longer distinguishes between operating and finance leases; instead, all leases are recognised on-balance sheet unless an optional recognition exemption is applied. This is expected to provide a more faithful representation of leasing transactions and more useful information to users of financial statements about the assets and liabilities arising.
Stakeholder feedback, including in response to FRED 82, supported the principle of recognising operating leases on-balance sheet, provided that the requirements were proportionate for preparers. In promoting proportionality, one place the FRC focused was on making the recognition exemption for leases of low-value assets more widely available than it is under IFRS 16, while ensuring that the most economically significant leases are recognised on-balance sheet. This should help to reduce the number of leases to which the on-balance sheet model must be applied, and may also reduce the amount of judgement needed to determine whether a given asset is of low value.
The FRC also introduced guidance on accounting for leases that contain a non-exchange component (for example because a lessor has used the lease as a mechanism to make a donation to a public benefit entity or provide a government grant) – a topic not addressed by IFRS 16.
In order to streamline the new section, a number of optional simplifications that had been proposed in FRED 82 were not taken forward to the final amendments. This included an option to use a gilt rate to discount lease liabilities if no other rate was readily determinable.
No change has been made to lease accounting under FRS 105.
Revenue from contracts with customers
Revenue accounting under extant FRS 102 and FRS 105 was aligned with the principles of the old IAS 18 Revenue (under which the main distinction was between the sale of goods and of services) and IAS 11 Construction Contracts. The Periodic Review amendments update this to align with the principles of IFRS 15 Revenue from Contracts with Customers, effective internationally since 2018. An entity now applies the same five-step model to recognise revenue from all of its contracts with customers. This is expected to provide more useful information about the nature, amount and timing of revenue and cash flows arising from such contracts. It should also make it easier for preparers to reach consistent and comparable revenue recognition decisions.
Unlike lease accounting, the new revenue model does not necessarily result in different accounting outcomes – for many contracts, the amount and timing of revenue recognition may be the same as under the extant standard. In other cases, there may be significant differences. Either way, preparers will have applied an up-to-date and consistent thought process in reaching that conclusion. Enhanced disclosure requirements will also aid users by ensuring that the entity has clearly described the goods or services it promises to transfer, when it satisfies these performance obligations, and the significant payment terms.
Stakeholder feedback, including in response to FRED 82, supported this modernisation of revenue recognition requirements. Stakeholders requested additional simplifications to help micro-entities apply the new model under FRS 105, which have been accommodated in the final amendments.
Other incremental improvements and clarifications
Preparers are encouraged to familiarise themselves with the various other improvements made throughout the standards, which include but are not limited to: more clarity on disclosures required by a UK small entity in order to give a true and fair view; alignment of fair value definitions with latest international standards, and additional guidance; new disclosure requirements about supplier finance arrangements (effective 2025); and a number of clarifications to existing requirements for specialised activities (of particular interest to public benefit entities). These too benefited from stakeholder feedback throughout the project.
Further discussion of key changes introduced by the Periodic Review 2024 can be found on ICAEW’s Periodic Review of UK GAAP hub and in the articles Bringing leases on balance sheet: what you need to know and Five-step revenue recognition: what you need to know.
Stephen Maloney, Senior Project Director, Accounting and Reporting Policy, Financial Reporting Council
