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ICAEW submits views on the upcoming periodic review of FRS 102

ICAEW’s Financial Reporting Faculty has recently submitted comments to the Financial Reporting Council (FRC) outlining the matters we believe should be considered as part of the next periodic review of UK GAAP.

This is the second major review of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland since the standard was introduced in 2015 and ICAEW has welcomed the opportunity to comment at this early stage of the process.


While ICAEW believes that FRS 102 is generally working well our response outlines a number of narrow-scope issues relating to existing requirements where further consideration is needed.  These matters include, for example, the need for additional guidance for preparing financial statements on a non-going concern basis, accounting for negative goodwill in business combinations and conditions for merger accounting.

Incorporating new IFRSs into UK GAAP

A key focus of ICAEW’s response is on the potential introduction of the new IFRSs (IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases). We believe now is the right time to decide if and how they might be incorporated into FRS 102. When making decisions about incorporating the new IFRSs into UK GAAP we have particularly emphasised the importance of proportionality, cost-benefit considerations, and the need for sufficient time for companies to prepare for implementation. A summary of our views on each standard is included below. 

Introducing IFRS 15
At this stage, we broadly support the introduction of certain elements of IFRS 15, on a simplified basis, provided it is proportionate and meets cost-benefit principles. In particular we have emphasised the need for making the language clearer and the requirements simpler and easier to understand. 

Introducing IFRS 16
Similarly, we are generally supportive of the introduction of IFRS 16, again, with substantial simplifications applied. The conceptual basis that a lease commitment fulfils the definition of a liability and should be on the balance sheet is now widely accepted and should, in our view, be brought into FRS 102. We have proposed several suggestions for how IFRS 16 might be simplified including, for example, in relation to discounts rates and lease modifications.

Introducing IFRS 9
At this stage, we are not convinced there are clear benefits to bringing IFRS 9 into FRS 102 and while there might be a possible exceptions, for example the expected credit loss model might be considered suitable for certain types of entities, the general view is that IFRS 9 is largely not appropriate for FRS 102 users.

New and emerging transactions

ICAEW’s response highlights two emerging matters that we believe the FRC needs to consider as part of this periodic review. These are:
- accounting for climate related matters; and 
- accounting for crypto assets/liabilities. 

These matters are consistently raised as areas requiring further clarity, whether through standard-setting activity or additional guidance. We have recommended that the FRC considers these matters sooner rather than later as waiting for the subsequent periodic review might be too late. 

Small companies and micro-entities

While changes to UK company law are outside the remit of the FRC and beyond the scope of this periodic review, we believe the UK’s exit from the EU provides a fresh opportunity to revisit the legislative framework underpinning the reporting for small entities and micro-entities. We have urged the FRC to use its influence to encourage positive changes to company law for small company and micro-entity reporting. We believe that setting out a vision for the future of small company reporting may help guide the FRC on key decisions within this periodic review, for example, whether or not changes to FRS 102 arising from the introduction of the new IFRSs should also be applied to FRS 105. 

Next steps

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, although ICAEW has suggested that the FRC considers a more generous timetable for any changes arising from the new IFRSs.

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 16 into FRS 102.

For further guidance and resources on UK GAAP see the Financial Reporting Faculty’s UK GAAP hub at www.icaew.com/ukgaap.