UK and Ireland accounting standards are subjected to periodic reviews that take place at least every five years. 

As part of the review process, the Financial Reporting Council (FRC):

• seeks initial views from stakeholders on areas that might be considered during the review, including comments and suggestions relating to existing requirements; 
• considers recent reporting developments, including new or emerging issues or transactions;
• publishes a Financial Reporting Exposure Draft (FRED) of the proposed amendments for public consultation; 
• reviews the feedback received after the public consultation and makes changes as appropriate; and
• publishes final revised standards. 

The reviews focus on FRS 102 The Financial Reporting Standard applicable in the UK and Republic Ireland, but other standards in the suite of UK GAAP standards are also considered. A separate review of FRS 101 Reduced Disclosure Framework takes place on an annual basis to enable the FRC to consider additional disclosure exemptions as IFRS Accounting Standards evolve.

With FRS 102 initially having been effective from 1 January 2015, the first periodic review was completed in December 2017. The related amendments became effective for accounting periods beginning on or after 1 January 2019. 

The second periodic review is now in progress. In December 2022, the FRC published its proposed amendments to UK GAAP for public consultation in FRED 82 Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review. FRED 82 sets out proposed amendments to FRS 102, FRS 103 Insurance Contracts, FRS 104 Interim Financial Reporting and FRS 105, the Financial Reporting Standard applicable to the Micro-entities Regime.

The aim of the periodic review is to ensure that financial reporting standards are up to date, reflect the latest developments in corporate reporting and continue to require high-quality reporting from entities within their scope.

The FRC aims for consistency with IFRS Accounting Standards but seeks to ensure that requirements are proportionate to the size and complexity of the entities applying the standards. The periodic review provides the FRC with an opportunity to assess the standards against its key objectives with the benefit of input from various stakeholders.

The FRC also aims to keep FRS 102 broadly stable between its comprehensive reviews and therefore reviews the standard on a periodic basis rather than continually issuing amendments.

The major amendments proposed in FRED 82 impact revenue recognition and lease accounting.

Revenue recognition

FRED 82 proposes the introduction of a five-step model for revenue recognition in both FRS 102 and FRS 105. The model is based on the requirements of IFRS 15 Revenue from Contracts with Customers, but with simplifications aimed at ensuring the requirements remain cost-effective to apply. 

The proposed amendments require revenue to be recognised when the entity satisfies a promise to transfer goods or services to a customer. The goods or services are transferred when the customer has control of them, and the term ‘promise’ is defined as ‘an obligation to transfer a good or service (or bundle of goods or services) that is distinct’.

Lease accounting

The lease accounting requirements in FRS 102 are also set to change significantly. FRED 82 proposes an IFRS 16 Leases-based model that requires lessees to recognise all leases on the balance sheet (subject to limited exemptions relating to short-term and low-value leases). Similar to the revenue recognition proposal, the leasing section offers a number of largely optional simplifications to the IFRS requirements. 

Under the proposals, lessees are required to recognise an asset reflecting their right to use the leased asset for the lease term and a lease liability reflecting their obligation to make the lease payments. 

The FRC does not propose bringing this change into FRS 105 and micro-entities will continue to apply the existing model of classifying all leases as either finance or operating leases.

Yes, the FRC proposes a number of other key amendments to FRS 102 including:

• revisions to the standard’s Concepts and Pervasive Principles to reflect the IASB’s updated Conceptual Framework for Financial Reporting;
• greater clarity for small entities that apply Section 1A of FRS 102 on the disclosures required to give a true and fair view;
• a new section on fair value measurement based on the principles of IFRS 13 Fair Value Measurement; and
• the removal of the option for entities to newly adopt the recognition requirements of IAS 39 Financial instruments: Recognition and Measurement. However, those already applying this option may continue to do so for now.

Several other minor changes are also proposed to FRS 102.

No. While the main focus of the periodic review is on FRS 102, FRED 82 impacts the whole suite of UK GAAP standards. 

In particular, FRS 105 is set to be impacted significantly by the proposals. As mentioned above, the draft amendments include revisions to Section 18 Revenue to reflect the IFRS 15 five-step model for revenue recognition. Section 2 Concepts and Pervasive Principles of FRS 105 has also been updated. 

The draft amendments to the remaining FRSs are largely consequential amendments as a result of the key proposals. 

The proposed effective date for these amendments is accounting periods beginning on or after 1 January 2025. Early adoption will be permitted provided all amendments are applied at the same time.

FRED 82 includes a number of questions for stakeholders to consider when providing feedback. These ask for views on the major proposed amendments, as well as the proposed effective date and transitional provisions.

You can send your comments directly to the FRC by emailing ukfrsperiodicreview@frc.org.uk. Alternatively, you can contribute to ICAEW’s response by sending your views to frf@icaew.com.

The deadline for responding to the consultation is 30 April 2023.

The FRC has not confirmed when the amendments will be finalised but has said it will aim to give preparers at least 12 months to implement the proposals following publication of the final amendments.

With the proposed effective date being accounting periods beginning on or after 1 January 2025, publication of the final amendments can be expected towards the end of 2023.