As accountants in business and practice prepare for the Periodic Review 2024 amendments to UK GAAP, it is important to remember that the changes aren’t just about revenue recognition and leases. Amy Trappe takes a look at the other changes affecting the financial statements.
With most of the Periodic Review 2024 (PR24) amendments to UK GAAP becoming effective for accounting periods beginning on or after 1 January 2026, now is the time for preparers and their advisers to get to grips with what is changing and how it will impact their financial reporting. While attention has understandably focused on the headline changes affecting revenue recognition and lease accounting, the PR24 amendments include a wide range of other changes (“other amendments”) affecting recognition, measurement and disclosure, with potentially significant impacts for some entities. This article takes a closer look at some of the amendments beyond revenue and leases. Unless noted otherwise, the amendments covered in this article are to be applied retrospectively.
The first change in 2025
Despite most of the PR24 amendments being effective from 2026, there is one change to FRS 102 that is effective for accounting periods beginning on or after 1 January 2025.
Based on recent amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures, new disclosure requirements are introduced in respect of supplier finance arrangements. Supplier finance arrangements, or reverse factoring, typically involve a factor paying the entity’s supplier, with the entity reimbursing the factor at a later date. The new disclosures include information, in aggregate, about key terms and conditions of such arrangements and related financial liabilities at the reporting date (including carrying amounts and the range of payment due dates). For some of the new disclosures, there is no requirement to disclose comparatives in the first period of adoption.
Now is the time for preparers and their advisers to get to grips with what is changing and how it will impact their financial reporting
Also worth noting is that qualifying entities are exempt from the new supplier finance arrangement disclosures provided that equivalent disclosures are included in the consolidated financial statements in which the entity is included. A qualifying entity is defined in FRS 102 as a member of a group that is included in publicly available consolidated financial statements, prepared by the parent, that are intended to give a true and fair view.
More substantive changes from 2026
Besides the changes to Section 20 Leases and Section 23 Revenue from Contracts with Customers, the PR24 amendments affect nearly all sections of FRS 102. While it will depend on an entity’s individual facts and circumstances whether an amendment is considered substantive, the changes highlighted below are those most likely to lead to a different accounting treatment or a substantial change in disclosure.
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Concepts and pervasive principles
The Financial Reporting Council (FRC) aims to provide succinct accounting standards that are globally consistent, while balancing its overriding objective to enable high-quality, understandable and proportionate financial reporting in the UK. As part of achieving global consistency, Section 2 Concepts and Pervasive Principles has been completely rewritten to update the key concepts and definitions underlying FRS 102 so that they align with the International Accounting Standards Board’s (IASB) Conceptual Framework for Financial Reporting (2018).
Such alignment provides a consistent basis for future standard setting and for maximising the quality of accounting policies developed when there is no specific guidance in FRS 102.
However, to avoid unintended consequences, the extant definition of an asset is retained for Section 18 Intangible Assets other than Goodwill and the extant definition of a liability is retained for Section 21 Provisions and Contingencies and Section 22 Liabilities and Equity.
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Fair value measurement
A new Section 2A Fair Value Measurement aligns definitions and guidance with IFRS 13 Fair Value Measurement. This involves a change in measurement basis for liabilities held at fair value, now using the price paid to transfer a liability and reflecting the effect of non-performance risk, such as an entity’s own credit risk. Additionally, the amendments introduce two newly defined concepts that apply when measuring the fair value of an asset or a liability: it is assumed that a transaction takes place in either the “principal market” or the “most advantageous market”. The amendments to Section 2A are to be applied prospectively from the date of initial application.
Notably, and again to avoid unintended consequences, the new definition of fair value does not apply for Section 26 Share-based Payment and for lessor accounting requirements in Section 20 Leases.
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Going concern
Going beyond the equivalent requirements in IFRS Accounting Standards, Section 3 Financial Statement Presentation introduces an additional disclosure relating to going concern. An entity must disclose, where applicable, the fact that its financial statements have been prepared on a going concern basis, along with confirmation that management has considered all available information about the future in assessing whether the going concern assumption is appropriate. Any significant judgements made in assessing the entity’s ability to continue as a going concern must also be disclosed, introducing a direct link with FRS 102 paragraph 8.6, which requires disclosure of judgements that have the most significant effect on amounts recognised in the financial statements.
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Material accounting policy information
Using the updated definition of materiality set out in Section 2, amendments to Section 8 Notes to the Financial Statements clarify how to apply materiality judgements to disclosure of accounting policies. With a change in emphasis, an entity must now disclose material accounting policy information, rather than, previously, disclosure of significant accounting policies. Consequently, some entities may need to add and/or remove notes to the financial statements.
These changes aim to provide clear, concise, entity-specific information rather than boilerplate text that simply reproduces requirements of the standard. This resonates with guidance in the FRC’s December 2022 thematic review of “What Makes a Good Annual Report and Accounts”, which highlights the provision of “company specific” information as an effective communication principle.
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Business combinations
A new appendix to Section 19 Business Combinations and Goodwill provides guidance on identifying the accounting acquirer. When employees of an acquired business are also the selling shareholders, Section 19 now contains further guidance to highlight the importance of judgement when distinguishing contingent consideration from remuneration for future services. It is worth noting that retrospective application of these amendments is not required for any business combination that took place before the date of initial application of the amendments (unless the initial accounting was incomplete).
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Share-based payments
The amendments clarify the accounting treatment of equity-settled share-based payment transactions settled by the transfer of cash (or other assets) as an alternative to the transfer of equity instruments. Similarly, guidance is provided on share-based payment transactions where the counterparty has a choice of settlement with cash alternatives. For cash-settled share-based payments, the amendments explain how the fair value of liabilities arising from the transaction should be measured, including how vesting conditions are taken into account.
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Uncertain tax positions
Based on IFRIC 23 Uncertainty over Income Tax Treatments, new guidance in Section 29 Income Tax explains how to account for uncertainty over whether a tax treatment will be accepted under tax law. The accounting treatment depends on whether it is probable or not that the tax authority will accept the uncertain tax treatment. To support those entities that could only apply the new requirements with the use of hindsight, entities may choose to apply the amendments retrospectively (if possible without the use of hindsight), or by applying a modified retrospective approach.
Further changes from 2026
While arguably less substantive, there are several more sections of FRS 102 impacted by the PR24 amendments, including (but not limited to) those highlighted below.
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Section 6 Equity
Requires separate disclosure of dividends paid (in aggregate and per share) for each class of share capital.
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Section 10 Accounting Policies, Estimates and Errors
Provides enhanced guidance on accounting estimates, including examples, and guidance on distinguishing between a change in accounting estimate and a change in accounting policy.
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Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments
Includes removal of the option to newly adopt the recognition and measurement requirements of IAS 39 Financial Instruments: Recognition and Measurement (unless it is necessary to achieve consistency with the consolidated financial statements). When the recognition and measurement requirements of IFRS 9 Financial Instruments are adopted, additional disclosures relating to expected credit losses are required.
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Section 14 Investments in Associates, and Section 15 Investments in Joint Ventures
Requires impairment testing to take into account any long-term loans that in substance form part of the net investment in an associate or joint venture.
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Section 18 Intangible Assets other than Goodwill
Clarifies the treatment of assets with both tangible and intangible elements eg, when software is an integral part of the related hardware, it is treated as property, plant and equipment.
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Section 33 Related Party Disclosures
Requires disclosure of related party contingent commitments.
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Section 34 Specialised Activities
Provides enhanced guidance in respect of biological and heritage assets, service concession arrangements and incoming resources from non-exchange transactions.
Changes for small entities
The PR24 amendments to recognition and measurement requirements will equally apply to small entities (with some exceptions) that are both eligible for, and choose to apply, the small companies regime. FRS 102 Section 1A Small Entities sets out the presentation and disclosure requirements for such entities. As part of the PR24 amendments, changes have been made to Section 1A to clarify the disclosures required.
A key change is the introduction of additional mandatory disclosures, some of which were previously only encouraged, thereby intending to reduce the amount of judgement needed when determining the disclosures required to give a true and fair view.
A key change is the introduction of additional mandatory disclosures, some of which were previously only encouraged
The additional mandatory disclosures include information about leases, going concern, current and deferred tax, share-based payments, performance obligations under revenue contracts with customers and provisions and contingencies. Small entities will also be required to disclose dividends declared and paid or payable.
A further notable change is that all related party transactions, as defined more widely in Section 33 of FRS 102, must now be disclosed (including all transactions with a UK small entity’s shareholders, directors and other entities under common control). This will remove the judgement that was previously required to identify those related party transactions that were material and had not been conducted under normal market conditions. For some entities this may result in additional disclosures.
Changes for micro-entities
As well as FRS 102, the PR24 amendments bring changes to FRS 105 The Financial Reporting Standard applicable to the Micro-Entities Regime.
In terms of the headline changes, the five-step revenue recognition model, with simplifications, will be brought into FRS 105. Lease accounting requirements, however, remain unchanged and lessees will continue to distinguish between finance and operating leases based on whether substantially all of the risks and rewards of ownership transfer to the lessee.
Beyond the headline changes, to maintain consistency with FRS 102, consequential amendments are made to other FRS 105 sections. Section 2 Concepts and Pervasive Principles has been rewritten, and other updates have been made in respect of accounting estimates, financial instruments, provisions and contingencies, share-based payments, impairment of assets and specialised activities.
Practical tips to prepare
Entities will need to identify those areas of the financial statements that will potentially be affected by the other amendments and determine the impact. The diagram below contains some practical tips to help entities prepare.
In summary
While the changes to revenue recognition and lease accounting may be grabbing the headlines, it’s clear that there are numerous other changes to FRS 102 and FRS 105 that entities, and their advisers, need to get to grips with. Familiarising yourself with the changes and considering the impact for your entity or clients is the all-important first step in ensuring a smooth transition.
Further resources
Access ICAEW's Changes to UK GAAP hub for a range of content to help you prepare for the upcoming changes. Resources include a dedicated factsheet, helpsheets, webinars, and more By All Accounts articles. Further guidance and events are planned as we get closer to implementation, including an upcoming webinar in May 2025 that focuses on the other amendments. Plus, bookings are now open for the Corporate Reporting Conference 2025, being held on 9 June, which will focus on the Periodic Review 2024 amendments.
