Introduction
This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members with the practical implications of the changes to FRS 102 Section 2 Concepts and Pervasive Principles, including Section 2A Fair Value Measurement, and Glossary definitions introduced by the Periodic Review 2024 amendments to FRS 102 reflected in the published FRS 102 (September 2024).
Please note that this helpsheet does not cover changes to definitions relating to lease or revenue accounting, which are covered in more detail in the following guidance:
- Corporate Reporting Faculty factsheet: FRS 102 Leases (effective 2026)
- Corporate Reporting Faculty factsheet: FRS 102 Revenue from contracts with customers
Members may also wish to refer to the following related guidance:
- Helpsheet Hub page: Implementation of the changes to FRS 102
- Corporate Reporting Faculty Hub page: Changes to UK GAAP
Overview
In March 2024, the FRC published its Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review 2024 (‘the amendments’), following its public consultation in FRED 82 issued in December 2022.
The majority of the amendments are mandatorily effective for accounting periods beginning on or after 1 January 2026, with early application permitted provided all amendments are applied at the same time.
FRS 102 Section 2 and the Appendix on fair value measurement have been completely replaced by the Periodic Review 2024 amendments, alongside some substantial changes to the Glossary definitions. This helpsheet highlights the key changes most likely to have a significant impact and explores their practical implications.
Section 2A – fair value measurement
This section has been completely re-written in FRS 102 (2024), and it is now generally consistent with IFRS® 13. It applies to all other sections of FRS 102 where they require or allow fair value measurement, with the exception of share-based payments (Section 26) and lease accounting (Section 20) which retain their own guidance on determining fair value.
More detailed guidance on applying and measuring fair value is provided in the new section, but the key changes and those we anticipate will have the most impact for preparers are covered below.
Change to definition of ‘fair value’
FRS 102 (January 2022) (‘old FRS 102’) defined fair value as “The amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm's length transaction.”
FRS 102 (September 2024) (‘new FRS 102’) defines fair value as “The price that would be received to sell an asset or paid to transfer a lability in an orderly transaction between market participants at the measurement date.”
The key impact from this change in wording will be to liabilities held at fair value as this now requires the valuation to be based on the ‘transfer value’ rather than the ‘settlement value’. This means considering the effect of ‘non-performance risk’ – ie, the risk that the entity itself will not be able to settle the liability (new FRS 102 para 2A.13). This risk was disregarded under old FRS 102 and could therefore lead to a different fair value measurement for liabilities under the amended standard.
Concept of principal or most advantageous market
In line with the guidance under IFRS® 13, new FRS 102 introduces the concepts of ‘principal market’ and ‘most advantageous market’. The measurement of fair value now assumes that a transaction is taking place in either “the market with the greatest volume and level of activity for the asset or liability” (principal market) or, in the absence of a principal market, “the market that maximises the amount that would be received to sell the asset or minimises the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs” (most advantageous market) (para 2A.5 and Glossary definitions).
The inclusion of these concepts is not anticipated to have a significant impact on the measurement of fair value for the majority of preparers, as it is likely most fair value measurements were previously based on markets which would meet one of these definitions, however care should be taken to ensure compliance with this change.
Fair value methodology
Whilst the description of the fair value methodology in new FRS 102 para 2A.15 is worded differently than in old FRS 102 para 2A.1, the three approaches are broadly the same, and subject to application of the additional guidance in Section 2A, is not expected to give a different method or result than the previous version of the standard.
Section 2 - concepts and pervasive principles
This section has also been completely replaced in new FRS 102, aligning it closely with the International Accounting Standards Board’s (IASB) Conceptual Framework for Financial Reporting (2018), with the aim of providing global consistency and to aid future standard setting. The key changes are set out below:
Objective and Qualitative characteristics
The overall objective of financial statements remains unchanged – “to provide financial information about the entity that is useful for decision-making by a wide range of users who are not in a position to demand reports tailored to meet their particular information needs.”
The qualitative characteristics of information in financial statements has been reorganised and ‘substance over form’, ‘reliability’ and ‘completeness’ from old FRS 102 have now been combined into one concept of ‘faithful representation’. ‘Verifiability’ has been added in para 2.21 and helps to satisfy users that the information faithfully represents the economic event it purports to represent.
Guidance on recognition and derecognition
Recognition of assets, liabilities, income and expenses is now based on when the definitions and the criteria for recognition in the relevant section of the standard are met (new FRS 102 paras 2.50 and 2.51), as opposed to when the criteria of probability of economic flow and reliable measurement are met (old FRS 102 para 2.27). The definitions are discussed in more detail later in this helpsheet.
Further guidance has been added to this section which goes into greater detail than old FRS 102 on concepts which are very similar to probability of economic flow and reliable measurement, therefore these will still form part of the assessment of recognition and minimal impact is anticipated as a result.
Derecognition was not previously included within Section 2, however this has now been added. The paragraphs detailing derecognition in specific circumstances throughout the rest of the standard (for example financial assets and liabilities and property, plant and equipment), remain, therefore these new paragraphs (2.62 to 2.64) complement rather than replace the existing requirements.
Consequences
In less complex scenarios, we would not anticipate any differences arising from the replacement of Section 2, nevertheless awareness of the differences is important to ensure compliance.
Where accounting policies are being developed in the absence of specific guidance in line with paragraph 10.4, the additional detail on the concepts and principles provided should assist with producing more relevant and reliable policies.
Glossary definitions
The changes to the definitions provided in the FRS 102 Glossary can be divided into three categories – deletions, additions, and amendments.
A number of definitions that have been removed from the Glossary have either been presented within paragraphs in the body of new FRS 102 or removed due to the changes to revenue and lease accounting. Aside from lease and revenue accounting, we do not anticipate that any of these removals will have any effect on application of the standard as the guidance is unchanged.
The most significant additions and amendments are covered below, alongside commentary on the expected practical impact. Please note new definitions relating to fair value discussed above and those connected with the changes to revenue and lease accounting have not been included here as detailed guidance can be found above at Guidance on recognition and derecognition.
Added definitions
| Definition | New FRS 102 |
Practical impact |
|---|---|---|
| Economic resource |
A right that has the potential to produce economic benefits. |
Included in both the amended definitions of asset and liability and used throughout new FRS 102 Section 2. Impact is expected to be minimal in less complex scenarios. |
| Net settlement feature (of a shared-based payment) |
A term of a share-based payment arrangement that permits or requires the entity to withhold the number of equity instruments equal to the monetary value of the employee’s tax obligation from the total number of equity instruments that otherwise would have been issued to the employee upon exercise (or vesting) of the share-based payment. Such terms may exist when tax laws or regulations oblige an entity to withhold an amount for an employee’s tax obligation associated with a share-based payment and transfer that amount, normally in cash, to the tax authority on the employee’s behalf. |
Additional guidance added to new FRS 102 for equity-settled share-based payment schemes which are settled either partly or in full by cash as an alternative (para 26.13A). This is not expected to result in different accounting from old FRS 102, although the guidance is new. For further information see FRS 102 amendments - other changes. |
| Tax base |
The amount that:
|
This is used in new FRS 102 para 29.11 and has the same meaning in that context as the wording in old FRS 102 para 29.11. It appears to have been included to enhance the readability of the paragraph. |
| Uncertain tax treatment |
A tax treatment for which there is uncertainty over whether the relevant taxation authority will accept the tax treatment under tax law. For example, a tax treatment that relies on an interpretation of the law that is not in accordance with the way in which the taxation authority is known to interpret the law. |
New accounting requirements added by the amendments for uncertain tax treatments (paras 29.17A to 29.17C). For further information see FRS 102 amendments - other changes. |
Amended definitions
| Definition | Old FRS 102 |
New FRS 102 |
Practical impact |
|---|---|---|---|
| Active market |
A market in which all the following conditions exist:
|
A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. |
The most significant expected impact would be on the restriction on the use of the revaluation model for intangible assets (para 18.18B) as fair value must be determined in relation to an active market. Practically, whilst the definition appears less restrictive, this may still not open up the revaluation model to significantly more preparers. |
| Asset |
A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. |
A present economic resource controlled by the entity as a result of past events. |
No widespread practical effects are expected. ‘Economic resources’ has been added to the Glossary and includes the concept of “potential to produce economic benefits.” |
| Expenses |
Decreases in economic benefits during the reporting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity investors. |
Decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to equity investors. |
No widespread practical effects are expected as wording has been simplified by utilising other defined terms. |
| Income |
Increases in economic benefits during the reporting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity investors. |
Increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity investors. |
No widespread practical effects are expected as wording has been simplified by utilising other defined terms. |
| Liability |
A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. |
A present obligation of the entity to transfer an economic resource as a result of past events. Footnote 62: For the purposes of Sections 21 and 22, a liability is a present obligation of the entity arising from past events, the settlement |
No widespread practical effects are expected as wording has been simplified by utilising other defined terms. The addition of the footnote prevents unintended consequences on the accounting for provisions and equities and liabilities. |
| Revenue |
The gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. |
Income arising in the course of an entity’s ordinary activities. |
No widespread practical effects are expected as wording has been simplified by utilising the defined term ‘income’ which excludes contributions from equity investors. |
If in doubt seek advice
ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.
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Update History
- 14 Oct 2026 (12: 00 AM BST)
- First published
- 14 Oct 2026 (12: 00 AM BST)
- Changelog created