FRC update on the periodic review of FRS 102 and other FRSs
On 29 September 2023, the Financial Reporting Council (FRC) published a project update on its periodic review of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs in the suite of UK and Ireland GAAP.
FRED 82 Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review was published on 15 December 2022. The comment period on FRED 82 closed on 30 April 2023. This article provides a brief update as to where the FRC are up to.
During the comment period, the FRC received 54 response letters making various comments on the proposals. The FRC analyse all responses received and they have confirmed that it is likely that the final amendments to UK and Ireland accounting standards will differ in a number of respects from the FRED 82 proposals.
Significant changes
One of the most notable proposed changes is in respect of on-balance sheet lease accounting. FRED 82 does not propose any changes to FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime in respect of on-balance sheet lease accounting and it is expected that this standard will continue to distinguish between a finance lease and an operating lease based on whether the lessee or lessor retains the risks and rewards incidental to ownership of the asset subject to the lease.
The FRC are proposing to change FRS 102, Section 20 Leases to require leases for lessees to be reported on-balance sheet with certain limited exceptions in respect of short-term leases and leases of assets of low value.
Opinion is divided on whether the FRC should require leases for lessees to be reported on-balance sheet. Concerns the FRC have cited in their update surround the costs of aligning FRS 102 with IFRS 16 Leases principles, especially for smaller companies and charities.
The FRC have confirmed that they are continuing work in this area. It is doubtful that the FRC will abandon this proposal in its entirety, but they are reconsidering how the model is proportionate and understandable for preparers of financial statements under FRS 102. For example, by perhaps clarifying the scope of the recognition exemption for leases of low-value assets.
The other significant change is in respect of revenue recognition. The FRC propose to change both FRS 102, Section 23 Revenue and FRS 105, Section 18 Revenue to incorporate a five-step model approach to revenue recognition. FRED 82 includes completely new revenue recognition sections for both FRS 102 and FRS 105.
Respondents have generally supported the FRC’s proposals for a new revenue recognition section in each standard; although there is some concern about the proportionality of the amendments in FRS 105. In this respect, the FRC continue to work on the five-step model approach in light of the feedback they have received and are seeking further simplifications to ensure the revenue recognition principles in FRS 105 remain proportionate.
Effective date
The FRC originally planned to require the amendments arising from the periodic review to be effective for periods commencing on or after 1 January 2025. However, this date has now been pushed back a year so the amendments arising from this periodic review will not have an effective date before 1 January 2026. The FRC expect to publish the final amendments to FRS 102 and other FRSs in the first half of 2024.
Conclusion
It is expected that the FRC delaying the effective date for a further year will be welcomed and is consistent with some respondents who wished for a longer implementation period following publication of the amendments.
Category: Accounting and standards
